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CHAPTER 2
TREASURY ORGANIZATIONS AND
STRUCTURE
TREASURY ORGANIZATION AND STRUCTURE
• It refers to the organizational structure of Treasury department.
• In a small sized organization, there is no treasury department at all. The
responsibilities of treasury are handled by the Accounting and Finance
Department.
• Since Treasury deals with a lot of money, It is essential that there are in
built checks and balances within the organization. The Treasury
department is organized into three main divisions namely,
• the Dealing Room (Front Office),
• the Back Office (or Treasury Administration), and
• The Middle Office
1. The Front Office
• It is the face of the treasury department and primarily engages or interacts
with the external parties such as clients, investors and financial
institutions.
• This is where strategic decisions are made regarding buying, selling and
trading of Money Market Instruments, Securities, forex, Equity,
derivatives and precious metals.
• This Office performs the dealing function and is headed by the Chief
Dealer. A number of dealers work under him. A dealer may specialize in
one of the markets, i.e. foreign exchange, money market or securities
market, although, in an integrated treasury, dealers are generally familiar
with all the markets.
1. The Front Office (Contd..)
Key functions of the office include;
• Performs the preliminary functions of treasury operation
• Maintains the limit of individual deals and dealers.
• Deals in interbank transactions, currency trading, placement decisions and
funds management.
• Maintains the balance of position of currency.
• Determination of exchange rate and interest rate for money and capital
market securities.
• Maintain the liquidity position of the bank including cash reserve ratio
(CRR) management.
• Determination of the daily foreign exchange rate for cash, tom, spot and
forward transactions.
• Assessment of periodic risk exposure.
2. The Back Office
• Unlike the Front office that deals with outward facing tasks the back office
focuses on behind the scenes operations and administrative duties that help
run the treasury smoothly.
• The back office is responsible for verification and settlement of the deals
concluded by the dealers.
• The back-office staff also confirms the deals independently with the
counterparties (banks and other institutions) over phone and verifies the
authenticity of the confirmation document.
• The back office takes care of all related book-keeping and submission of
periodical returns to NRB.
• Settlement refers to receipt and payment of accounts following deals made
by dealers (i.e. sale and purchase of foreign currency, lending and borrowing,
sale and purchase of securities etc.).
• Settlement is a key function of back office as all payment and receipts must
take place on value date.
2. The Back Office (Contd..)
Key functions of the office include;
• Check the details of deal slip.
• Issuance of deal confirmation to the counter party/obtain deal confirmation
from counter parties.
• Match the deal confirmation received from counter party, if any alterations
immediately settle the differences.
• Issuance of payment instructions.
• Pass necessary accounting entries.
• File the deal ticket, both confirmations issued by counter party and by bank
systematically.
• Settlement on value date.
• Keep track of payments made/received in Nostro Account.
• Maintain up to date records and registers of all transaction.
3. The Middle Office
• Mid office is created exclusively to provide information to the
management and to implement risk management system.
• Middle office monitors exposure limits and stop loss limits to
treasury and reports to the management on key parameter of
performance.
• Transfer pricing mechanism may also be implemented through middle
office.
• Mid office is responsible for analyze and control the risk of treasury
dealings.
• Mid office take care of market and credit risks.
• It ensures that the functions of front office dealers and back office
are as per approved norm and limits.
3. The Middle Office (Contd..)
Key functions of the office include;
• Limit setting and monitoring exposures in relation to limits.
• Assessing likely market movement based on internal assessments and
external/internal research.
• Evolving hedging strategies for assets and liabilities.
• Interacting with the bank’s risk management department.
• Monitoring open currency position.
• Calculating and reporting value at risk (VAR)
• Stress testing and back testing of investment and trading portfolio.
• Risk and return analysis
• Market open position to market to access unrealized gain and losses.
Dealer
• Dealers do a host of transactions in different currencies in the interbank
market or for customers.
• In view of the large volumes, transactions offset one another leaving net open
(uncovered) positions in various currencies.
• The Treasury Front-Office maintains and manages all the forex positions of the
bank.
• Dealers may or may not cover customer’s deals immediately, depending upon
the market situation, movements and dealers views on the markets.
• If not covered, they add to the bank’s open position.
• Thus, the forex deal book of the bank is the portfolio of long and short forex
positions in different currencies.
• These positions vary in amount and maturity.
• Spot deals mature in two working days (as of trade day) and forwards may
mature any time up to six months or even a year.
Dealer’s Room
• Dealers room is the dealing room in which activities of front office is
conducted. This room is also known as trading room.
• A dealing room is a centralized establishment, usually of a commercial
bank, which is willing to offer a two way dealing price for different
currencies (and asset classes instruments) at all times even when they may
not wish to deal, all but during the prescribed business hours.
• Basically a dealer has to maintain two positions, funds position and
currency (or asset) position.
• Any successful dealing room operations manual will contain detailed deal
process or standard operating procedures.
• The more clear this manual, the more enabled dealer leading to better
operations – control, monitoring and management.
