by Justin Meadows, Founder and Chief Executive, MyTreasury
The level of market penetration of MMF portals in Europe has lagged significantly behind that in the US. This is a reflection of both their later introduction in Europe and a relatively slow rate of growth since then. However, during the last 12 months this position has changed significantly and many organisations that have not previously seen the need for a portal have either already moved across to electronic trading or are in the process of doing so. To understand why this shift has come about we need to look at the key business drivers facing both the investor and fund provider sides of the industry and see how these have pushed both sides towards an increase in the use of portals.
Investor drivers and benefits
As the level of financial stress has risen increasing attention has been focused on the ability to ensure compliance with the full range of treasury policies.
Corporate treasuries have always been regarded as cost centres rather than profit centres and as the economic environment has become tougher for everyone the budgetary constraints faced by treasury departments have grown increasingly severe. Understandably this has led to a concerted search for operational efficiencies to deliver more and better services with ever tighter budgets. Under these circumstances it is not surprising that treasurers have been looking towards electronic trading portals to help meet these conflicting demands. This has been particularly conspicuous in the FX market where relatively high trading volumes offer significant opportunities for real efficiency gains and has been reflected in a substantially increased take-up of FX platforms. In contrast the efficiency gains available to most organisations from electronic MMF trading have been seen as relatively small due to the lower trading volumes involved and have not provided sufficient incentive to corporate treasurers to go down the route of implementing a MMF portal.
This situation is now changing as the mounting budgetary pressures are compounded by a second set of business drivers related to an increased need to actively manage risk within treasury departments. As the level of financial stress has risen increasing attention has been focused on the ability to ensure compliance with the full range of treasury policies. In most organisations this involves a broad set of controls ranging from setting and enforcing individual trader permissions, through proper trade authorisation procedures to enforcement of agreed credit limits with individual counterparties. It is notoriously difficult to manage treasury policy compliance, particularly on a timely basis, and so it’s not surprising that this has been a major reason for the recent increase in the uptake of those MMF trading portals that offer effective risk management capabilities.