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The treasurer’s role

admin — Thu, 16 Apr 2009 11:55:43 +0000

Traditionally, the role of the treasurer and of the middle ofﬁce was the in-house policeofﬁcer. The role of position keeping ﬁtted in this domain. The treasurer may reduce losses according to how effective these risk management structures prove.
Thus, the treasurer acts as the paymaster and policeman of the modern corporation. This is a job function that is extended outside the traditional realm of accountancy. Where front ofﬁce and back ofﬁce controls have been exposed as being weak – the treasurer or the chief risk ofﬁcer (CRO) must beef up risk management. The treasurer and the CRO are two different people, working in autonomous departments. The treasurer and the middle ofﬁce are given their risk management role on these lines:
1. Risk analysis to evaluate risk scope and business objectives, determining potential sources of danger or risk.
2. Design the risk template, outlining the event, likelihood of the event occurring and the damage from the event. This forms a risk-event matrix or risk register.
3. Deﬁne the risk involved, the people and departments assigned to it, and how to solve likely problems.

INVESTMENT MANAGERIAL CONTROL

admin — Mon, 13 Apr 2009 11:55:36 +0000

A successful ﬁnancial dealing environment requires uniﬁcation of the various species of investors.
1. Managers require a high level of people interaction skills, of which risk management is only one.
2. Successful trading needs an instant eye for distinguishing a good buy from a dud.
3. Recent entrants of the risk managers, including the quants and geeks, who are familiar with the relative probabilities of the ﬁnancial risk. CAPM, Monte Carlo or VaR are just a few portfolio dishes on their menu.
So, the market is requires at least three types of investor types – few companies have the desired balance of these types.

Finance capital of the world, part 4

admin — Fri, 10 Apr 2009 18:25:04 +0000

Regulators in a large number of European countries have been working for over 20 years with legislators to harmonize their sundry and diverse rules and regulations. In Europe, the 1996 Banking Directive (DSI) is undergoing serious revision. If each regulator located in the 16 European countries harmonizes the current regulations, it is possible that throughout Europe intermediaries will soon be applying principles from the same rule book. Rather unfortunately, experience goes to show that this will take some time. The rule adopted in Europe allowing for a measure of integration is basically that of the single passport. It gives a financial intermediary under the supervision of a ‘‘home regulator’’ the right to operate throughout Europe. He (or she) is monitored by the latter and at the same time has got to respect the rules of the country in which he carries out his transactions. The regulatory host and the home regulator recognize each other’s competency in their respective fields of intervention. This is all rather complicated, but it works. As of now, the one truly cross-border regulated market in the world is European: Euronext, a market covering France, Belgium, the Netherlands, Portugal and Scandinavia.
It is obvious that the power of a state, with its rules and regulations, confronts market globalization with a stumbling block. This is the case even in an area such as Europe that is fully committed to integration. The supremacy of markets over governments is a shibboleth; it has been vocally contested in many places. It has precious little to do with everyday economic reality.

Finance capital of the world, part 3

admin — Wed, 08 Apr 2009 18:23:06 +0000

The Securities and Exchange Commission (SEC), the main regulator of the American markets, decided in the 1990s that a foreign stock exchange wishing to provide access to its market from the US (via computers installed on American soil) had to comply with the rules laid down by the SEC. Such a demand presupposed that all firms with stocks quoted on this exchange would be subject to the disclosure rules of the SEC. The upshot? No non-American stock exchanges are able to conduct business in America, at least not until the SEC shows more flexibility. The single exception is the DTB, Germany’s futures exchange. The DTB is regulated not by the SEC but rather by another regulatory agency, the Commodities Futures Trading Commission (CFTC). This is the case because the DTB quotes prices not on shares but on derivatives. And these contracts depend on the CFTC, not on the SEC. Yet it happens that transactions on index options are under the control of the SEC; they cannot be put up for sale by the DTB. How can an American investor buy (or sell) shares belonging to German firms? He has got to call his broker in New York, the broker calls a colleague in London, who goes on to transmit the order to a German broker, who winds up putting it on the market. So many intermediaries entail manifold complications.

Finance capital of the world, part 2

admin — Tue, 07 Apr 2009 18:22:16 +0000

The UK is the premier international insurance market. Asset management is likewise characterized by the presence of foreign portfolios; a quarter of the administered funds are the property of European or overseas customers or institutions. The June 2000 ranking of the financial consultancy firm Thomson Financial Investor Relations showed that with $2,500 billion of assets under management, London remains the number one market in the world.
London also represents the worldwide foreign exchange capital where about a third of currency transactions are carried out; in and of itself, this result represents more than the total amounts registered in New York and Tokyo on the same market.
Is London the finance capital of the world? Notwithstanding the ongoing internationalization of exchanges and the movement towards globalization, stock markets still remain anchored in their country of origin. Each stock market is overseen by one or more national authority within the framework of the national law; infractions are sanctioned by country-based tribunals. It is quite difficult to imagine the internationalization of such exchanges if applicable laws do not equally cross borders. It took a state to render orderly the exchanges of long ago; nowadays it would take at least an agreement between states to promote a global stock exchange. If not, the national regulator would just submit transactions to its own rules.

Finance capital of the world, part 1

admin — Sun, 05 Apr 2009 18:21:59 +0000

London and New York have long been contenders for the title of the world’s financial capital. In reality this prestigious title does not exist; worldwide finance is not united. While New York deals with more mergers and acquisitions, London is one of the leading centers for international stock transactions. It also remains in first place as regards foreign exchange and specialized markets (precious metals, petroleum and so on). London had been in the lead until the early twentieth century; during the First World War, New York had risen to the forefront. After a time of decline (1920 – 40) that was nonetheless marked by the creation of the foreign exchange market, London recovered its financial primacy following the Second World War. In 1958 exchange controls were eased and the Eurobond market developed over the course of the 1960s. The 1979 abolition of exchange controls put the City of London in the lead, as did the 1986 deregulation of British markets (Big Bang).
London remains the most international of financial markets, including New York. It hosts more foreign banks than any other financial stronghold. As of April 2001 they numbered 481 (as opposed to 287 in the US and 92 in Japan). Quite logically the London banks register the highest percentage of cross-border bank loans (close to one-fifth of the world market).
The London Stock Exchange is the most international of them all. More than 500 companies originating in 60 different countries are quoted there. In 1999 alone, 7.5 million transactions were performed on foreign shares and represented over a third of the total number of transactions effected on the British market. That year London generated no less than 58 percent of international trading in stocks.
London also brings together the greatest number of large firms in Europe; 65 percent of the most important companies are represented there; one-third of them have their headquarters in the British capital (as opposed to 9 percent in Paris and 3 percent in Frankfurt).