Final Report

Designing Process Flows and Automation of Modules of FX

Investigation Processes

A Report

By

Anurika Arora (13PGDM079)

JP Morgan Chase

A Report Submitted in Partial fulfillment of the requirements of PGDM program

International Management Institute

New Delhi 110016

6th July 2014

 Certificate of Approval

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 Acknowledgement

I express my sincere gratitude to Organizational Guides Mrs. Geetha Menon (VP, FX Ops) and Mr. Chirag

Mehta (Associate Manager, FX Ops) for providing me an opportunity to work in Summer Internship Project in

an esteemed organization JP Morgan Chase bank. I express my sincere thanks to Faculty Mentor Prof. Sanjay

Dhamija for guiding me in this Project. I am very grateful for their constant support throughout the duration of

the entire project.

Further I express my sincere thanks to Mr Hemant Sethia, Mr. Sarang Sharma, Mr Sheldon Pinto, Ms. Manasee

Pawar, Ms. Sonia Rajan, and the entire FX Team who were kind enough to give an opportunity to work under

their immense expertise. I sincerely express my thanks to our Professors for their valuable guidance. I thank

each and every one of them for their valuable suggestions, motivation and encouragement. I wish to express

gratitude to all those, whom I have worked and interacted with and whose thoughts and insights helped us to

further increase our knowledge and understanding of the project.

I would also like to extend our thanks to various people, factors and situations which contributed to the

successful accomplishment of the task. Though, I am unable to mention all of them individually, but the debt of

gratitude to them is no less.

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 Executive Summary

Process Optimization Project in Foreign Exchange Investigations Team

J.P. Morgan has a large Global Service Center in India that is rapidly expanding in scope and size. The main

agenda of this service center is to deliver process innovations that benefit our lines of business and support

operations across the world. In 2002, JPMorgan Chase established its Global Service Center in Mumbai,

providing 24x7 middle- and back-office supports for every line of business at JPMorgan Chase. Today, Mumbai

is one of J.P. Morgan's largest locations outside of the United States and serves as a regional hub for their many

businesses in India. In recent years, J.P. Morgan launched commercial banking in India in 2007; in the same

year, J.P. Morgan Asset Management in India received a license to sell to retail investors in the country and

launched its first mutual fund, the J.P. Morgan India Equity Fund.

As a part of Summer Internship Process, I was inducted as an intern in Foreign Exchange Investigations Team.

This team works as back office operations in the process of FX Payments and deals with Trade Support stage in

the Trade Life Cycle. Keeping in line with the agenda of the service center to deliver process innovations, the

summer internship project assigned has the objective to deliver process innovation in FX Investigations

Processes. For the process innovation to take place, the primary requirement of the internship was to understand

the different processes, products and web applications used in the team. There are 5 types of processes in the

FX Investigations team, which are differentiated on the basis of Clients; Corporate, Retail, Private Banking

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Clients. The difference in the processes is majorly due to the SLAs and the regulations in FX Payments. The

scope of the project was limited to the FX investigations and SDI team.

The first step in the action plan of the Summer Internship, was to design the process flows of the different

processes; SDI, FX Trader, Retail, Auto CV and BBVA. These process flows would enhance the understanding

of the processes and were documented as part of SOPs. The SOPs are required for these purposes in the team.

 Training and Development

 Process improvement

 Crisis Management exercise

The processes required the use of different systems and web applications. If the FX payment is held up at some

location, then a case is formed and an investigator is assigned to the case. The investigator checks the entire

chain of banks in the FX payment process flow to locate the payment and notify the remitter and the

beneficiary. In some scenarios, the payment details are changed by the remitter and these amendments have to

be incorporated and the payment is reinitiated. There are different types of scenarios which give rise to different

cases like BCNR, ROF and UTA etc depending on the process type. After completing the process flows, time

study of a process was required to analyze different activities in a process. This time study was achieved with

the help of a time tracker that was built for the SDI process.

The next step in the action plan was to identify modules which are completely manual and require no human

intelligence input. These modules can be automated with the help of VBA (Visual Basic for Applications). The

automation helps immensely in process improvement. The automation required interfacing of web applications

running on Internet Explorer or mainframe with MS office applications (Access, Excel, and Outlook). After the

interfacing was successful, different modules across processes were identified and automated.

The third step in the action plan was to develop managerial tools which can be used by the senior management

to track the productivity of employees. A productivity tracker was developed to assess the relative productivity

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of team members. An MIS was developed to record the details of the One on One interaction between managers

and employees.

The Summer Internship Project achieved 1.1 FTE (Full Time Employee) Save in the processes and improved

their efficiency. Apart from working in the FX investigation processes, I was involved in the FX Ops drafting

project which automates the process of drafting confirmations.

The project required the intern to have skills in MS Access, MS excel, VBA programming and basics of FX

payments workflow. It gave the opportunity to work with highly skilled people in the banking domain and

suggest ideas for process improvement. After the successful completion of the project, some suggestions for

future research were given in the areas of automation and capacity planning.

