The National Australia Bank (NAB) is rolling out a new currency derivatives system, dubbed Horizon. The system went live in Australia in early July, and is now in the process of being implemented in the UK and New Zealand, followed by New York by year-end.
Gary Dillon, NAB’s global head of currency options, says the system was developed in conjunction with Triaxia, a start-up software company specialising in the implementation of global straight-through processing (STP) solutions for physical and derivative products covering all asset classes.
NAB completed the centralisation of its currency options business in Melbourne in January under Dillon, who joined the bank two years ago from Commonwealth Bank of Australia (CBA). Prior to setting up the global book, the bank ran fragmented, local options portfolios, whereby each of the bank’s branches and subsidiaries serviced their own clients.
With the introduction of a single platform globally, the bank has been able to broaden its product capability from primarily vanilla options to structured products and packaged solutions, the latter of which has led to significant growth in the business, says Dillon.
“Packaged solutions such as the Variable Forward family of products, and an expanded range of exotic building block products, have played an important role in expanding the range of hedging solutions that our distribution team now have at their disposal to meet specific client requirements,” says Dillon.
“Through the single platform, we can now manage risk globally, while enabling all of our regional branches and subsidiaries to independently access a broader range of products,” he adds. “Local and global views within the system mean regional centres can use the system independently, whist still providing for a global view of the business. This means that even with a centralised back office, reporting will be available on a regional basis to meet regulatory, risk and management requirements.”
The STP function, which facilitates streamlined processing from deal entry to client confirmation, was essential to development, says Dillon. “This function means the bank can eliminate a lot of the inefficiencies of the back office, which can now focus on the most important aspects ‘ verifying trades ‘ rather than having to manually re-key deals,” he says.
The system interfaces to the bank’s general ledger, FX, credit, market risk, and management information systems. In terms of market risk, Horizon washes risk directly into the global trading portfolio as soon as the distributor activates the trade in the system. “This will allow for regional access to all deals traded, but ensure that all market risk is correctly captured and managed in the trading portfolios,” he says.
“Horizon will also overcome some of the previous limitations on product availability across regional boundaries. By bringing all centres onto the same system, product coverage will now be uniform across the National’s extensive client base throughout Australia, New Zealand, the UK, US and into Asia,” Dillon says.
In addition to its branch network, the bank has five subsidiary banks ‘ Yorkshire Bank and Clydesdale Bank in the UK, Northern Bank in Belfast, National Irish Bank in Dublin, Michigan National Bank in the US, and Bank of New Zealand in Wellington.
Scalability is also an important aspect of the global rollout, notes Dillon. “We are working with a minimum number of servers that service our global business. Our main servers are located in Melbourne for Australia and New Zealand, and in London for the UK and New York,” he says.
NAB will trade any currency required by its customers ‘ primarily against Aussie and kiwi, says Dillon, who adds that the recent build-up in London has led to a pick-up in sterling and euro related business. “We have made a concerted effort over the last 12 months to lift our profile and level of activity in the UK and Ireland, and that business has built up to form a sizeable proportion of our overall business,” says Dillon.
Dillon says Horizon has been designed specifically to facilitate NAB’s future movement to an Internet delivery platform, which will allow the bank’s clients to access the system for pricing, deal input and portfolio management.
Once the Internet capability is up and running, Dillon says Horizon will be extended to outside clients. The bank has been evaluating different Internet delivery mechanisms as part of its overall strategy for FX, and plans to have an offering for its currency option product within the next 12 months, he adds.