Problem trades are ‘eating up forex profits’, says SunGard

Nearly a quarter of FX transaction profits are eaten up by ‘exceptions’, or problem trades, according to a survey of 500 financial institutions. The lost margin is a result of staff and compensation costs, said SunGard ePI, the processing unit of US treasury trading technology firm SunGard, which carried out the survey.

"Clearly, the potential for profit enhancement through effective automation in the top 500 banks is still considerable, especially in today’s heightened risk environment," SunGard concluded.

Despite the potential costs, only one third of these institutions have fully automated their FX exception management processes. This is characterised by firms applying the same level of technology to repairing exceptions as for non-exceptional transactions, explained Suzanne Sisolak, a vice-president in product management at SunGard ePI in New Jersey.

Just over half the full sample, which included respondents in securities as well as FX, have automated alerts and triggers built into their systems. While 81% of institutions said they had the ability to identify exceptions through automated reconciliation.

The pace of development for automating exception management, however, is expected to pick up, with an estimated 50% of global top 500 institutions having implemented fully automated exception processing by the end of 2004, SunGard ePI said. "These responses indicate the market growth for exception management in the industry. While many firms have automated one piece of the process, it is imperative to automate the entire exception management process to achieve straight-through exception processing."