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Contents
CERTIFICATE OF APPROVAL............................................................................................................................................................ 2

ACKNOWLEDGEMENT.................................................................................................................................................................... 3

EXECUTIVE SUMMARY................................................................................................................................................................... 4

INTRODUCTION............................................................................................................................................................................. 8

INDUSTRY ANALYSIS......................................................................................................................................................................................8
PEST ANALYSIS & PORTER’S FIVE FORCES.......................................................................................................................................................8
COMPANY OVERVIEW.................................................................................................................................................................................11
CORPORATE INVESTMENT BANK...................................................................................................................................................................13
BUSINESS MODEL OF CORPORATE INVESTMENT BANK......................................................................................................................................13
FINANCIAL ANALYSIS...................................................................................................................................................................................15
ORGANIZATION HIERARCHY.........................................................................................................................................................................16
TUSHMAN & NADLER’S CONGRUENCE ANALYSIS OF THE ORGANIZATION............................................................................................................17
SWOT ANALYSIS.......................................................................................................................................................................................18
TEAM INFORMATION..................................................................................................................................................................................20
OBJECTIVES OF SUMMER INTERNSHIP PROJECT...............................................................................................................................................21
KEY DELIVERABLES.....................................................................................................................................................................................21

SUMMER INTERNSHIP PROJECT................................................................................................................................................... 22

PROBLEM STATEMENT................................................................................................................................................................................22
LITERATURE SURVEY...................................................................................................................................................................................23
DELIVERABLES............................................................................................................................................................................................33
Process Flows Designed....................................................................................................................................................................33
Tactical Enhancement Measures (Automation of Modules)............................................................................................................34
Managerial Tools..............................................................................................................................................................................36
FX Ops Drafting Project....................................................................................................................................................................37

RESULTS AND DISCUSSION........................................................................................................................................................... 38

RESULTS...................................................................................................................................................................................................38
SUGGESTION FOR FUTURE RESEARCH.............................................................................................................................................................39
LIMITATIONS.............................................................................................................................................................................................39
RISK.........................................................................................................................................................................................................40

LIST OF TABLES............................................................................................................................................................................ 41

LIST OF FIGURES.......................................................................................................................................................................... 41

LIST OF ABBREVIATIONS.............................................................................................................................................................. 41

LIST OF APPENDICES.................................................................................................................................................................... 41

REFERENCES................................................................................................................................................................................ 42

APPENDIX.................................................................................................................................................................................... 43

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Introduction

JPMorgan Chase & Co. (NYSE: JPM) is one of the world’s largest banking institutions, providing

comprehensive banking and financial services to a diverse client base throughout the world. JPM provides

retail, commercial and investment banking, and asset and security management services primarily in the United

States and increasingly throughout the world. Its operations are divided into six distinct business segments:

investment banking, retail banking, card services, asset management, commercial banking, and treasury &

securities services. A seventh segment, corporate & private equity, manages JPM’s own portfolios and other

activities. JPMorgan provides banking and other financial services to a wide variety of clients including

individuals, small and large businesses, governments, non-profit organizations, and global corporations. JPM’s

operations have seen substantial growth due primarily to the acquisition of struggling firms Bear Stearns and

Washington Mutual in 2008

Industry Analysis

The US banking industry has recovered from the losses of late 2008 crisis, but is currently running on stagnancy

levels. A number of recent developments have shaped the Banking industry in the following manner.

PEST Analysis & Porter’s Five Forces

PEST Analysis

 Frank-Dodd Act  High Domestic  Society remains  Increased demand for

unemployment rate
 Increase in interest
 Low Consumer
rates confidence
 Increase in deposit  Low borrowing
insurance rates interest rates
frustrated with large mobile access to
banks and bonuses financial services
 Consumer trend in products and banking
moving towards  Advanced security
community banks features

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Figure 1: Pest Analysis

The banking and finance industry has been in a mature life cycle phase for decades. Its trends mirror the

performance of the U.S. economy closely. This is a well-established industry in the U.S. economy, with all

competitors vying to increase market share. Based on the various aspects of this industry, following Michael

Porter’ Analysis of Industry can be realized.

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Figure 2: Porter’s Five Forces

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Company Overview

JPMorgan Chase (NYSE: JPM) is one of the oldest financial institutions in the United States. With a history

dating back over 200 years, they are a leading global financial services firm with assets of $2.4 trillion.

Operating in more than 60 countries, they have 260,000 employees. They serve millions of consumers, small

businesses and many of the World's most prominent corporate, institutional and government clients. A leader in

investment banking, financial services for consumers, small business and commercial banking, financial

transaction processing, asset management and private equity, and their stock is a component of the Dow Jones

Industrial Average.

The name JP Morgan Chase comes from its two components JP Morgan Company and Chase Manhattan Bank.

Chase Manhattan was originally formed in 1799 as the Bank of the Manhattan Company, and later became one

the most prestigious banking institutions under the helm of David Rockefeller. As the world’s first billion-

dollar company, J.P. Morgan was formed in 1895 and became the most important institution in American

finance. Under the Glass-Steagall Act, the company was forced to separate its investment banking and

commercial banking operations, and thus spun off its investments arm into the future Morgan Stanley. Recently

two big acquisitions have shaped its operations in investment banking domain. In 2008, it acquired Bear Stearns

and Washington Mutual. Through these acquisitions JPMC gained access to esteemed clientele, talented

employees and advanced investment banking infrastructure.

