F2B Knowledge – Second Edition

Knowledge is Power

Solomon SanjayDanielDinesh

2

Front office books the trade

Back Office Systems

Nostro Account Buckets

Match

Mis- Match

CASH SQUARED

FAILEDPAYMENTS

3CASH MGMT WILL CHECK THE

LEDGER BALANCE = EXPTD CASH BALANCE

Cash Management will have a birds eye view over the

ledger balances across all products like

FX,MM,RATES,CREDIT,EQUITIES etc.

They would identify & pin-point the respective product

teams which has a huge difference in ledger balance

on that current day

On a daily basis, all the Product team will submit their position to cash management. The long or short balance of each desk will be squared

with the MM desk

CASHMANAGEMENT

CASH MANAGE

MENT

FI DESK EQUITIES DESK

COLLATERAL

DESKFX DESK IRD DESK

CALYPSO GLACIER WSSGFX GDS

Systems Used

4

Just Imagine, If IRD had a unexpected variance in their balance positions on a particular day ,it has to Borrow/Lend from the Money Market desk in order to Square off

MONEY MARKET

CASH MANAGEMENT

FI DESK EQUIITES DESK

COLLATERALDESKFX DESK IRD DESK

80 mioMine is Square

d!

50 mioMine is

Squared!

90 mioMine is

Squared!70 mioMine is

Squared!

Oops!Mine is short by 20 mio

• Does the overdrawn balance has any impact in Nostro?

Yes! it does. At the end of each month, our agent will auto debit our account for the Negative balance maintained.It leaves a break in Nostros, which is taken care by the Interest Analysis team (ODIO)

• What part does the Compensation recovery team plays here?

They will check with the Cash Managment team to know what has caused the negative balance for the day. Based on theirresponse, If IRD team is proven in providing incorrect position square. Then, the interest lossincurred due to negative balance will be allotted to the IRD team’s P&L

5

COMPENSATIONRecovery of interest cost due to Overdraft/Funding cost which is incurred by the Bank

Why is Compensation ?

Overdraft Funding Cost

Claims

Compensation

6

COMPENSATION IN NOSTRO

How does a compensation case arise ?Any trades which might cause a value date difference in nostro match results in a interest claim file. In

Simple,if there is a ledger and statement match with a difference in value date , thats when a comp case is created in nostrosFor Example :

LATE RECIEPTS – ‘ We Claim’

In the below Value Date difference match, the client has paid the 1mio fund late next day, resulting in a comp case creation.

L/Dr 1,00,000 GBP 29/08/2013 (Trade Booked)

S/Cr 1,00,000 GBP 30/08/2013 (Funds received)

So this is where we claim compensation cost from the external clients

LATE PAYMENTS – ‘They Claim’

In the below Value Date difference match, We have paid the 5mio fund the next day.

L/Cr 5,00,000 EUR 12/08/2013 (Trade Booked)

S/Dr 5,00,000 EUR 13/08/2013 (Funds Paid)

So here the Claim is against us to reimburse cost due to delayed payments.

WHAT DOES

COMPENSATION TEAM

DO AFTER THIS ??

WAIT TILL WE TAKE YOU THROUGH THE NEXT PHASESTAY CONNECTED WITH F2B!

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Some Terminologies to be learnt Overdraft - Account being overdrawn at the close of the day. In simple terms – Negative balance

Account Position - The actual cash in the account is called as position. When the account is in negative balance is called as Short Position, and the positive balance is called as Long Position.

Square off - Square off is transferring the balance from one or many sub accounts to a master account

Funding - Borrowing funds either from the market or from an internal desk to cover the short position or Lending the excess funds either to the market or to an internal desk is termed as Funding

Funding cost - Cost incurred by the bank to borrow funds from market or internal desk to cover the short position.

Debit Interest - Charged by Agent Bank on the overdrawn balance

Credit Interest - Offered by Agent Bank on the long balance

Claim - Payable Claim : Interest claimed by us to cover the cost incurred by Bank due to delayed settlements from internal or external clients.

Receivable Claim : Interest Claimed against us to reimburse costs incurred by internal or external clients due to delayed settlement from our end.

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CASH MANAGE

MENT

FI DESK EQUITIES DESK

COLLATERAL

DESKFX DESK IRD DESK

CALYPSO GLACIER WSSGFX GDS

CASH MANAGEMEN

T

FI DESK EQUITIES DESK

COLLATERAL

DESKFX DESK IRD DESK

CALYPSO GLACIER WSSGFX GDS

Background on How the Cash Management OperatesCash Management will have a bird’s eye view over the ledger balances across all products like FX,MM,RATES,CREDIT,EQUITIES etc.

On a daily basis, all the Product team will submit their position to cash management. The long or short balance of each desk will be squared with the MM desk

For example: We’ll have look on a day’s funding position square off from each desk and consequence in the event of any incorrect positions reported.

SYSTEMS USED

Position at EOD 100 Mio -200 Mio 20 Mio10 Mio110 Mio

Does the overdrawn balance has any impact in Nostro?

•Yes it does. At the end of each month, our agent will auto debit our account for the Negative balance maintained.•It leaves a break on Nostro, which is taken care for the Interest Analysis team (ODIO)

What part does the Compensation recovery team plays here?

•They will check with the cash managment team to know what has caused the negative balance for the day•Based on Cash Man’s reponse and further investgation, If IRD team is proven in providing incorrect position square. Then, the interest lossincurred due to negative balance will be alloted to the IRD team’s P&L