Introduction to Treasury
Our Treasury department is responsible for:
- investing the Chelsea's liquid funds
- raising wholesale funds
- transaction of financial derivative instruments for risk mitigation purposes
As a building society we specialise in long term mortgage lending which is financed primarily by short term retail savings. This can on occasion create maturity mismatches. To ensure that we meet our obligations as they fall due, we keep an adequate amount and mix of liquid funds to meet adverse cash flows. This level of liquidity is such to maintain confidence that we can meet our commitments as they fall due.
The FSA’s handbook contains the requirements, rules and guidelines that apply to building societies.
Types of assets held:
- cash deposits
- certificates of deposit
- gilts
- treasury bills
- floating rate notes
- fixed rate eurobonds
- mortgage backed securities
Wholesale funding is raised to meet shortfalls in cash requirements when they arise. Funding is obtained from a variety of sources over a wide spread of maturities.
Section 7 of the Building Societies Act states that at least 50% of the funds of a building society must be raised in the form of shares held by individual members of the society. Conversely we may hold no more than 50% of total funds in wholesale instruments.
Types of instrument:
-
short term
- Time deposits
- Certificates of deposit (CD)
- Euro Commercial Paper (ECP)
- long term
- Euro Medium Term Notes (EMTN)
- Bank loans
We use derivatives to mitigate the financial risk, in both assets and liabilities, of changes in interest rates and currency movements.
The Futures and Options Association (FOA) has published guidelines to all end users of derivatives which are considered to be best practice.
Types of instrument:
- swaps (including FTSE index swaps)
- forward rate agreements
- plain vanilla over the counter (OTC) options such as swaptions, caps, collars and floors (options purchased only)
- exchange traded futures/options and FTSE (or similar) OTC swaps/options (options purchased only)
- foreign exchange swaps and forward contracts, used to hedge currency funding