Roles and Responsibilities of Dealers
• Treasury dealer assist to manage cash surpluses generated from operating
activities.
• A treasury dealer also prepares daily or weekly cash position and forecast
reports for senior management and endures an accurate analysis of
corporate treasury holdings with banks.
Roles and Responsibilities of Dealers
The roles and responsibilities of dealers are given by following points:
1. Maintains the limit of individual deals and dealers.
2. Deals in interbank transactions, currency trading, placement decisions
and funds management.
3. Maintains the balance of position of currency.
4. Determination of exchange rate and interest rate for money and capital
market securities.
5. Maintain the liquidity position of the bank including cash reserve ratio
management.
6. Determination of the daily foreign exchange rate for cash, tom, spot and
forward transactions. Tom contract is the delivery is to take place on the
next business day when the banks are open for business.
7. Maximizing returns on cash investments.
1. The Front Office (Contd..)
Key functions of the office include;
• Cash Management; Monitoring and optimizing cash flows to ensure
adequate liquidity for daily activities while maximizing returns on surplus
funds.
• Risk Management; Identifying, evaluating and mitigating financial risks like
interest rate risk, currency risk and credit risk through hedging strategies
and other risk management tools.
• Capital Markets Activities; Cultivating relationships, with banks and other
financial entities to facilitate borrowing, lending and other capital raising
endeavors.
• Investment Management; When it comes to handling investments the goal
is to make decisions that bring in the best returns on extra cash all while
following the rules and risk limits set by regulators and the organization.
2. The Middle Office (Contd..)
Key functions of the office include;
• Risk Analysis; Using quantitative methods and tools to assess financial risks
offering valuable insights for decision making in the front office.
• Ensuring Compliance; Monitoring adherence to risk limits, regulations and
internal policies while implementing measures to address compliance risks.
• Assessing Performance; Reviewing the performance of treasury activities
and investments against benchmarks and goals providing input for strategic
decisions.
• Enhancing Processes; Identifying opportunities to streamline operations
boost efficiency and reduce risks through automation, standardization and
optimization efforts.
3. The Back Office (Contd..)
Key functions of the office include;
• Transaction Processing; This involves carrying out trades, processing
payments and reconciling accounts to ensure transactions are settled
accurately and promptly.
• Reporting and Compliance; Here financial reports are generated regulatory
requirements are monitored closely. Adherence to accounting standards
and industry regulations is ensured.
• Technology and Infrastructure; Managing treasury systems and
technological tools is key for operations, smooth data management and
automation of routine tasks.
• Documentation and Recordkeeping; Keeping records of financial
transactions, contracts and other important documents helps maintain
audit trails and facilitates responses to regulatory inquiries.

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Chapter 2 Organization Structure of a Treasury

  • 2. TREASURY ORGANIZATION AND STRUCTURE • It refers to the organizational structure of Treasury department. • In a small sized organization, there is no treasury department at all. The responsibilities of treasury are handled by the Accounting and Finance Department. • Since Treasury deals with a lot of money, It is essential that there are in built checks and balances within the organization. The Treasury department is organized into three main divisions namely, • the Dealing Room (Front Office), • the Back Office (or Treasury Administration), and • The Middle Office
  • 3. 1. The Front Office • It is the face of the treasury department and primarily engages or interacts with the external parties such as clients, investors and financial institutions. • This is where strategic decisions are made regarding buying, selling and trading of Money Market Instruments, Securities, forex, Equity, derivatives and precious metals. • This Office performs the dealing function and is headed by the Chief Dealer. A number of dealers work under him. A dealer may specialize in one of the markets, i.e. foreign exchange, money market or securities market, although, in an integrated treasury, dealers are generally familiar with all the markets.
  • 4. 1. The Front Office (Contd..) Key functions of the office include; • Performs the preliminary functions of treasury operation • Maintains the limit of individual deals and dealers. • Deals in interbank transactions, currency trading, placement decisions and funds management. • Maintains the balance of position of currency. • Determination of exchange rate and interest rate for money and capital market securities. • Maintain the liquidity position of the bank including cash reserve ratio (CRR) management. • Determination of the daily foreign exchange rate for cash, tom, spot and forward transactions. • Assessment of periodic risk exposure.
  • 5. 2. The Back Office • Unlike the Front office that deals with outward facing tasks the back office focuses on behind the scenes operations and administrative duties that help run the treasury smoothly. • The back office is responsible for verification and settlement of the deals concluded by the dealers. • The back-office staff also confirms the deals independently with the counterparties (banks and other institutions) over phone and verifies the authenticity of the confirmation document. • The back office takes care of all related book-keeping and submission of periodical returns to NRB. • Settlement refers to receipt and payment of accounts following deals made by dealers (i.e. sale and purchase of foreign currency, lending and borrowing, sale and purchase of securities etc.). • Settlement is a key function of back office as all payment and receipts must take place on value date.
