Cash & Liquidity Management

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‘Every little helps’ Achieving STP and Treasury Control at Tesco plc

Achieving STP and Treasury Control at Tesco plc

Straight Through Processing (STP) and optimal control over treasury processes is an objective of every corporate treasurer. In this interview, Helen Sanders, Editor, talks to Matthew Shelley, Treasury Operations Manager at Tesco plc, one of the world’s leading international retailers, about the benefits of e-trading and STP at Tesco.

Our primary motivation for e-trading was to achieve genuine STP in our dealing environment, which I'm delighted to say we now have.

How is Tesco’s treasury department structured?

The aim of our treasury department is to be ranked within Europe’s top five and we are certainly moving in the right direction. Although Tesco’s overseas business has continued to expand during the last decade, our team still consists of 12 individuals, across four main activities. A four-strong dealing team runs cash management and foreign exchange for the UK and overseas operations. Regional treasurers act as the interface between Tesco as a corporate entity and its various subsidiaries, promoting the treasury agenda in each country where the group operates. A middle-office team handles systems, management information and analysis, and two staff are designated to look at more complex pieces of funding. Outside Tesco’s treasury, accounting, settlement and confirmations are handled by Tesco’s back office team.

FX trading at Tesco is a mixture of liquidity hedging, goods for resale hedging and balance sheet hedging. Our liquidity hedging is primarily short-term as a result of mismatches in forecasting. For goods for resale hedging, we have different hedging strategies depending on the product (e.g. petrol versus food). Where appropriate, we aim to do all trades over dealing portal 360T. However, we recognised that electronic trading is a tool which needs to be used wisely and some currency pairs are best suited to telephone trading.

Our money market activity is based around 6-month cash flow forecasts. We therefore tend to have short-term (typically overnight) requirements to deposit and borrow funds with ECP, USCP and our MTN programs supporting liquidity. All this activity is managed through 360T, as we can now invest in money market funds through 360T/ICD.

What was your motivation for e-trading?

At the outset, our primary motivation for e-trading was to achieve genuine STP in our dealing environment, which I’m delighted to say we now have. In fact, once a trade has been executed on 360T, our position in AvantGard Quantum (Tesco’s TMS - treasury management system) is updated within a few seconds without the need for any manual intervention. Secondary objectives included improving our dealing/audit controls, operational efficiency, and increasing the price tension across our bank counterparties. In our opinion, FX trading has become highly commoditised (particularly the vanilla instruments) and we believed that more competition in this area would offer tighter dealing margins. This has certainly been the case. With the benefit of hindsight, greater transparency and the ability to share our FX and MM business evenly across multiple counterparties have been other motivational factors for e-trading.

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