Description of Project:
A $20B AUM multi-strategy Hedge Fund with $20B AUM wished to stop automatically FX’ing foreign cash balances to USD on every non-USD transaction. The spot activity, along with the consequential excess FX hedging transaction greatly increased the volume of FX trading. Even with a small one pip spread on major currencies, the additional cost in trading friction was significant given the annual volume of such currency transactions. All current operational workflows were built on the assumption that cash balances were USD; new workflows would need to be created where multiple cash balances broke existing processes. In addition, while the firm’s systems had multi-currency trading and security position support, it was unknown whether any applications or reports made improper assumptions about cash balances.
Complicating the potential workflow change was the breadth of the Hedge Fund’s trading. The firm opportunistically traded any asset class deemed appropriate to execute an investment strategy. They trade a wide variety of equities, bonds, options, futures, credit derivatives, rate derivatives, volatility derivatives and private investments in a broad range of markets including both deliverable and non-deliverable currencies. As a result, there were large set of transaction workflows to examine with custodians, prime brokers, FCM’s, ISDA counterparties and others.
The Hedge Fund requested Sindex perform an assessment of cash workflows on a firm-wide basis; identify any process requiring adjustment as well as necessary technology changes. Sindex interviewed staff and created a series of swim lanes process diagrams to map out the trade life-cycle from allocation to settlement and reconciliation across all asset class families. Asset servicing, swap servicing and any other process with the potential of affecting a non-USD cash balance was examined. The cash processes were inventoried as were all the supporting features and reports for cash management in both vendor and internally developed applications. Given the listing of processes and technology function, Sindex was able to conduct testing in a QA system environment to identify functional gaps.
Sindex delivered a list of processes and technology requiring remediation, and the roadmap for correcting them. Sindex subsequently managed the project to correct the gaps, and switch over to the new processes supporting multi-currency cash balances. The conversion to the new workflow occurred without event. Consequently, FX volume went down, thereby reducing cost due to trading friction. In addition, project produced the significant side-benefit of providing workflow documentation, which served as the basis for future process improvement projects.