Centralizing foreign exchange transactions through a trading platform at its center of excellence in Dublin, Ireland, is giving General Electric Co. greater pricing power, and when you're GE and trade more than a trillion dollars a year in FX that means something.
Previously, the Stamford, Conn.-based appliance manufacturer and financial giant took a more decentralized approach to FX trades, relying on its business units geographically to take positions with GE's own banks and third-party banks, entirely as a service to its bank customers and not trading for profit. "Getting control over what our business units were doing globally in the way of FX was the challenge," says Dennis Sweeney, GE deputy treasurer. "In particular, we wanted to make sure there was no holding of positions, unmatched positions or speculative trading. We needed to centralize the activity of the different business units through a trading platform, thus gaining scale in pricing power because the trades are all coming through one legal entity to the Street."
GE Financial Markets is its treasury function's center of excellence for hedging and derivatives execution. Treasury's insistence on no speculative transactions, trading or unmatched positions and that the center of excellence execute all derivatives transactions confronted the reality of GE's financial operations' organic growth strategy, in terms of entering new countries and expanding product offerings. Acquired banks, for instance, owned separate and often different FX trading and settlement platforms in disparate locations. "We had acquired a number of small banks in Europe and wanted to integrate them into the fold," says Sweeney. "One of the things we were trying to do with any new acquisition is ensure that our treasury policies and procedures are in place immediately to ensure that there is risk management rigor. This project really addresses that desire to integrate and control."
The solution was having the center of excellence act as a single counterparty to GE banks, thereby acting as the single face to the Street in sourcing, while providing the pricing required from its counterparty banks back to the GE banks. To bring this to fruition, GE Financial Markets needed a scalable trading platform allowing both it and the GE banks to request and execute transactions live and up-to-the-second. They settled on a European-based e-trading platform--360T Treasury Systems.
GE went live with its first bank in December 2007, and has since gone live with another one, with three more in the pipeline this year. "GE banks now have a more comprehensive and very competitive FX product offering through a state-of-the-art e-portal, with corporate treasury having full oversight on trades, ensuing that our strong controllership and compliance procedures are adhered to and no speculative trading or unmatched positions can occur," Sweeney notes.