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JP Morgan’s operations are divided four lines of business

Lines of Business

Corporate and Investment

Treasury and Security Services
Investment Bank
Bank Global Corporate Bank

hedge funds, private equity and cash liquidity

Asset Management Investment management services in equities, fixed income, real assets,

Credit, banking and risk management for Individuals and Families

Consumer & Community Trust and estate planning

Banking
Wealth structuring
Investments

Financial institutions

Commercial Banking
Municipalities
Corporations

Figure 3: Lines of Business

Revenue Sources
Investment Banking
6%
Retail Financial Svs
9% 22%
Card Services
8% Commercial Banking
6% Treasury & Securities
Asset Management
17% 31% Corporate/Private Equity
Figure 4: Revenue Sources

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As of the 3rd quarter of 2010, JPMorgan’s revenues were derived as above from their business segments. Over

the past few years, major sources of revenue have remained to be retail Financial Services (Consumer and

Community Banking) and Investment Banking.

Corporate Investment Bank

This segment focuses primarily on corporate finance needs for their 7,700 institutional clients throughout the

world. Approximately 20% of these clients are governmental entities, hospitals, schools, and non-profits. The

remaining 80% are mostly corporations and financial institutions. The Investment Bank segment helps these

clients to manage their balance sheets and plan for future changes or growth. Its profitability is driven by

collection of transaction-based and service fee income, as well as investment margins made between trading

activities, relative to the cost of the assets traded and compensation expenses for its employees.

The CIB has 52,250 employees in 60 countries with a mission to serve 7,700 of the world’s most significant

companies, governments and institutions. This LOB provides a range of services and they have 13000

employees in their front office unit and remainder in Middle and Back office handling technology, operations,

risk and finance.

Business Model of Corporate Investment Bank

On analysis of Porter’s five forces model, it can be concluded that in the banking industry, products are largely

on similar lines. The business strategy of JP Morgan Chase is of differentiation strategy. They differentiate their

products based on their brand identity. Their consumers identify them as a trustworthy and first class brand. The

mission statement of JP Morgan reads as “First Class Business in First Class way”. JP Morgan uses the Porter’s

Five Forces to develop their business strategy. With the number of competitors in the banking industry, in order

to maintain their competitive advantage, they offer many perk and rewards to their consumers. Client focused

services and incentives are what distinguish JP Morgan Chase.

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They realize the fact that there are several banks available that retail customers can invest their money in and so

they offer incentives programs to both employees and customers. In order to build client relations, they use

Client Relationship Management software.

JP Morgan Chase follows are fully integrated approached towards their IT solutions. Each business unit has its

own IT department and applications. They periodically perform extensive research into investing in new

technology; they are at the forefront of technology in the financial sector.

Figure 5: CIB Integrated Client Coverage Model

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Financial Analysis

Key Highlights
 Raised nearly $500 billion in the public equity and bond capital markets

 In equities, Facebook closed out 2013 with a $3.9 billion follow-on offering, with J.P. Morgan acting as

joint book runner. This was the largest follow-on offering of 2013 and the second-largest technology

follow-on since 2006.

 In Public Finance, JP Morgan came through for public agencies around the U.S. During the year, it led a

$656 million series of bonds to modernize housing for New York City’s lowest income residents

 Served as senior manager on a $1.5 billion bond offering for JobsOhio

 Lead manager on $1.3 billion in revenue bonds for the University of California

Financial Performance of Corporate and Investment bank

 Reported net income of $8.5 billion

 Reported revenue of $34.2 billion

 Return on Equity of 15%

Financial Performance of JP Morgan Chase Bank

 In 2013, Earnings Per Share stand at $4.35 which showed a decrease of 16% from 2012 (See Exhibit

1.1)

 In 2013, Book Value per share stand at $40.81 which showed an increase of 5% from 2012 (See Exhibit

1.1)

 In 2013, ROE of Corporate and Investment Bank was 15% , down from 18% in 2012 (See Exhibit 1.2)

 Over 2013-2012, Corporate clients have grown by 20% (See Exhibit 1.3)

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Organization Hierarchy
Chairman and
Chief Executive
Officer
Jamie Dimon

Corporate & Consumer &

Asset Commercial Investment Bank Community
Management CEO Banking CEO CEO Banking CEO
Mary Callahan Erdoes Douglas B. Petno Daniel E. Pinto Gordon A. Smith

Managing Director Managing Director

Executive Director Executive Director

Vice President Vice President

Associate Vice
President

Associate

Team Lead

Team Member

Figure 6: Organisation Hierarchy

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Tushman & Nadler’s Congruence Analysis of the Organization

Figure 7: Congruence Model

The Congruence Model is based on the principle that an organization's performance is derived from four

elements: work, people, structure, and culture. The higher the congruence, or compatibility, amongst these

elements, the greater will be the performance. To avoid this type of incongruence, the Congruence Model offers

a systematic way to consider the root elements that drive organizational performance. We analyze each

component of the company in detail:

1. Work: The tasks are done in a highly structured manner with full compliance with Standard Operating

Procedures. All the tasks and processes are fully documented and reviewed at the end of respective

periodic cycles. The tasks require the employees to take responsibility and show innovative approach to

handling problems. Each task is assigned a timeline and milestones are then reviewed in weekly

meetings. The team members are encouraged to take assignments which challenge them and ensure

continuous learning.

