As noted in our previous
segment, we are continuing our segment, “Wall Street Custody Middle Office –
A Day In the Life of a Custody A/C Officer. In this segment we will cover
Foreign Exchange. As noted in my online resume,
I got my start in Foreign Exchange in the year 1991. For the next five years I
learned a lot about the Foreign Exchange Back Office and interacted with many
colleagues in the Middle Office, I would eventually began to work in in 1996
after transferring from FX Support to Investment Manager Services. As I write
this piece I am literally walking distance from that location where I got my
first glimpse of the FX Support Business at 101 Barclay Street, downtown, Manhattan,
NY.
I started out in the remittance area as an Assistance
Supervisor where a lot of retail FX deals take place. I later moved to
Confirmations area and the Multi-Agreement Processing (MAP) Unit where I was
Supervisor. These groups touched more on the Custody Middle Office Business
where I would later work as an Assistant Treasurer and Custody A/C Officer. In
these groups, as FX Deals (Spots, Forwards, Swaps, etc.) were done between
brokers, confirmations of these deals were also done via phone with the Counter
Parties where the Custodian did the FX and well as Swift Messages (MT300) being
sent. Confirmations were critical because due to an exchange rate discrepancy,
the recorded conversation between the confirming parties was the only real
proof used by the FX Investigations Unit. .
As any given point I could be on the phone with say a Middle Office
Administrator in the say the Mutual Funds Group, confirming an FX Done with the
Middle Office and the FX Trading Front Office for the Mutual fund client. It was often during the Confirmation Process
it was agreed on how the client’s funds would be charged for the US portion of
the FX. We had been inputting a code on the FX Details system page to indicate
we would process manual tickets to charge the client’s account. I realized that
by putting in an alternate code you could charge the client’s account directly
via the same System Detail page. The saved the department at least twenty
thousand dollars monthly in manual processing and also made the Custodian Bank’s
Newsletter as our team earned an award. Process
Improvement is so critical in our business!
The same Custody Clients I would later serve as a “Single
Point Of Contact” were doing massive FX Deals As a Custody client purchased a
security in which they had to pay in Egyptian Pounds (EGP), they needed an
Foreign Exchange deal to cover that trade. Often they would use their custodian
bank to do the Foreign Exchange (Buy EGP and Sell USD) and cover the security
purchase. We are covering the FX part of
the deal here but we did cover some parts of the Security deal and what to
watch for in our very first
segment in this series.
Of interesting note I found later in my Middle Office
activities (back in 2006) is that I found that Egypt had trades that settled
over the weekend. The challenge here was that many Custody systems only
reflected settlement dates on Business Week Days from Monday through Friday. So
while the FX Deal to cover the Egyptian Security Purchase settled on a Monday
(crediting the clients account the EGP), the Security may have settled on
Sunday (debiting the clients account the EGP). The client’s foreign currency statement
which keeps a running daily balance, might reflect an overdraft for Sundays’
Debit, not cleared until Monday. This may result in Debit Interest or Negative
Interest. The Sub Custodian (where the settlement of Securities and Cash
actually occur in the local market) might not reflect this on their books.
Adjustment may just need to be made on your Custodian’s System to correct the
debit interest such as a correcting FX deal (Cancel/Replace) to reflect the FX
settling Friday, instead of Monday.
As moved to the Middle Office, whet I learned in the both
the Securities and FX Back Office was critical. I knew what went into setting
up a Securities Trade as well as an FX Trade because I had done it. When in a
crunch for time, I could go right to the right people in the Back Office or
even the Front Office Traders because I already had established a relationship. Whether Internal or External Clients, it’s
all about The Relationship!
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