Survey shows that Spend on IT Reduces Treasury Processing Costs

Processing Costs for Treasury trades have again reduced over the last 12 months reports a new survey by Z/Yen, the City-based Risk/Reward Management firm. The survey, now in its third year, is based on the processing costs, headcount and trade volumes of 9 major banks and covers 14 product types including FX spot/forward, Money Market loans/deposits and Currency Options.

Over the last twelve months, the average trade processing cost has reduced from $14 to $12.5. However, there are marked differences in the processing costs of individual products:

• The average Cost per Trade for Foreign Exchange is $8.50;
• The average Cost per Trade for Currency Options is $58;
• The average Cost per Trade for Money Markets is $31.

For the simpler products with higher rates of Straight Through Processing (STP), volume is the key driver of low cost processing with the most efficient bank in the survey processing FX Interbank transactions at under $4 per trade.

The survey also found a wide variety in headcount costs within processing groups. While none of the banks in the survey had moved significant numbers of staff to offshore locations, many were processing outside of the main cities.

Perhaps surprisingly, the survey did not find significant correlation between efficiency and Cost per Head. However, there was a positive correlation between operational efficiency and IT costs. The three banks with the lowest IT cost per head were the least efficient.

Jeremy Smith, a Director at Z/Yen, said, "At a time when all banks are investigating how to further reduce costs, it is clear that a well supported IT infrastructure is key to promoting efficient processing. While relocation can save costs in the short-term, without well-focused investment in IT, there will always be the need for large numbers of staff in back-office functions."

Banks are increasingly using cost per trade analysis to support decision-making. A senior FX Operations Manager said, "we use the Z/Yen study to track our progress year-on-year and to set cost reduction targets."

For further information, please contact Jeremy Smith,
Tel: (020) 7562-9562,
E-mail: jeremy_smith@zyen.com.
A summary of the results of this study can be downloaded; “FX & Money Markets 2003”.

Z/Yen specialises in risk/reward management, an innovative approach to improving organisational performance. Z/Yen's clients include blue chip companies in banking, technology and professional services as well as charities and care organisations.