2. People: The people recruited in this organization are highly skilled in their respective domain. In

working as an employee of an esteemed organization they display high level of confidence and

convincing skills, which are required as part of their daily team interactions. The average age of people

working in the Foreign Exchange department is 32 years. Their previous experience has also been in the

banking area and therefore they are highly experienced in the banking domain.

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 3. Organizational Structure: The organization has an organic structure which has been evolving over

the years. The organization is divided into different Lines of Business, which are further divided into

different business units. This division lends clear division of responsibilities.

4. Culture: There is a system of openness in the working culture. The information flow happens across

all the levels of hierarchy. All the employees are addressed by their first names irrespective of

designations. Team members can directly approach their Executive Directors without having to go

through each level in the hierarchy.

SWOT Analysis

Diversified revenue streams providing income visibility across business and economic cycles
Excellent liquidity and capital position, declining provisions and NPAs relative to assets
Strengths
Strengths Maintains strong franchise performance and brands across various business segments

Over dependence on North America market makes it vulnerable to economic cycles

Weaknesses
Weakening expense management
Weaknesses

Growth in mobile banking could reduce branch banking expenses

Growth in the US credit card market
Opportunities
Opportunities Buoyant asset management market

Increases in FDIC insurance premiums and other proposed fees likely to affect margins
Weak economic growth prospects of the US economy
Threats
Threats Increasing regulatory challenges could increase compliance risks

Figure 8: SWOT Analysis

Strengths:

JPMC has strong franchises across business divisions – investment bank, commercial banking,

retail financial services, treasury and security services, asset management, and card services. JPMC has strong

liquidity position across its businesses. Its capital position is also strong. JPMC’s deposits increased from

$1,009,277 million at end 2008 to $1,193,593 million at end 2012. During the same period, loans declined to

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$733,796 million at end 2012 from $744,898 million at end 2008. As a result, the company’s deposits-to-loans

ratio increased from 135% at end 2008 to 163% at end 2012. Strong liquidity and capital position enable the

company to meet short term and long term obligations without undergoing undue stress. The company's revenue

streams are diversified and well balanced. JPMC generates revenues through five business segments.

Weaknesses:

JPMC's expense management shows weakening trend. The company’s noninterest expenses expressed as a

percentage of total net revenues increased from 52.1% in FY2009 to 66.7% in FY2012. For a firm with assets of

$2.4 trillion (at end FY2012) and operations in more than 60 countries, JPMC is over dependent on a single

geography i.e., North America. Since 2003, the firm has been dependent on North America for more than 72%

revenues and profits. North America, JPMC's largest geographical market, accounted for 81% of the total

revenues in 2012, compared to 74.1% in 2008. Over dependence on North America makes it relatively

vulnerable to economic and business cycles in the continent.

Opportunities:

The global asset management industry has been growing at a positive rate over the last five years. According to

MarketLine, the global asset management industry reached a value of $82,599.1 billion. Growth in the US

credit card market has been tremendous. At the end of 2009, Chase cards, JPMC's credit card service division

had more than 145 million cards in circulation and $163 billion in managed loans. Customers used Chase cards

to meet more than $328 billion worth of their spending needs in 2009. With the acquisition of WaMu, JPMC

became nation’s leading MasterCard and Visa issuer. The credit card transaction value in the US is forecast to

grow to $2 trillion by 2014. Additionally, growth in mobile banking could reduce branch banking expenses. The

US mobile banking market is expected to grow at a rapid pace in the near future.

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Threats

Financial institutions in the US and other regions have been facing increasing regulatory challenges. For

instance, Dodd-Frank Act which was signed into law on July 21, 2010 could have significant impact on the US

banking industry. The Dodd-Frank Act imposes new regulatory requirements and oversight over banks and

other financial institutions in a number of ways. The growth prospects in the US economy are weak and

estimates suggest that US economy is likely to remain weak in 2014.

Team Information

As an intern I was offered an operations profile, CDP (Corporate Development Programme) Operations

Analyst. In the Corporate and Investment Bank LOB, I was assigned in the Foreign Exchange Department and

in the Foreign Exchange Trader and Investigations Team. The Team of FX Trader manages the outgoing

Foreign Exchange payments. There are 2 types of FX payments

1. Incoming FX payments: When a Chase Bank, US customer receives payment and gets credited in USD

currency.

2. Outgoing FX Payments: When a Chase Bank, US customer gets debited in USD and sends FX payments

to a Beneficiary.

There are two teams that deals in FX payments of Chase Bank Customers, one operates from Delaware, US and

the other operates from L&T towers, Mumbai. I was part of the operations of the Mumbai team which

specifically deals in outgoing FX payments. There are mainly two types of customers:

o Retail Clients

o Corporate Clients

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Objectives of Summer Internship Project

 Understand the different processes in the FX Trader Team:

1. Trader & Investigation

2. BBVA

3. SDI Investigation

4. Auto CV

5. Retail

 Understand the different Products offered in FX Payments and modes of Payment

 Understand the different systems / Web Applications used to process FX Payments.

