SAP Treasury and Risk Management

An Introduction

September 2011

Treasury Applications from SAP

Financial Excellence
Treasury applications from SAP
SAP Treasury and Risk Management
Risk Analyzers

Manage Global
Financial Risks

Credit Risk Analyzer

Market Risk Analyzer

Exposure Management

Optimize Debt and

Investment Strategies

Manage Cash
and Liquidity

Portfolio Analyzer

Hedge Management

Transaction Manager
Money
Market

Foreign
Exchange

Derivatives

Debt
Mgmt

Securities

Commodities

SAP Cash and Liquidity Management

Cash Management

Liquidity Planning

SAP In-House Cash

Optimize Payments and
Bank Communication
SAP AG 2009. All rights reserved. / Page 2

SAP Bank Communication Management

The SAP Treasury Solution Suite

Cash Management
Liquidity Forecast

5
6

Internal Banking

Bank Communication
Management

Treasury Management

Risk Analyzers

Managing Treasury and Risk Management at a glance

Risk Analyzers

Reporting

Credit Risk Analyzer

Market Risk Analyzer

Portfolio Analyzer

Utilization: Formulas, Credit

risk, Settlement risk

Price calculator: NPV, Prices,

Sensitivities

Limit management:
Limits freely definable,
Multidimensional limits

Value at risk: Variance/covariance,

Historic, Monte Carlo Simulation

Yield calculations:
Money weighted,
Time weighted,
Modified Dietz method
Benchmarking:
Performance Indicators
xxxxxxxxxxxxxxxxxxxxxxxx

Simulate rates: What-if scenario,

Relative, Absolute

Exposure Management

Hedge Management

Centralized Database to gather group and

version data and transfer to Hedge Management

Administration of hedge plans, exposures, hedge

items and hedging relationships

Transaction Manager

Ad-hoc reporting:
Point & click, Unified
databases, Position, P&L,
Period, Cash Flow

Reporting tools:
SAP Query, ABAP List, Other
3rd-party providers, BI,
Business Objects Dashboards
and Xcelsius
Results database:
Portfolio Hierarchy, Drill-down,
Historic results

Front office: Position and deal reporting, Deal capture, Exercise, Dealer slip, Valuation tools,
Online limit check

Back office: Standing instructions, Correspondence Monitor, Netting, Settlement, Rate fixing
(interest, FX), References, Corporate actions, Process monitors

Accounting: Flexible accounting determination, Accounting according to many international

accounting standards
Money
Market

Fixed term
deposits
Commercial
Paper
Repo

Foreign
Exchange

Spot
Forward
Swaps
Options
Futures

Derivatives

Cap
Floor
FRA
Swaps
Options
Futures

Debt Mgmt

Bonds
Bank loans
Commercial
Paper
Facilities

Securities

Bonds
Warrants
Stocks
Certificates
Repo
Sec. lending

Commodities

Futures
Forwards
Traded Options
Swaps
OTC-Options

Management reports:
Positions, Performance, Ratios,
Compliance

Middle office:
Risk exposure, Controlling,
Compliance
Data export:
Excel, Flat files, BI

Transaction and Position Management Process

Front
Office

Exposure
analysis
Decision support
Comfortable deal
entry
Standing
instructions
On-line limit
check
Position reporting

Mid
Office

Instrument pricing
Risk analysis
Sensitivity
analysis

Back
Office

Flexible process
definition
Settlement
Correspondence
Interest rate
adjustments
Payments
Alert monitor

Accounting

Posting of
Treasury flows to
the G/L
Valuation
according to
several GAAPs in
parallel areas
Support for IAS
39 / US-GAAP
and Hedge
Accounting

Reporting

Standard
reporting
Ad-hock reporting
Controlling
Limit reporting
Management
reporting

Selection of Product Types

Fixed-term
deposits (e.g.,
overnight
deposits at
notice)
Commercial
paper
Repo
Floating rate
Any cash flows

Interest &
Equity
Derivatives

Debt
Management

Foreign
Exchange

Money Market

Spot
Forward
Swap
Vanilla options
Barrier options
(single and
double)
Compound
options
Average rate
options
Basked options
Exchange-traded
options

Issued bonds
Fixed/ floating/
zero interest,
Bullet repayment/
with repayment/
ABS structures
Fixed rate loans
Floating rate
loans
Annuity loans
Commercial
Paper
Facilities
(bilateral or
syndicated)

Cap
Floor
FRA
Swaps
Payer/Receiver,
Fixed/Basis,
Exotics (e.g.,
roller coaster)
OTC options
Security,
Swaption, IRG
Futures
Exchange traded
options
Total Return
Swap

Securities
(Investments)

Bonds
ABS /MBS /CMO
Index-linked
bonds
Dual currency
bonds
Drawable bonds
Warrant Bonds
Stocks
Shareholdings
Subscription
rights
Investment
certificates
Repo/ Reverse
Repo
Security lending

Transaction Manager
Market Risk Analyzer
Credit Risk Analyzer
Portfolio Analyzer
Reporting
SAP AG 2009. All rights reserved. / Page 6

