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!