Key Deliverables

1. Design process flow charts of the different processes involved in the FX Investigations Team

2. Analyze these processes to identify modules of Non-Value Added activities

3. Suggest ways of Tactical enhancement by automation of modules of NVAs

4. Design Managerial Tools to monitor Team’s productivity and feedback.

As a part of Summer Internship Project, I was required to design the process flows of 5 processes in the

team. In these processes there are various scenarios which occur on a daily basis which need to be

documented as part of the SOP (Standard Operating Procedures). Visual workflows of these scenarios

and processes would benefit the team in the following ways

1. After the process flows have been verified by the Team Leads, these can be documented as part of the

Standard Operating Procedures of the Team

2. These would increase the efficiency of the processes , as it would decrease the time spent on processing

each payment inquiry

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 3. After the mapping of the process flows is complete, Modules of process can be identified which are

NVA(Non Value added activities)

4. Tactical enhancement measures can be suggested in the following ways

 Automation of activities

 Integrating the web applications used on the processes

 Suggesting new features that could be added in the web applications

5. Managerial tools need to be designed to track the productivity levels of the team members. Additionally

these tools should help in getting feedback from the employees.

Summer Internship Project

Problem Statement

Based on the type of clients, following types of Process are being followed as part of FX Investigation Process.

 Trader: This process is carried for Corporate Clients.

 SDI: This process is carried for Private Banking Clients and a different platform is used for processing

these payments.

 Retail: This process is carried for Individual Clients or small scale business clients.

 Auto CV: This process allows JP Morgan Chase to convert the USD to FX before sending to the

Beneficiary Bank. In FX Transactions Beneficiary Bank used to charge the spread for currency

exchange, but with introduction of Auto CV, JPMC would charge the spread for currency exchange.

 BBVA: For a particular financial institution, this process was developed, such that all the FX

Transactions for this Bank are auto converted into local currency before releasing the payment.

There are three parts to the problem faced by the FX Investigation Team:

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 1. As a result of introduction of new products and regulation changes, the processes are evolving and the

team required the documentation of these processes. In order to document the processes, I was assigned

the task of designing the process flows so that they can be included as part of SOPs.

2. Additionally the team faced the issues of understaffing and so wanted to identify modules of the

processes that can be automated with the help of Excel VBA (Visual Basic for Applications). As a result

I was required to suggest Tactical Enhancement measures.

3. The need to assess the productivity levels of the team members was also identified and I was assigned

the task to design Managerial Tools that can be helpful.

Literature Survey

Trade Life Cycle

Figure 9: Trade Life Cycle

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The following stages are present in the lifecycle of Trade

Client On boarding: The process of getting to know the client (KYC) and their needs. Sales Team is

responsible for all the client communication.

Trade Origination: This stage is carried out in the Front office (Order Room/ Trading Floor). Orders are

received by clients through Sales trader by phone / electronically.

Trade Capture: New orders are entered into Order Management System (Trading System).

Trade Execution: Various avenues are used for execution of Trade (Exchange/ OTC)

Trade Support: At this stage, following activities take place

 Trade Event Management

 Trade Flow Management

 Investigation/ Trade break resolution

Validation: Reconcile orders with execution reports. The trade execution against the order is verified. If any

order is open, then clients are informed.

Booking: All processed orders are entered into firm’s books and financial accounts and firm’s

records/financials are updated.

Clearing: Clearing agency issues contract to both parties. At this time both parties accept the trade terms.

Confirmation: At the end of the trading day paper confirmations are mailed to clients. The confirmation

contains the full details of the trade. The clients use this as transaction record.

Settlement: After the counterparties have transaction and funds have changed hands, the trade is settled. Total

time taken to process the trade after the trade date is called settlement timings (T+2). Settlement time varies

based on trade venues and other factors.

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Accounting: Maintains the company and clients accounts. This stage is responsible for calculating balance and

maintains required funds.

Key Terms used

Front Office: This is the part of the business that is directly involved with trading activities. The people working

in this office are traders, salespeople, marketers, researchers.

Middle Office: This office deals with the control functions that support and monitor the activities of the front

office.

 Trade Booking

 Trade Amends

 Trade break resolution/ Investigations

 Reaffixes

 Terminations/Unwinds

Back office: This office provides the necessary outputs that are generated from front and middle office.

 Confirmations

 Settlements

 Reconciliations

 Accounting

FX Investigations team is a part of Back Office of FX Trading Department.

Flow of FX Payments
FX trade is the purchase (or sale) of one currency paying for it with another currency at an agreed price for

settlement on an agreed date.

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 Correspondent Beneficiary Ultimate
Remitter Remitting Bank
Bank Bank Beneficiary

Figure 10: Flow of FX Payments

Remitter: The JP Morgan Chase Client who holds an account in JPMC Bank in USD currency. The remitter

wants to send FX currency to his client, the beneficiary. The party initiates the foreign exchange payment. They

are also known as “By Order Party”.

Remitting Bank: The remitter holds an account with this Bank. In this case, the remitting Bank is JPMC.

Correspondent Bank: Bank which acts as a clearing party for another bank or broker in a particular market.

Correspondent banks are banks where JPM Chase NY maintains an account with.