Commodities

Futures
Forwards
Traded Options
Swaps
OTC-Options

Managing Commodities and Financial Instruments Risk

All kinds of commodity types and hedging

instruments can be managed in SAP

Commodities (examples)

Crude Oil, gas, coal

Metals including noble metals

Corn, maize, soybean

Coffee, cacao, cotton, sugar

Orange juice, lemon juice

Cattle (cows, pigs)

Certificates on emission

Hedging Instruments

SAP AG 2009. All rights reserved. / Page 7

Futures and Traded Options

Forwards

Swaps (planning status)

OTC Options (planning status)

Exposure Management Example for Commodities

Commodity front office system - if needed

Treasury and Risk Management
SAP ERP
Operations
SD, MM
or GTM

Exposure
Management

Hedge
Management

Market Risk
Analyzer

Transaction
Manager

Excel
Spreadsheets

Other sources
of Exposures

SAP ERP Financials

SAP AG 2009. All rights reserved. / Page 8

Transaction Processing - Trading:

Convenient Transaction Entry
Automatic calculation
of derived flows

Automatic determination
of payment instructions

Integrated online
limit check

Automatic cash flow projection

Drill-down to class details and

business partner details

Pre-defined business
calendars and automatic
date checks

Class information
retrieved automatically

Display of corresponding
market rates and according
warnings

Configurable entry screen and

customizable default values per field

Automatic transfer to Back Office

Integrated effective
interest rate calculator
Page 9

Transaction Processing
Back Office Processing: Settlement

Settlement is an optional transaction processing step

The transaction is reviewed by a back office processor to satisfy the four-eyes
principle (segregation of duties)

Optionally, information not entered by the trader can be supplemented by the back
office processor

Only after the reviewer changes the status of a transaction to settled, it is cleared
for posting and payments.

Page 10

Transaction Manager
Efficiency with Correspondence Monitor (new with EhP4)
Real Straight Through Processing from deal capturing via new integrated
Correspondence Monitor to parallel accounting with a highly sophisticated authorization concept
behind.
Deal
capturing

Create / send
correspondence

Release process

use customer
defined channels,
mediums and
formats

Fax, email, print

and swift file
transfers are
preconfigured
Predefined format
(incoming and
outgoing) for
MT300, MT320
and free text
MT399

Receive incoming
correspondence

Tracking of
incoming
correspondence
use customer
defined channels,
mediums and
formats
Fax, email, print
and swift file
transfers are
preconfigured
Predefined format
(incoming and
outgoing) for
MT300, MT320
free text MT399

Customizable
matching
proposal

Automatic
matching when
message is
coming in or
going out possible

Error handling /
manual matching

Automatic
matching

Update status of
the deal or trigger
a automatic
settlement of the
deal

Correspondence
monitor e.g.

Navigate in all
directions

Improved status
tracking for the
messages

Show all
correspondence
objects assigned
to one deal

Show matches

Manual
assignment of
correspondence
to deals

Receive ACK and

NACK messages

Transaction Manager
Incoming and Outgoing Messages Using SWIFT Integration Package
SWIFT Integration
Package put
data on file adapter

Data from file

adapter uploaded
to TRM

Automatic matching
process is triggered
automatically
whenever a file
appears

Creation of MT
message automatically
or manually in the
correspondence
monitor
Save message on file
server

PI saves file on file

adapter

SWIFT Integration
Package picks
up data

Create message
and send

PI picks up the data

from the file server in
predefined time
intervals

Get file from

SWIFT alliance
gateway

Open SWIFT file

envelope
Integration package for
SWIFT

Create SWIFT file

envelope

Integration package for

SWIFT

Integration package for

SWIFT

Send file to SWIFT

alliance gateway

Integration package for

SWIFT

Transaction Manager
Straight-Through Processing for External Deals
Alternative deal capturing by connection to Market Places
Automation

of download of FX transactions made on market places

such as 360T, FXall or Currenex
Available for FX spot, FX forward and FX options
Possible to enter all data for the FX transaction with one interface

Bank A

SAP Treasury and

Risk Management

Market Place

Bank B

Bank C

Accounting Straight-Through Processing

Straight-through processing of financial deals is achieved in combination with

a highly flexible accounting engine.
Real-Time update of your accounting position
Automatic

posting incl. flexible account determination

Hedge Accounting (e.g. FAS133/138, IFRS 39)

Support of several accounting standards in parallel

Simple Example
Purchase of 100
shares at USD 90
per share
= USD 9,000

write-up

9000
Stock price on
valuation key date:
USD 98 (market value)
SAP AG 2009. All rights reserved. / Page 14

9800

IAS / US GAAP

no write-up

9000

9000

German GAAP (HGB)

Transaction Manager
Fully integrated
Automatic
posting

Valuation
(parallel)

