A Look At The Future Of
Liquidity And Risk Management
The shift to a fully-automated treasury and real-time liquidity and risk management will progress differently across industries and enterprises. Treasuries that embrace the changes being brought about by fast-moving technological developments will both excel and play a more strategic role in their businesses. Citi offers one of the most comprehensive Liquidity Management networks in the industry, supporting over 30,000 regional and global liquidity structures for clients. For more information about the advantages and availability of Citi’s suite of digital Liquidity Management tools, please contact your Citi representative.
Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management. In theory, an appropriate measurement of liquidity would be to consider two of these factors as inputs and quantitatively solve for the third. For example, given a specific volume I own and a price impact that I’m willing to assume, how long would it take to liquidate the holding? Alternatively, if I have a specified time horizon to liquidate the holding with a given price impact, what is the maximum volume I can transact given these parameters?
That said, according to a recent report published by Citi and Zanders titled, The Future of Corporate Treasury, only 10% to 15% of large corporations operate in an advanced state of optimization. These companies are well-positioned to look at new technologies, such as application programming interfaces and robotic process automation, for example, that can take their treasuries to the next level. To address operational challenges, treasurers need to understand which technologies will solve specific treasury problems — and where various treasury innovations are on a commercialization trajectory. This means stepping back and aligning current and imminent developments on the technology front, with a treasury roadmap for the future. Now, let’s take a look at substantial differences in one’s ability to perform these calculations for an exchange-traded equity versus an over-the-counter fixed income bond.
The table below shows how this could work in practical application for a Telecom Italia bond – using data and analytics to understand the liquidity of this fixed income instrument. We’ll be sharing insights into how technology and data are driving new techniques for risk management and bringing modernization to the financial industry. Our focus will be various areas of risk management (e.g. market risk, credit risk, etc.) imparting our experience with the role of data, what we’re hearing across our client base, and data in relation to regulatory requirements and their nuances. Citi’s latest solution will help clients boost performance, amid unpredictable and volatile market conditions in the post-pandemic era. Citi believes that effective cash management that allows treasury and finance departments to adjust and quickly respond to dynamic business outcomes has become increasingly critical to the survival and future success of companies. The CitiDirect BE® digital account opening service replaces cumbersome paper and courier-based account opening processes with technology, collapsing account opening turnaround times to as few as two days.
Citi Treasury and Trade Solutions enables our clients’ success by providing an integrated suite of innovative and tailored cash management and trade finance services to multinational corporations, financial institutions and public sector organizations across the globe. These new technologies and improved organization of market data can help the industry by bringing data-driven liquidity risk management to asset classes and market structures that historically were only available in equity markets. When a central limited order book (“CLOB”) market structure and depth of order details are available, it is generally more straightforward and industry-accepted to use data for liquidity analysis. For example, with standards such as VWAP (volume-weighted average price) and ADV , investors can determine a price impact for executing a concentrated volume of a particular stock. No matter where companies are on the optimization curve, financial service providers can offer easy-to-implement solutions that require no additional technology infrastructure investment.
Individual companies with tradeable equity are counted in the thousands – the number of fixed income instruments measures in the millions. Less than 2% of outstanding US dollar debt changes hands on any given day, and various characteristics need to be considered to properly assess liquidity (e.g. duration, remaining term to maturity, issuer, etc.). Within many fixed income markets, there is also a ‘fungibility’ – in other words, one doesn’t need to see a particular bond trade to know that it has the potential to trade given observability in certain comparable bonds with similar characteristics. In a world where the economy is always on and “instant” is the new norm, end-of-day cash management will be gone, cutoff times will not exist, transaction values will be received in real time, and surplus cash can be invested automatically for optimum risk and return based on trusted data feed.
Real-time, around-the-clock clearing and settlement systems will reach critical mass worldwide over the next five years. Instant payments and receivables, instant FX, and instant trade settlements will demand new approaches to managing liquidity and mitigating risks. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. Lend your voice bytaking the short survey todayand you will be among the first to explore the findings and insights, globally and in the UK. The forecasting technology of tomorrow will not simply search and analyze patterns in historical data, it will leverage big data analytics to predict cash flows and, eventually, to provide suggestions on actions to be taken next. For companies in a mature state of optimization, the biggest immediate opportunities reside in the automation of operating processes and of low-value transactions.
This breakthrough service leverages the CitiDirect BE online banking platform, digital signatures, and company data already in Citi systems. For companies that have not yet embarked on the control and efficiency journey, now is the time to start — or risk being left behind. These companies should accelerate their efforts with an eye toward getting the technology right, gaining cash visibility enterprise-wide, and simplifying and centralizing treasury structures. Given the close collaboration among banks and treasury technology providers, implementing treasury technology that is connected to an ERP and financial service providers will ready these companies for the next steps.
Citi, for example, recently launched two online services that streamline and digitize the maintenance of bank accounts and liquidity structures, respectively. The need for improved efficiencies has been heightened by pandemic-driven remote working, rapid changes to business models and ensuing stress on liquidity. Technological Partner for Liquidity Management Developed in response to client demand for advanced liquidity management technology, Citi’s latest innovation enables treasurers to manage intraday liquidity in real-time. Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions.
In fact, more than 70 percent of corporate treasuries rely on manual inputs as part of their forecasting processes, according to a recent Citi Treasury Diagnostics survey. In the short term, most corporate treasuries should remain focused on consolidating control and improving efficiency — using standard technology, such as enterprise resource planning or treasury management systems and electronic banking, to optimize processes. New technologies will enable treasurers to reinvent how they manage capital, https://xcritical.com/ liquidity and risk — and solidify their role as strategic business partners — if they plan accordingly. Don’t get me wrong – there are still thinly traded common stocks, OTC equities or pre-IPO scenarios where assessing liquidity may need to be more model-based and where it’s definitely harder to quantify liquidity. As treasurers adapt to a quickly changing treasury ecosystem, they can look to trusted banking partners and treasury platform vendors to help them plot a sound course for the future.
Hong Kong – Citi is pleased to announce the launch and rollout of a new global Real-Time Liquidity Sharing solution, addressing a pressing need for companies to secure improved efficiencies in liquidity and working capital. Treasurers looking out five years and beyond must be prepared to manage liquidity 24/7 and to automate more of their decisionmaking. Machine-powered forecasting and prescriptive analytics, plus AI-enabled decision-making and deal-making, will all be part of the treasurer’s toolbox of the future. In the medium term, treasuries will see the use of data change dramatically, bringing greater accuracy in forecasting and rulesbased decision-making. Corporate treasurers must adapt to a myriad of macroeonomic headwinds and regulatory changes to ensure businesses resilience and maintain growth.
In this survey, and subsequent research report, The Global Treasurer aims to identify and assess how embedded ESG and climate related issues are within corporate treasuries’ cash and liquidity management strategies. Your responses will inform a research report into what organisations require from asset managers to assist with their day-to-day cash and liquidity management, as well as assess the importance of ESG/climate issues within your treasury management and investment strategy. What’s more, the evolution of treasury systems and tools will be boosted by deeper linkages between ERP and TMS providers with major financial service providers.