Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 1 Cash Management and Payments Quantifying the Value of Intra-Day Liquidity Management Laurent Franceschetti Senior Consultant

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 2 Cash Accounts Custodians Correspondents Central Bank Bank

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 3 Current Trends Clients want faster execution Clients want more transparence Settlement time is going down (T, T+1, T+3) Integration between Securities and Cash Management (accounts with custodians, repo, etc.) European and Global Correspondents How to perform the cash management during the day?

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 4 Problem How can we manage the cash accounts with all correspondents in a way to optimize the management of liquidity?

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 5 The Tools of Cash Management Balances (Internal) Advices (Internal) Queries Payments in and out

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 6 Difficulties The Back Office (accounting) application is not aware of the actual positions with our correspondents — it does not know what is outstanding. –were our instructions really received and executed? –When will they be executed? –Inbound instructions and payments? What is important for Cash Management is what the correspondent says our balance is, not what our accounting say it is.

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 7 Reconciliation Will Not Solve the Problem Reconciliation comes after: focused on exactness and it is our image –In case of discrepancy => investigation and claims. Cash Management is now: focused on timeliness and completeness. This is what our counterparty ’s image is. –In case of discrepancy => admit the information from the counterparty.

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 8 A Simple Liquidity Model Credit AccountsDebit AccountsInterbank +1.5 % % + 4 %

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 9 Absolute (Hypothetic) Credit AccountsDebit AccountsInterbank +1.5 % % + 4 %

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 10 But Can We Improve? Credit AccountsDebit AccountsInterbank +1.5 % % + 4 %

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 11 A Situation

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 12 The Three Cases

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 13 What We Get

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 14 First Conclusion Yes, it is definitely worthwhile to move around funds in order to improve the management of liquidity.

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 15 Why is This Difficult ? 1.Inertia : funds cannot be moved arount at infinite speed. It takes time to place orders and to execute them. 2.Friction : moving funds around has a cost. Under a certain amount, it is not worth it. 3.Uncertainty : how do you know exactly what you have on each account or what you will need? 4.Minima: a « cushion » must be left, to cover against risk.

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 16 Improving on Inertia and Friction Fast Treasury Flow: Automate generation of payments and account-to-account movements. Improving internal STP Selecting correspondents with good service and good STP Cutting costs of payments down

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 17 Improving on Uncertainty Know what you have on cash accounts: –Currently this information may or may not be available on-line -- too hard anyway to follow them up. –MT950/940 balances are available before beginning of day –The solution is to automatically follow-up the flow of financial messages.

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 18 A Good Method Correspondent MT950 Statement of Account Synchro Payment Messages  Bank

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 19 What a Liquidity Management Tool Does Provides an information centre on accounts (estimated balances) Allows to easily move funds around in order to avoid debit positions and invest on interbank market. Allows to easily place funds on the interbank market.

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 20 Conclusion Yes, it is financially prudent to efficiently manage intra-day liquidity. The solution is to use a Liquidity Management Tool.

Consulting for Banking Automation Proprietary and Confidential not to be re-used or distributed without prior agreement from Laurent Francescetti. 21 Thank You for Your Attention. Laurent Franceschetti SettleNext 13, rue Fort-Barreau CH-1201 Geneva Tel