Election Super Cycle 2024 and the Impact to Treasury Risk Management

The 2024 global election super cycle is in full swing, with nearly half the world’s population having already voted or still scheduled to go to the polls. More than 2 billion ballots have been cast so far, according to the International Institute for Democracy and Electoral Assistance, across vitally important economies spanning India, the U.K., France, South Africa, Mexico, South Korea and Indonesia — with the U.S. presidential election still to come.

The scale and importance of these elections is momentous, but it also underscores the potential disruption and risk posed to treasury business operations. For a function concentrated on managing funding risk, liquidity risk, interest rate risk, currency risk, regulatory risk and more, the uncertainty is the main challenge: Who will win? How will they implement their agenda?  What new reforms or regulations might impact markets and how we manage our business? Will we see the expected rate changes? Will regulatory risk initiatives get delayed, re-defined or re-prioritized? Will regulatory and reform legislation get rolled back?

During a year like this, risks are elevated to a nearly unprecedented degree, with more than 70 executive and legislative elections being held worldwide. This is an issue especially for multijurisdictional firms that must manage global as well as local dynamics. The key to navigating the landscape? It will come down to having the technology, granular risk insights and tooling to be agile and optimized amid an ever-changing and consequential election environment.

What’s so special about election risk?

Elections seasons are often tumultuous by nature. The convergence of elections across developed and emerging economies in 2024 has only amplified the uncertainty and volatility. Ten of the top 15 countries by GDP have voted or will vote for an executive leader or legislative representative in one way or another (ex. EU Parliament elections).

That translates to widescale potential for change and disruption, even with an incumbent victory. The impact to treasury departments is clear. Tasked with activities like cross-border funding, collateral mobilization and managing the balance sheet, treasury can be vulnerable to the acute sting of election risk. And it is not just post-election periods where we will experience changes. Increasingly, we are seeing policymakers push market changes prior to elections, affecting how we operate.

Election risk can look and act like market risk, but with the undercurrent of domestic, foreign, social and monetary policy. Here’s what makes it such a concern and priority for treasury departments to address (particularly during this super cycle):

1. Elections can be sudden: The number of scheduled elections coming into 2024 was already high — and that was before new elections were added on during the course of the year. Just as traders might not expect intraday market volatility, treasury professionals might not have expected snap elections in the U.K. or France
2. Expectations can be reversed: All the polling and expert analysis in the world can’t predict the right result every time. It’s a warning to treasury departments against becoming too complacent or assumptive on market conditions, and then letting that dictate their day-to-day operations. That’s true whether an expected partisan flip never materializes or an opposition regime is elected against the odds.
3. Surprises will always happen: When election stakes are sky high, seemingly anything and everything can happen. A mundane cycle is almost the exception to the rule. There was perhaps no greater example of dynamic than U.S. President Joe Biden deciding not to seek reelection. The potential for such significant and fast-evolving disruption shows treasury that it needs to be prepared for the unpreparable.

The importance of technology

So how exactly can treasury reach or approach that level of readiness? It’s certainly not about game-planning for specific events or results (which would be restrictive in the case of an unexpected result) but rather about having a stable technology foundation to drive agility, flexibility, responsiveness and informed decision-making.

Fragmented internal systems can compound the challenges posed by election risk. Consider the time, money and opportunities lost when treasury needs to look across multiple different systems to gather information on rate exposure; sometimes equating to one system per currency or set of interest rates. At a point, this operational opacity becomes not only unwieldy but untenable for the business. Not having a consolidated view means more manual effort is required, more costs are sunk and there’s more chance for errors given the manual collating. A report that could be done in a day with the right tools and automation may instead take much longer and perhaps not even be done accurately, a severe hindrance when treasury needs intelligence and confidence to act quickly on behalf of the business amid election-related developments.

The ideal is for treasury to have transparency across all instruments, rates, hedges, asset classes and other metrics through one easily accessible solution. Clarity amid uncertainty is a meaningful advantage in managing risk. Having established, dependable data procedures and workflows is critical. Treasury also needs the tooling to action that data through forecasting and stress testing to ensure survival horizons and make the most informed decision possible, attempting to anticipate various outcomes across not just one, but across multiple risk factors at the same time. Regulatory and reform risk is often intertwined with this and remains a constant. But this type of risk evolves and mutates depending on the direction of policymakers — meaning that the need for consolidated tools is paramount to not just meeting today’s regulatory mandates but also to supporting the foundation required to meet future mandates as well. 

This is what Nasdaq Calypso can offer users: A front-to-back, integrated solution that delivers a single source of truth for real-time data and functionality for risk, treasury, regulatory compliance, collateral management, securities finance, clearing, margining and post-trade processing across cash and derivatives products. With these insights and capabilities at-hand, treasury can work with assuredness and accuracy in managing risk and other critical operations.

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