Hewlett Packard
Hewlett Packard currently settles over $15billion of foreign exchange trades each month. Although multilateral netting settlement dates allow HP to manage local currency (i.e. all non-USD positions) needs very effectively, HP is exposed to significant levels of intra-day settlement risk. Following the Compaq merger in 2002, HP has also experienced increased daylight overdraft limits.
CLS was an obvious solution for HP to pursue and in August 2004 it became the second corporate to implement CLS.
The implementation effort at HP centred on its treasury management system (TMS), in particular the need to separately manage CLS-settled trades.
The decision was made to deploy CLS in 2 phases in order to reduce settlement risk while continuing to develop the full solution using the TMS. Phase 1, the interim solution, which reduced settlement risk and daylight overdraft limits, was implemented in August 2004. The interim solution was able to settle external FX deals whereas the long-term strategic solution, implemented in Phase 2, is also able to settle internal deals.
Under Phase 2, HP built a new electronic interface between Citibank, its CLS Settlement Member, to facilitate CLS and the other cash management initiatives being worked on together.
Once HP execute FX trades on the trading platform it imports them into the TMS, confirms the trades through Misys Treasury (CMS) and then imports the confirmation status back into the TMS to trigger settlement.
Once the trade upload is complete, operational input is only needed for exceptions handling.
Simultaneous global settlement eliminates all settlement risk for CLS eligible trades and HP expects to reduce its daylight overdraft limits by $6.5 billion. There are also a number of operational efficiencies to be gained.
“CLS is a natural fit with our straight through processing objectives”, said Conor Maher, Manager, Treasury – EMEA and Latin America Hewlett-Packard. “It gives HP greater control through the steamlined operational processing. HP now has quicker access to information and CitiBank handles the net settlement of CLS trades to and from HP’s FX bank accounts. The operations team at HP simply have to monitor trade confirmations and net settlement by currency.”
HP is a large player in the FX market, and ultimately it expects all CLS eligible trades to be settled using CLS:“We will soon require our banks’ participation in CLS as a pre-requisite for doing business with us, added Maher.