  • 6. 2. The Back Office (Contd..) Key functions of the office include; • Check the details of deal slip. • Issuance of deal confirmation to the counter party/obtain deal confirmation from counter parties. • Match the deal confirmation received from counter party, if any alterations immediately settle the differences. • Issuance of payment instructions. • Pass necessary accounting entries. • File the deal ticket, both confirmations issued by counter party and by bank systematically. • Settlement on value date. • Keep track of payments made/received in Nostro Account. • Maintain up to date records and registers of all transaction.
  • 7. 3. The Middle Office • Mid office is created exclusively to provide information to the management and to implement risk management system. • Middle office monitors exposure limits and stop loss limits to treasury and reports to the management on key parameter of performance. • Transfer pricing mechanism may also be implemented through middle office. • Mid office is responsible for analyze and control the risk of treasury dealings. • Mid office take care of market and credit risks. • It ensures that the functions of front office dealers and back office are as per approved norm and limits.
  • 8. 3. The Middle Office (Contd..) Key functions of the office include; • Limit setting and monitoring exposures in relation to limits. • Assessing likely market movement based on internal assessments and external/internal research. • Evolving hedging strategies for assets and liabilities. • Interacting with the bank’s risk management department. • Monitoring open currency position. • Calculating and reporting value at risk (VAR) • Stress testing and back testing of investment and trading portfolio. • Risk and return analysis • Market open position to market to access unrealized gain and losses.
  • 9. Dealer • Dealers do a host of transactions in different currencies in the interbank market or for customers. • In view of the large volumes, transactions offset one another leaving net open (uncovered) positions in various currencies. • The Treasury Front-Office maintains and manages all the forex positions of the bank. • Dealers may or may not cover customer’s deals immediately, depending upon the market situation, movements and dealers views on the markets. • If not covered, they add to the bank’s open position. • Thus, the forex deal book of the bank is the portfolio of long and short forex positions in different currencies. • These positions vary in amount and maturity. • Spot deals mature in two working days (as of trade day) and forwards may mature any time up to six months or even a year.
  • 10. Dealer’s Room • Dealers room is the dealing room in which activities of front office is conducted. This room is also known as trading room. • A dealing room is a centralized establishment, usually of a commercial bank, which is willing to offer a two way dealing price for different currencies (and asset classes instruments) at all times even when they may not wish to deal, all but during the prescribed business hours. • Basically a dealer has to maintain two positions, funds position and currency (or asset) position. • Any successful dealing room operations manual will contain detailed deal process or standard operating procedures. • The more clear this manual, the more enabled dealer leading to better operations – control, monitoring and management.
  • 11. Roles and Responsibilities of Dealers • Treasury dealer assist to manage cash surpluses generated from operating activities. • A treasury dealer also prepares daily or weekly cash position and forecast reports for senior management and endures an accurate analysis of corporate treasury holdings with banks.
  • 12. Roles and Responsibilities of Dealers The roles and responsibilities of dealers are given by following points: 1. Maintains the limit of individual deals and dealers. 2. Deals in interbank transactions, currency trading, placement decisions and funds management. 3. Maintains the balance of position of currency. 4. Determination of exchange rate and interest rate for money and capital market securities. 5. Maintain the liquidity position of the bank including cash reserve ratio management. 6. Determination of the daily foreign exchange rate for cash, tom, spot and forward transactions. Tom contract is the delivery is to take place on the next business day when the banks are open for business. 7. Maximizing returns on cash investments.
  • 13. 1. The Front Office (Contd..) Key functions of the office include; • Cash Management; Monitoring and optimizing cash flows to ensure adequate liquidity for daily activities while maximizing returns on surplus funds. • Risk Management; Identifying, evaluating and mitigating financial risks like interest rate risk, currency risk and credit risk through hedging strategies and other risk management tools. • Capital Markets Activities; Cultivating relationships, with banks and other financial entities to facilitate borrowing, lending and other capital raising endeavors. • Investment Management; When it comes to handling investments the goal is to make decisions that bring in the best returns on extra cash all while following the rules and risk limits set by regulators and the organization.
  • 14. 2. The Middle Office (Contd..) Key functions of the office include; • Risk Analysis; Using quantitative methods and tools to assess financial risks offering valuable insights for decision making in the front office. • Ensuring Compliance; Monitoring adherence to risk limits, regulations and internal policies while implementing measures to address compliance risks. • Assessing Performance; Reviewing the performance of treasury activities and investments against benchmarks and goals providing input for strategic decisions. • Enhancing Processes; Identifying opportunities to streamline operations boost efficiency and reduce risks through automation, standardization and optimization efforts.
  • 15. 3. The Back Office (Contd..) Key functions of the office include; • Transaction Processing; This involves carrying out trades, processing payments and reconciling accounts to ensure transactions are settled accurately and promptly. • Reporting and Compliance; Here financial reports are generated regulatory requirements are monitored closely. Adherence to accounting standards and industry regulations is ensured. • Technology and Infrastructure; Managing treasury systems and technological tools is key for operations, smooth data management and automation of routine tasks. • Documentation and Recordkeeping; Keeping records of financial transactions, contracts and other important documents helps maintain audit trails and facilitates responses to regulatory inquiries.