FXMPG2 Weighs Taxes, Tech and Trading
The tax reform calculus, a FiREapps road test and why FX unpredictability pays.
Thank you to all the members and attendees of the FXMPG2 2017 H2 meeting in Palo Alto, and to the team from HP for hosting us! Day 1 started with a joint session with NeuGroup’s Assistant Treasurers’ Group of Thirty (AT30). Here are some highlights and key takeaways from the event, sponsored by 360T Deutsche Börse Group.
Driving improved cash forecasting with FiREapps. One member led a session on FX systems and process flow by describing her company’s use of FiREapps. The company’s goal: to improve the predictability of EBITDA, increase currency exposure forecast accuracy, increase exposure transparency and reduce the cost of hedging. The member explained the role played by templates FiREapps helped design that business units must populate with information on the type of exposures, relevant currency pairs, vehicle types, invoice dates and other information. FiREapps then transforms the invoice exposure forecast into a cash flow forecast upon which the company’s hedging forecast and actual hedges are based. Ultimately, a report with all outstanding hedges is delivered automatically to FiREapps applications via a scheduled process within the company’s TMS.
• Takeaway: Digital solutions can help impose forecast discipline on MNC business units. FX management systems like FiREapps, when combined with support by business units and senior management and effectively integrated within an MNC’s TMS, can improve the ability of treasury to forecast important exposures and take appropriate hedging action in response to changes in global currency markets and business volumes.
Don’t be so predictable in your trades. Sponsor 360T, in a session on best execution, told members to vary their trades with banks to get the best pricing. “Corporations are at a natural disadvantage in FX trading, as their activity is economically motivated and predictable by nature. Masking this predictability, and working to overcome this disadvantage, is crucial,” 360T said in its presentation. One of the slides showed significant “price slippage” in a case study where 360T’s analysis suggests that a client cost itself roughly $350k over 14 months on EUR/USD spot trades alone. The company’s data suggests varying the time of trades and making two-way price requests breaks the trading execution pattern, resulting in better price discovery and savings.
• Takeaway: It pays to be unpredictable when it comes to managing your recurring currency trades. 360T data suggests predictability in trading time and method puts treasury clients at a disadvantage that can be addressed by varying when orders are requested and by changing the type and number of bids requested.
What GOP strife means for tax reform. AT30 sponsor HSBC presented the combined groups with a reality check of how dissension among Republicans is undermining President Trump’s ability to score legislative victories, despite the party’s hold on the presidency, the House and the Senate. But here’s the key takeaway for treasury: HSBC remains bullish on tax reform, asserting it’s going to get done, in part because it’s a “must accomplish” priority, noting Trump plans to visit 13 states in the next couple months to push tax overhaul. The bank argues tax law change can happen in 2018 despite skepticism about passing legislation during an election year, saying most tax reform bills have passed in even years. The bank also challenges claims the GOP will lose Congressional control in the midterm elections because of Trump’s below-50% approval rating; HSBC argues Democrats face long odds in achieving the gains they need.
• Takeaway: Don’t stop planning for tax change. Treasury needs to keep planning for tax reform, including the implications for repatriation of foreign profits, despite the ongoing level of uncertainty in Washington and the dysfunction of the GOP.
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