iS
Straight dealing
RaDO
band Issue 12/Novem 16, 1992
Dealing rooms are an integral part of banking operations and as
such rarely make headlines. But in the turmoil surrounding the cur-
rency markets in recent months, the dealers have come in for a lot
of mass media attention - little of it positive. What do the people
in dealing rooms actually do? What is their function within a large
bank, and how do they operate? Raboband International goes into
the treasury departments to find out.
FX iwmiMdeiinS
gium, Frankfurt, Milan and Paris - are in
constant contact with each other. 'The way
it works is that when Utrecht starts its day,
we are almost ready to go home,' says Van
Koningsveld, 'when Utrecht finishes, New
York is working. That means we have almost
24-hour coverage of the markets.' World-
wide contact between Rabobanks is so im
portant that early next year a new Communi
cations system is to be installed. 'The
system is a number of Reuter pages that
are exclusive to the bank and accessible
only to us and our foreign offices,' says
Knaap. 'Each office can then input the
positions it wants to lay off so that we all
know exactly what is available and required
worldwide.' The bank is also working on
another system designed to provide up to
factors are as low as possible.' According
to Knaap, very little of the dealing room
operation involves speculation. 'I'd say it's
a relatively small percentage, probably less
than one percent of the daily volume that
passes through the department. On the other
hand, you could argue that the volume we
deal with is very great, so even one percent
adds up to a fairly large figure. But I should
stress here that every dealer running a
position is subject to risk limits - he or she
may not exceed those limits. And by the end
of the day, they have to make sure their risk
levels are within a predetermined band.'
All dealing decisions are based on a wealth
of information provided by the complex com
puter systems installed in the dealing
rooms. Very little is left to chance. The in-
dividual dealers' experience also comes
into play, but here again, both Van
Koningsveld and Knaap stress that
computerized mathematical analysis of in
formation is essential in decisions. 'We use
chart-like models in fx especially,' says
Knaap. These provide the dealer with as
much information as possible on what the
market is doing. We know that a lot of our
counterparties are using similar systems to
help them make transaction decisions. You
can't ignore them even if you're not con-
vinced of their accuracy, because you may
miss out on an important factor your com-
petitors are picking up on.'
the minute information on transactions.
'This is a system whereby the dealers input
their transactions immediately when the
deal is done. The computer will then auto-
matically update the risk positions and
shows counterparty risk. It is a way of
further controlling the risk involved in the
business while making more efficiënt use
of the available back-office capacity,' Knaap
says.
Risk factor If the media is to be
believed, dealing rooms are not about con
trolling risks, but about speculation. 'This is
a common misconception,' says Van
Koningsveld. 'Of course there are people in
our business who are not what they should
be. You get that in any business. Unfortu-
nately, the very small percentage of less
scrupulous dealers tends to give us all a
very negative image - especially because of
the large sums of money involved. But, in
fact, a great part of our job is ensuring risk
Insight Competition is certainly tough
in the world of dealing. The work involves
not only thorough knowledge of global mar
kets and their movements, but also the abil-
ity to focus total concentration on the mass
of ever-changing information that flows con-
tinually into the department through the
computer sereens. 'Knowledge and insight
into how the market works is definitely a
prerequisite and to some extent you can
make forecasts or predictions based on
past experience,' Van Koningsveld agrees,
'but contrary to the wild accusations in the
press recently, no one could have foreseen
what happened in September. And anyone
who says they saw it coming is, to put it pol-
itely, being economical with the truth.
Dealers didn't create the situation, all we
did was take advantage of it. We have a re-
sponsibility to do the best we can for the
bank and its clients and like all our com-
petitors, that's exactly what we did.'
The people seated at clusters of work
units, each equipped with three or
four computer sereens, exude a
sense of concentration. They talk quietly
into telephones, exchange information with
colleagues, piek up a cup of coffee from the
machine. The Rabobank's Dealing Rooms
are a far cry from the Standard media
images of frenzied, screaming madmen
wearingtelephone receivers slung over their
shoulders like some kind of wierd futuristic
jewellery.'Of course there are hectic times,'
admits Theo van Koningsveld, Treasury
Manager at the Singapore office, 'but nor-
mally we'rejust getting on with our work and
that requires deep concentration. So the at-
mosphere tends to be quiet.' Van Konings
veld doesn't look like a yuppie, nor does Ton
Knaap, head of Foreign Exchange and
Money Market trading in Utrecht. They look
like bankers - which is exactly what they are.
The role of dealers is to use available ca-
pital to the bank's own and its customers'
best advantage. Money flows through the
Treasury from corporate clients of all sizes,
from the member banks in the Netherlands,
and from outside the organization. 'Treasury
work, that's what we do in the dealing room,
is an integral part of the bank's business.
We work primarily for our own clients, but
we also do a lot of business with other
banks and financial institutions. Our triple A
status attracts a lot of money and business
because people feel safe with us,' says
Knaap.
Financial markets Dealing room oper
ations are structured to cover the whole
range of financial markets. 'If you look at
what we do here in Utrecht,' explains
Knaap, 'you'll see that roughly speaking we
have three dealing areas. The first is foreign
exchange, known in the business as fx, and
money markets. The most widely used
products. Then we have the capital mar
kets, where we deal in bonds and equity.
The third area, which is fairly new, is the off
balance sheet products. These are pro
ducts which have only been developed over
the past 10 years and include interest rate
swaps, FRAs, futures and so on.' Each of
the three groups has a division which oper-
ates in the market on a professional basis.
'We also have a cliënt department,' Knaap
continues. In some areas, there are actual
ly two cliënt desks. One works with the
bank's large corporate clients and the other
with the member banks so that the whole
organization and its clients can take
advantage of the opportunities generated
by the market and dealing rooms.
Communications All the bank's
dealing centres - in Utrecht, London, New
York, Singapore, Flong Kong, Indonesia, Bel-