Beneficiary Bank: The Beneficiary holds an account in the Beneficiary Bank

Ultimate Beneficiary: The final recipient of the FX currency

For example;

Mr X is a JPMC customer, who wants to send 10000 INR to Mr Y in India. The Live Market exchange rate is 1

USD = 50 INR. Mr X’s account is debited for 200 USD based on the current exchange rate. JPMC would send

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200USD to Correspondent Bank, HSBC in India which converts the 200 USD to 10000INR based on the

prevailing exchange rate. Correspondent Bank then sends this money to Beneficiary Bank HDFC, which then

credits the account of the Ultimate Beneficiary. But because of Exchange Rate fluctuation, JPMC could make

profit or loss on the above transaction. Therefore through FX payments, JPMC earns from the charges, it levies

on the customer and through the Exchange Rate fluctuation.

FX Investigation Process Flow

When a JP Morgan Client wants to send a FX Payment, he books a Contract with JPMC and initiates the

payment on the various platforms available to him. This payment is passed through payment manager which

validates the transaction and in case of any missing details, the payment is held and a case is assigned to the FX

Investigator to investigate the reason for held up payment. The Investigator contacts the client for details and

fixes the issue with payment, and releases the payment.

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 FX Payment Investigations Process Flow
Phase
FX Client
System

FX Payment initiated by
client
FX Payment
Manager

Transaction
Validated STP
Validation

HIT
Trader (Corporate
Clients)

Investigated Case assigned to

Investigator on System A
Investigator
(System A / Phone Call/ Email)
Retail (Individual investigates
Clients) the reason for
delay

Investigator
Calls the
client/ banks in
FX Investigation Team

BBVA (Payments in chain for

MXN which are Auto further details
Converted)

Investigator
Payment Released
fixes the issue
Auto CV (Financial
Institutions)

Figure 11: FX Investigation Flow

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Communication between the Banks: SWIFT

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a network that

enables financial institutions worldwide to send and receive information about financial transactions in a secure,

standardized and reliable environment. The majority of international interbank messages use the SWIFT

network. SWIFT transports financial messages in a highly secure way but does not hold accounts for its

members and does not perform any form of clearing or settlement. The SWIFT payment system relies upon

payments being forwarded by intermediate banks. Sometimes these banks can deduct a nominal handling fee.

There are various types of messages that can be sent via swift:

1. MT 0XX

System Messages

2. MT 1XX

Customer Payments and Cheques

3. MT 2XX

Financial Institution Transfers

4. MT 3XX

Treasury Market

Swift is used in the FX team to send the following types of messages:

1. Payment Orders

2. Advice to receive

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 3. Confirmations

4. Information Messages.

The most commonly used messages are MT103 and MT 202 message, which relates to payment orders.

o MT 103: The Single customer credit transfer message type is a payment order originated by a customer

of one financial institution, for the movement of funds to another financial institution in favor of one of

its customers. Either the Ordering customer or the beneficiary customer (or both) must be a non-

financial institution, for example, the following transactions:

o Between Two companies

o Between a company and an individual

o Between two individuals.

o MT 202: The General Financial Institution Transfer message type is a transfer order for a correspondent

institution to credit funds to the beneficiary institution. All parties in the transaction must be financial

institutions. These transactions are between two banks/ financial institutions.

Currency Pair

The two currencies that are traded in the FX payment form a part of the currency pair. The first currency of a

currency pair is called the "base currency", and the second currency is called the "counter currency".

Base Currency/ Sell currency:  

This is the currency is which your account is denominated in or the currency sold to JP Morgan to be delivered

to Correspondent Bank account

Counter Currency/ Buy currency: 

This is the FX currency that is bought using the base currency, if you were looking at the CAD to USD

conversion, the USD would be the counter currency.

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Bid Price/Sell Quote: This is the price at which you can sell the base currency

Offer Price/Buy Quote: This the price at which the Buy Currency is bought.

Spread: The difference between Sell Quote and Buy Quote is defined as Spread

FX Contract: A confirmed legally binding agreement for a purchase of currency between JP Morgan and

Client

Value Date: The date on which the FX funds are delivered to the ultimate beneficiary as agreed upon the FX

contract.

Transaction Spot Date: The Date on which the transaction is initiated.

Overview of different systems / Web Applications used to process FX Payments.

System A: This system is used to view the complete details of the payment query investigation cases and all the

correspondence on the case.

System B: This application is the backend client of the front end payment manager used by client to initiate FX

payments

System C: This application shows the details related to the internal accounts of JP Morgan Chase Bank and

consists of statement and ledger entries.

System D: This application shows the details of each client of J P Morgan Chase bank and the associated Client

Service Team details. Each client is assigned a Client Service Team which deals with the correspondence with

clients.

System E: This application is a Database of all the Banks and contains their address and Bank Identifier code

(BIC).

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MS SharePoint: This is an interface with the client service teams, which contains the details of the FX Payment

and action that needs to be taken on it.

Based on the type of clients, following types of Process are being followed as part of FX Investigation Process.

1. Trader: This process is carried for Corporate Clients.

2. SDI: This process is carried for Private Banking Clients and a different platform is used for processing

these payments.

3. Retail: This process is carried for Individual Clients or small scale business clients.

4. Auto CV: This process allows JP Morgan Chase to convert the USD to FX before sending to the

Beneficiary Bank. In FX Transactions Beneficiary Bank used to charge the spread for currency

exchange, but with introduction of Auto CV, JPMC would charge the spread for currency exchange.