Automatic
creation of
correspondence

Automatic
accrual/
deferral

SAP AG 2009. All rights

The SAP Treasury Solution Suite

Cash Management
Liquidity Forecast

5
6

Internal Banking

Bank Communication
Management

Treasury Management

Risk Analyzers

SAP Modules in Treasury Analyzers

Market Risk
Analyzer

Portfolio
Analyzer

Credit Risk
Analyzer
Analyzers

Market Data
FX Rates
Yield Curves
Indices
Volatilities

Transaction
Manager
Money Market
Securities
Derivatives
Forex
Commodities

Businesspartner

Cash
Managem.
Integration

General Ledger

REPORTING:
Externally
maintained
transactions

SAP Market Risk Analyzer

Process
SAP

EDT
CM

CML

TM

Datapool
NON SAP External

Market data
Results
NPV, VaR,
Exposure, Keyfigures

Analysis/Reporting/Planning

Online data feed

Simulated
Shifts
Scenarios

Pricing Engine
NPV
VaR
Sensitivity
SAP AG 2009. All rights reserved. / Page 18

SAP MRA: Net Present Value Concept

Transaction data

Calculation

Evaluations

Linear
Debts
Assets
....

Non-linear
Options
Caps
....

Mark-to-market
Sensitivities
Duration
Convexity
Exposure
Crash/stress tests

Market data

Yield curve 5 (+)

Current. yield curve

Yield curve 6 (long-term)

Company
Portfolio
Profit center
Product

9.0
8.0
7.0
6.0
5.0

NPV

3.0
2.0

Saved market prices

Real-time market prices
Flexible scenarios
Rule shifts

1M

2Y

4Y

6Y

10 Y

Risk

Price calculator
(user exit)

SAP AG 2009. All rights reserved. / Page 19

8Y

LEVEL 1
Trading: Bonds

Base portfolio
Bonds/Frankfurt

LEVEL 1
Trading: Swaps

Base portfolio
Bonds/New York

Risk management

10.0

4.0

LEVEL 2
Trading: Interest products

SAP MRA: Value at Risk

Transaction data

SAP AG 2009. All rights reserved. / Page 20

Variance/covariance
Backtesting
No.

Date

NPV

Risk

1
2
3
4
5
6
7
8
9
10
11
12
13

Feb 81
May 81
Mar 80
Feb 90
Feb 80
Feb 74
Jun 82
May 83
Oct 72
Feb 94
May 79
Oct 79
Feb 85

483.9
524.8
530.6
538.9
543.8
546.8
557.5
559.8
560.5
562.6
564.2
565.5
569.1

LEVEL 1
Trading: Bonds

LEVEL 1
Trading: Swaps

Base portfolio
Bonds/Frankfurt

Base portfolio
Bonds/New York

99.0%

97,5%

50
45
40
35

95.0%

30
25
20

15
10
5

Price calculator
(user exit)

< 85

< 500

< 75

< 65

< 55

< 45

< 35

< 25

<5

< 15

<-5

<-15

<-25

0
<-35

-134.3
-93.3
-87.5
-79.2
-74.3
-71.3
-60.6
-58.3
-57.7
-55.5
-53.9
-52.6
-49.0

LEVEL 2
Trading: Interest products

Risk management

Confidence
Interval

<-45

< -55

Market interest rates

Exchange rates
Stock prices
Volatilities
Correlations

<-75

Full valuation
Delta method
Delta/gamma method

Company
Portfolio
Profit center
Product

< -65

Historical market
parameters

< -95

Non-linear
Options
Caps
....

Historical simulation
Monte Carlo

< -85

Bal. sheet
Debts
Assets
....

Evaluations

Calculation

Credit Risk Management

Process
T
r
a
n
s
a
c
t
i
o
n
M
a
n
a
g
e

m
e
n

End-of-Day Processing

Request

Limit check

Attributable
amount

O.K.

Deal

Limit

Reporting
Exposure Limit
Partner
8.5
10.5
Euro Bank
632.3
700.7
United Bank
688.1
716.7
Carlton
12.3
4.8
Brightline

Free Limit
2.0
68.4
28.6
-7.5

Util. in %
80.9%
90.3%
96.0%
256.3%

Start of workflow, when limit is Breached

SAP AG 2009. All rights reserved. / Page 21

SAP CRA: Relative Limits

Choose
Utilization
Portfolio

Choose
Reference
Portfolio

Utilization Key
Figure

Can choose the Utilization

Portfolio and the Reference
Portfolio. They can be same or
different.

Reference Key
Figure

Can compare same key figures

from different portfolios
or
Different key figures from the
same portfolio

SAP AG 2009. All rights reserved. / Page 22

Define Limits
Percentage

Define Limits
Absolute

Limits can be defined as

Percentage, Absolute Or Both
Percentage and Absolute

Portfolio Analyzer

Investment strategy

Determination of benchmark

Improvement and alignment

SAP Treasury
and Risk
Management

Reporting
and revision

Risk adjustment

Performance measurement

Benchmarking

Portfolio Analyzer
SAP AG 2009. All rights reserved. / Page 23

Building organizational
structures

Asset allocation

Business transactions

SAP PA: Performance Analytics

Benchmarking Reporting

SAP AG 2009. All rights reserved. / Page 24

SAP Treasury and Risk Management

THANK YOU

September 2011