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The Evolution of Treasury Technology: 2000 vs. 2014

Over the last decade and a half, improving Treasury and Accounting technology has allowed corporations to streamline operations, eliminate redundant work and markedly improve controls. This post will examine two key areas in which Treasury is benefiting from technological advances that were essentially unheard of as late as 2000: hedge accounting and derivative lifecycle management.

In the hedge accounting space, 2000 was the era of the inflexible, complicated spreadsheet. Designations, effectiveness testing, exposure gathering, hedging activity, trade management and trading were all prepared and managed in one or more spreadsheet files, handled (typically) by a single person. While this strategy often met corporations’ minimum requirements, it offered little in the way of controls, complicated the audit process and was only well understood by one or two employees – a precarious “single point of failure” on which the entire system rested.

Today, holistic hedge accounting software solutions – like Hedge Trackers’ Capella Foreign Currency – are rapidly becoming the norm. Such systems are significantly more capable than spreadsheet-based legacy processes, providing:

  • More accurate, actionable information, sooner
  • Vastly improved regulatory audit and SOX controls
  • Easier management disclosures and compliance
  • In-depth analytics on hedge program effectiveness
  • Direct integration with third-party trading portals

In short, modern hedge accounting software provides all the information that 2000’s spreadsheets did, plus an added layer of analysis and integration, in less time, with significantly less effort.

Not to be understated is the ease of use and continuity that proper hedge accounting software suites provide. Rather than locking critical information and practices in arcane spreadsheets understood by only a few individuals, solutions like CapellaFX offer attractive, intuitive user interfaces, shallow learning curves and quick adoption times. In some cases, such software even makes it possible for a trusted hedge program solution provider to temporarily provide outsourcing of a company’s hedge accounting during times of flux with essentially zero transition time.

Derivative Trading Technology

Of course, streamlined hedge accounting means little without an efficient way to actually make derivative trades happen. In the early 2000s, that process usually went something like this:

  • Pre-trade approvals required hand signatures or saved email messages.
  • A Treasury department employee called multiple banks on multiple phone lines, then tracked real-time bids on a spreadsheet.
  • Once a rate was agreed upon, the trade details were sent to someone else, who confirmed and/or approved it.
  • After a phone call to the bank, contract details were sent back to Treasury for managing the trade in a manual spreadsheet.

If that sounds cumbersome, it’s because it was. Numerous hands touched every piece of data, and a number of systems – none truly integrated – were used for every trade.

Fortunately, hedge accounting software and online derivative trading portals (like FXall and 360T) have dramatically reduced the inefficiencies once inherent to the process.

Today, rather than manually bidding with multiple banks, trades can be created in the hedge accounting software program or trading portal, and the best rate is captured with the click of a mouse. Managers can approve proposed trades electronically, and direct integration between software suites and online portals makes the actual trade almost effortless. Better still, trade confirmation, tracking and accounting designation handoffs are essentially automated.

The Bottom Line

While all-in-one workstations have been around for years, best-in-class tools such as CapellaFX are not yet universal; however, their use has already helped many corporations’ Treasury and Accounting departments operate leaner, more efficiently and more effectively. By reducing the prevalence of manual processes, integrating disparate systems where possible and replacing a “single point of failure” with a “single source of truth,” modern software and technology-driven derivative trading practices have dramatically changed the world of treasury since 2000.

What’s to come in the next 14 years? We look forward to finding out.