5. BBVA: For a particular financial institution, this process was developed, such that all the FX

Transactions for this Bank are auto converted into local currency before releasing the payment.

In the above processes, following types of cases are investigated upon:

Incoming Payments

When the intended recipient of the payment is a client of Chase New York, these payments are called Incoming

payments. If a MT 103 message is received or there is statement entry in System C, then the next stage is to

check if it’s an incoming payment or return of funds.

Return of Funds

If the funds are returned back from the Nostro or the Beneficiary Bank, and there is a statement entry on System

C, then this is treated as a Return of Funds Case.

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Debit Authority

Debit Authority refers to the authority that bank account holder gives to another bank to debit their account for

predetermined amount. For instance, the DA is issued to the correspondent bank to debit JPMC accounts.

Unable to Apply

When we receive an inquiry from the bank stating that they are unable to apply funds with the given details of

the beneficiary, then it is treated as UTA case.

Beneficiary claiming non receipt

This query is received from the Beneficiary bank claiming that they have not received the funds. The case is

treated as BCNR case.

Deliverables

Duration:

Start Date: 7th April 2014

Completion Date: 13th June 2014

Process Flows Designed

 FX Payments Workflow

 SDI Investigations

 Auto CV

 BBVA

 Trader

 OFAC

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 Retail Processing

Tactical Enhancement Measures (Automation of Modules)

It was observed that some modules of the processes were completely manual and required no human

intelligence input. These were data entry task, which involved a team member to extract details from a

mainframe application and then on the basis predefined conditions, this data was entered into web applications

running on Internet Explorer. The Team was using a slew of web applications and mainframe applications for

processing the payments. But these applications were not integrated to each other and there was no

intercommunication between the applications.

These modules of process were identified and using Excel VBA (Visual Basic Applications), they were

automated to save manual effort. Following processes were automated using VBA:

SDI Investigations:

1. Auto Closure of investigation cases on System A: When the statement and ledger entries match on the

System C, a review message appears on the Investigation case in System A and the case needs to be

closed. These cases were being closed manually and approximately with 40 such cases in the queue on a

daily basis, this process used to take 20 minutes. In coordination with Automation Tech Team, I was

assigned the task of designing a macro that interfaces the System A with excel and close the case on

receiving a “Review Matching Message”. In coordination with automation team, I helped develop a

similar functionality for other teams.

2. Update SP Id for Cases on Harness on System A: SP Id are unique ids assigned to cases on MS

SharePoint. For these cases the contract has been booked by the Client Service Team. There was a

requirement that SP Ids need to be updated on cases on System A. I was assigned the task to design a

macro that does this task of data entry on System A from excel.

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 3. Take SDI Queue Dump on Excel sheet: Before the SDI process begins for the day; there is a

requirement to take the dump of all the SDI Cases on an Excel Sheet and filter them into different

category of cases. This was a manual process which used to take approximately 10-15 minutes and was

automated using macros.

Trader Investigations:

1. Update Harness for specific FX Payment References on System A

System C is the back end channel for the FX Payments and System A contains the details of the cases

under investigations. For specific references, certain contract and settlement details are required to be

extracted from System C and entered on System A. On the basis of predefined conditions and bank

details this data is entered on System A. Using Macros this process was automated for specific

references.

2. Automation of modules in following process BCNR, ROF, UTA, Recall of funds

After updating the details on the harness on System A, correspondence messages need to be sent to

banks in chain about the case type and required course of action. This module was identified across the

above mentioned processes and automated using macros.

3. Red Alert Report Creations

Red Alert Report is prepared everyday to document the details of specific clients and contracts. This

process was automated using macros which interface the mainframe application with web application

System A on Internet Explorer.

Retail Processing Team

1. Reassignment of Cases to Operators/ Workbasket

Investigation Cases are required to be assigned to different operators and different process workbaskets

on System A. In the similar manner as above if the operator names are captured on a excel sheet, then

this data can be entered in the System A using macros.

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Interbank Team

1. Auto Closure of Cases on System A

Managerial Tools

1. Time Tracker for SDI

To capture the time taken by each activity in SDI Process, Time Tracker was designed in excel. The

time tracker also captured the remarks for each activity and which all cases were worked on in the time

captured.

2. Productivity Tracker

To track the level of productivity shown by team members on a monthly, yearly and daily basis,

productivity tracker was designed. The tracker takes inputs from the time spent by the team member

(including Overtime) and the Number of cases resolved by the team member as a percentage of total

cases resolved by the Team. It gives a measure of relative productivity of each team member.

Overtime of the Team

Member

Productivity Tracker
Relative
Yearly
Total Number of Cases Productivity
Monthly
completed by the Team of each Team
Daily
Member member

Total Number of Cases

completed by the Team

Figure 12: Productivity Tracker

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 3. MIS for One On One Interactions

In the second week of every month, manager of each team has a One on One interaction with all the

team members and there is a discussion on the following attributes

Team member is assessed on following factors:

 Performance

 Attendance

 Behavior

 Risk and Control

 Training

Additionally the team member has to give a feedback about the Manager. Under the guidance of

Manager and VP of Foreign Exchange Investigations Team, I designed MIS to record this information.

