Published: May 02, 2012
Treasurers of companies globally are increasingly leveraging the opportunity to transact foreign exchange (FX) and other transaction types online in order to obtain competitive bids from multiple banks, achieve higher levels of straight-through-processing (STP) and increase the auditability of decision-making. Jochen Hörth, Head of Treasury of Coutinho & Ferrostaal GmbH talks to the Editor about the company’s use of electronic dealing.
Coutinho & Ferrostaal was founded on 1 January 2008, the merger of the steel trading activities of CCC Steel GmbH & Co. KG and the Ferrostaal Metals Group. The merged company was recently wholly acquired by Grupo Villacero.
As a globally positioned service provider in the international steel trade, Coutinho & Ferrostaal is a leader in the industry. With more than 300 employees at 56 locations in 34 countries, the firm has comprehensive expertise in all major steel markets, and procures and markets steel in every region of the world. In addition to trading crude steel, semi-finished and other miscellaneous steel-related products, it offers its business partners an integrated and customised package of value-added services covering the entire metals supply chain, from exploring new markets to financial engineering to logistic services.
Coutinho & Ferrostaal has a central treasury function based in Hamburg, Germany, and focuses primarily on cash management and foreign exchange hedging.
Hedging foreign currency risks is an essential and integral part of our treasury activities. We take an order-based micro-hedge approach to hedging (i.e., each exposure is hedged individually), so a large number of trades need to be processed each day. To achieve operational efficiency, accuracy and control, we needed an automated approach to FX dealing that enabled a high level of STP and systems integration.
Firstly, 360T offers coverage for all the banks with which we deal FX. We have found it to be a secure, reliable platform which is easy to use. In addition, the vendor has proved to be responsive and service-oriented supplier. Another advantage is that 360T provides comprehensive information on both quoted and executed deals.
We conduct all FX dealing on behalf of Coutinho & Ferrostaal entities centrally from our Hamburg treasury function, where most of the FX hedging requirements arise. Requests from group companies (such as in United States and Canada) are sent to treasury through a separate process, although ultimately we intend to streamline and integrate this activity. Due to the nature of the steel trading business, given tolerances and timing issues, aligning order-related FX cash flows and hedges can be challenging. 360T helps to limit the additional workload arising from a high volume of hedge transactions.
Our system integration requirements were straightforward as we only needed to import deal tickets into 360T through an XML file. We have not yet automated the export of deal tickets, but this is an enhancement to our process that we may consider in the future.
Increased efficiency is a key benefit of online dealing, offering greater STP and reducing manual intervention. We have found that online dealing is robust and secure, and offers an extensive audit trail.[[[PAGE]]]
In general, the instruments we deal are limited to spot, outright forwards and swaps in EUR, USD, CAD, GBP, MXN, RON, and PON. Stop loss or take profit orders are used quite frequently. We do not use options as part of our hedging strategy.
We deal more than 90% of our transactions electronically.
We have found that our communication with the banks is now more focused on strategic issues than simply dealing with day-to-day transactions, which is a positive development. Furthermore, our micro-hedge approach, which results in multiple small transactions is not necessarily attractive to the banks’ FX traders.
For the most part, online dealing has lived up our expectations and we have achieved the improvements in accuracy, efficiency and control that we were seeking. There are some functional developments that we would like to see in the future, such as improved sort capabilities in the deal blotter and the ability to edit the comment field on individual deal tickets, but overall, the system provides excellent functionality and ease of use.
Typically, it appears to be the services offered by the banks that are the limiting factor, as opposed to the functionality of the online dealing platform, e.g., market orders and/or trading of historic rates.
Depending on the volume of deals, the underlying business model, the size of the operation and the instrument profile, online dealing enables treasurers to streamline their operations and reduce the manual workload required to process transactions. In this respect, online dealing is frequently an important tool for modern treasury functions that wish to demonstrate a high level of efficiency and control.
In 2012, implementing hedge accounting is the main project on our agenda. In addition, we will be looking to streamline our treasury operations further, including full implementation of standard settlement instructions, rationalising our account structure, further process and technology integration and the global roll-out of our treasury management system (TMS).
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