Review and optimization of FX OTC product’s business processes and settlement

From process and settlement redesign to developments in the Treasury Front and Back Office systems.

According to the international standards, FX deals are delivered and settled on the client account as like interbank hedge deals. Besides that, an FX trade must comply with ISDA standards, i.e. each party can apply either the single, multiple and cross product payment netting. A Hungarian Bank chose Advocate consultants to analyse business processes and settlement mechanism and provide new business workflows, legal documents and system developments.

The challenges of international Foreign Exchange markets

The task of analysing the current trading and back office-related processes had to be done to be able to optimise the future workflow. After several interviews with the main stakeholders, understanding the requirements, the concept of the new trading and settlement mechanism was conceived, allowing Erste Bank Hungary to streamline and renew its business processes regarding Treasury customer on-boarding.

Making sure the FX products and processes must be in line with international standards, a new solution was designed considering the following aspects:

  • Optimize and simplify the trading workflow.
  • Redesign the FX-related processes and workflows involving the Treasury Back and Middle Office.
  • Review and modernize the settlement workflow.
  • Review and modify investment services agreements, deal confirmations and other legal documents.
  • Provide the necessary developments for front-office, back-office systems and interfaces.

Modernization of workflows and introducing ISDA standard cross product payment netting for FX products

The complex task of introduction ISDA standard cross product payment netting for FX products and system development was done by the help of our consultants who were responsible for the whole requirements analysis, system specification, testing, deals migration and roll-out tasks.

In order to simplify the trading and settlement mechanism of FX deals Advocate’s advisor analysed front- and back-office processes and provided Business Requirements Documents for front- and back-office systems and trading applications. As the Bank chose the cross product payment netting for FX products, many changes were needed to be implemented in the Treasury Back and Front Office systems, responsible for the dealing and the settlement of the deals.

After that the Functional Specifications were created with the help of Advocate consultants, which concerned the necessary developments in the systems, the changing of data mapping rules in the related interfaces and finally, the new processes for the deal settlement.

After the roll-out of developments into the UAT environment, our consultants took part in User Acceptance Test by testing the delivered application components and interfaces, preceeded by designing test cases, providing test scenarios.

Besides driving and coordinating the changes in the Bank's IT landscape, the consultant also reviewed the legal environment and documents of Erste Bank Hungary and modified the investment services agreements with legal and business departments, took part in review of deal confirmations and provided the material for informing Treasury customers about the implemented changes.

Successful migration and introduction of the new Payment Netting

The final remaining step was the migration of deals in Front- and Back office systems, because of the netting changes, the already concluded FX deals had to be transformed according to the modified rules of the settlement and making sure they would be compatible with the new version of the systems. Our consultant was responsible for the preparation and schedule of the migration, after the precise specification for the migration rules were worked out.

At the end of the project, the project team provided the harmonized settlement of FX deals, business oriented and renewed trading workflows.

The effect of implemented developments decreased the manually operated processes in back-office department and optimized the utilization of settlement limits of Treasury customers.

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