At the end of the month, the MIS would email reports of the entire month’s activity to the VPs and EDs.

Front End Form MIS

Generate
To be filled in the 2nd Developed on MS
Reports
Week of every Month Access Database

Figure 13: MIS

FX Ops Drafting Project

The FX Ops drafting project is a framework implemented to automate the process of drafting confirmations

after the settlement of trade. The confirmations to be drafted depend on following factors

 Product type (Options, Forwards)

 SLAs of the Product Type

 Clients

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The Business intelligence unit developed this utility framework which takes input of the trade and clients from

three systems and generates the confirmations. The framework provides the user ability to add any product type

to the utility, for which confirmation needs to be drafted. I contributed in implementing this framework for a

particular product template.

System 1

System 2 FX Ops Drafting Project Confirmations

System 3

Figure 14: FX Ops Drafting Project

Results and Discussion

Results

In the FX department, after the completion of the automation project, the results of the project are evaluated

based on FTE save achieved by the project. FTE Save signifies the Full Time Employee Save achieved by the

project. Each automation results in saving some manual effort, this is calculated on the basis of the time saved

in the effort. A full time employee spends 8 hours daily and the time saved from the automation on a daily basis

is calculated. The time saved by automation activity as a percentage of 8 hours gives the FTE save of the

activity. Based on the cumulative sum of the FTE Save of all the automation activities, FTE save is calculated

for the project.

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 Project Status | FTE Save achieved: 1.1 FTE

# Tasks FTE Save Status

1 Automation of Modules in SDI 0.218 FTE

Process

2 Automation of Modules in Trader 0.812 FTE

Process

3 Automation of Modules in Retail 0.033 FTE

Processing

4 Automation of Modules in Interbank 0.031 FTE

Team

Table 1: Project Status

Suggestion for future research

1. Identification of modules across different processes which can be automated

2. Standard Time should be defined for each case type

3. Capacity Planning should be done to ensure better utilization of resources

4. Training sessions should be given to the team members to ensure adherence and implementation of

Automation

Limitations

1. Unavailability of separate systems for Automation

2. Slow processing speed of Systems

3. Repeated monitoring of systems running automation required

4. Short duration of the internship (10 weeks)

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Risk

1. Risk approval and testing of Automation Macros is pending

2. Data corruption risk due to unavailability of separate systems

3. Periodical review of Macro to update the code with changing requirements.

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List of Tables

Table 1: Project Status.........................................................................................................................................................40

List of Figures

Figure 1: Pest Analysis...........................................................................................................................................................8

Figure 2: Porter’s Five Forces..............................................................................................................................................10
Figure 3: Lines of Business...................................................................................................................................................12
Figure 4: Revenue Sources..................................................................................................................................................12
Figure 5: CIB Integrated Client Coverage Model.................................................................................................................14
Figure 6: Organisation Hierarchy.........................................................................................................................................16
Figure 7: Congruence Model...............................................................................................................................................17
Figure 8: SWOT Analysis......................................................................................................................................................18
Figure 9: Trade Life Cycle....................................................................................................................................................23
Figure 10: Flow of FX Payments..........................................................................................................................................26
Figure 11: FX Investigation Flow..........................................................................................................................................28
Figure 12: Productivity Tracker...........................................................................................................................................36
Figure 13: MIS..................................................................................................................................................................... 37
Figure 14: FX Ops Drafting Project......................................................................................................................................38

List of Abbreviations

 SDI: Specially Designated Investigators

 Auto CV: Auto Convert
 BCNR: Beneficiary Claims Non Receipt
 ROF: Return of Funds
 UTA: Unable to Apply
 FTE: Full Time Employee
 VBA: Visual Basic for Applications

List of Appendices

Exhibit 1.1………………………………………………………………………………………………………………………………………………………………………45
Exhibit 1.2………………………………………………………………………………………………………………………………………………………………………46
Exhibit 1.3………………………………………………………………………………………………………………………………………………………………………46

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References

 JP Morgan. (2013). Our Businesses. Available: https://www.jpmorgan.com/pages/jpmorgan/ap/in/business. Last

accessed 4th July 2014.
 JP Morgan Chase. (2013). Annual Report 2013. Annual Report 2013. - (-), p40-44.
 JP Morgan Chase. (2013). Investor Relations. Available:
http://investor.shareholder.com/jpmorganchase/annual.cfm. Last accessed 4th July 2014.
 Erin Miner. (2010). Recommendation to Purchase Stock: Buy Report. JP Morgan & Chase  . - (-), pg1-19.
 icmrindia.org. (2006). JPMorgan Chase - A Tale of Two Mergers.Available:
http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/BSTR222.htm. Last accessed 4th July
2014.
 Kristina V. (2010). JPMorgan Chase's Business Strategy. Available:
http://team3jpmc.blogspot.in/2010/09/jpmorgan-chases-business-strategy.html. Last accessed 4th July 2014.
 MarketLine. (2013). Company Profile. JP Morgan Chase & Co. - (-), pg1-9.

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Appendix

1
Exhibit 1.1
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2 3

2
Exhibit 1.2
3
Exhibit 1.3
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