ENERGY AND COMMODITIES
How refined deal entry & capture is changing the playing field
Contents.
1 Introduction
2 Old habits die hard: stepping away from spreadsheets
3 A trading portal can be cool!
SunGard
How refined deal entry and capture is changing the playing field
01
Sometimes it is the little things that
matter. Despite the perceptions of
being easier to use and “quicker”,
the prevalence of spreadsheets has
introduced latency into the position
management process. Given this delay
in entry, those deals are not reflected
in the position management screens
as they’re committed.
As such, it is possible that positions may
be over or under-sold or purchased,
reducing profitability as those positions
must be “trued-up” at the end of the
trading cycle when prices may be more
volatile. The risk in this practice is then
compounded by inaccurate tracking of
credit exposures.
Introduction
Driven in large part by new regulations designed to discourage peer-to-peer or over-the-counter (OTC) trading, deal activity on physical commodity exchanges is increasing. Exchange traded deals are highly structured, with very specific data and information captured to reflect the trade, including the underlying contract (or enabling agreement) and the specifics of the bid or offer. Most, if not all, trading exchanges now provide an interface, or API, for transmitting deal data from the exchange to the ETRM systems, provided automated deal capture and/or updates of that trade data; and in the process, relieving the trader of the burden of deal entry. However, exchanges, with a limited number of trading locations, cannot reflect the entirety of the physical energy marketplace and as such, OTC or non-exchange deals continue to be an important component of maintaining an efficient and liquid energy trading market. Antidotal evidence, based upon conversations with industry participants, indicates that as much as 60% or more of physical trades are still conducted bi-laterally, either via phone or IM. These OTC deals are most common in companies that hold hard assets, such as oil and gas production or generation facilities that are geographically located well outside the exchange trading points.
Unlike exchange-based trades, OTC deals cannot be
automatically captured in a trading system. Traders, generally over the phone or via instant messenger (IM) applications, must exchange the relevant deal details and parameters with their counterparty, either verbally or via informal shorthand on IM. In order for these deals to be reflected in their trading system and included in their positions, that trader (or their assistant/analyst) must use the ETRM system’s deal capture user-interface (UI).
Unfortunately, these deal capture screens are very densely populated with dropdown data entry blocks and multiple screen tabs, reflecting every potential variable associate with physical energy commodity deals, including, counterparty, commodity type, deal type, book/strategy, volume, locational information, up and downstream contracts, and complex price entry…to mention but a few. The screens may have dozens of data fields, many of which apply only to a single commodity or particular business requirement. Though the complexity of these screens is a reflection of the underlying complexity of the markets they serve, they tend to be difficult to navigate and will slow the process of trade negotiation, deal capture and position management.
While some ETRM product vendors have attempted to simplify deal capture via defaulting of individual data fields, allowing templating of screens by deal type or role, or via the creation of blotters that can capture partial deal data prior to commitment, these methods are imperfect and do not address the primary usability issues and concerns of traders, namely that capturing deal data in almost all ETRM systems is slower than in spreadsheets and hinders the pace of their trading activities. Given these persistent shortcomings, it’s little wonder that most traders will use spreadsheets if given the option.
As much as 60% or more
of physical trades are still conducted
Old habits die hard: stepping away from
spreadsheets
Despite the well-known and often discussed short-coming and risks associated with the use of spreadsheets in energy and commodity trading (most obviously the potential for errors and omissions), in a recent survey of trading companies, more than 30% indicated that spreadsheets, or a combination of spreadsheets and commercially-supplied ETRM/CTRM products, were still in use as a trade capture solutions within their businesses1.
One of the primary reasons noted for that continuing use is that traders just simply prefer spreadsheets as they believe them to be more flexible and easier to use. The corollary to this is that those same traders generally don’t like the constraints imposed by deal entry screens in ETRM systems. Unfortunately, for these traders that value flexibility, ease of data capture, and speed of information, these systems are the essential “systems of record” for energy trading companies. Much like any other enterprise-scale software solution, they are highly structured applications that require discipline to use and maintain. And while spreadsheets may overcome some of these drawbacks, the reality is that spreadsheets may actually hinder the flow of data through the business and increase commercial and operational risks.
Despite the perceptions of being easier to use and “quicker”, using spreadsheets results in duplicative data entry that introduces latency into the position management process – deals are kept on the traders’ individual spreadsheets and are then entered into the ETRM system by a trade analyst, or as time permits, by the trader. Given this delay in entry, those deals are not reflected in the position management screens as they’re committed. As such, it is possible that positions may be over or under-sold or purchased, reducing profitability as those positions must be “trued-up” at the end of the trading cycle when prices may be more volatile. Additionally, without an up-to-date view of counterparty balances, accurate tracking of credit exposures is impossible.
For those companies that have been able to move away from spreadsheets and are using their ETRM solutions for initial deal capture, problems persist. The majority of the commercially supplied systems are built upon the legacy of client-server technology and their designs reflect that heritage. These systems require traders, or trading support staff, to enter deals via a complex deal capture UI, save that deal, and then wait for the system to recalculate their physical and/or financial positions, which are only viewable after navigating to the appropriate screens. Much like using spreadsheets, this process creates latency in the information and business flow, increasing risks, and creating position inefficiencies; and ultimately impacting profits.
Unfortunately, the legacy of the technologies used to develop and deploy these ETRM systems is reflected in deal capture screens – limited ability to customize the look and feel of the screens, and no capability to embed data visualizations (such as price cures) and other graphics that provide market intelligence and dynamic position information. As previously noted, with the standard ETRM system, traders must navigate from the deal capture screen and into the position management screen or screens in order to measure that deal’s impacts on their physical and financial positions – resulting in lost time and inefficiencies that limit trader effectiveness and potentially impact profitability.
Despite the short-comings of the current batch of vendor supplied ETRM solutions in their ability to support traders, with increased regulatory scrutiny of energy and commodity trading, it’s becoming more imperative than ever that traders utilize the ETRM system as their sole repository of trade data. Dodd-Frank, and the lookalike European regulations, mandate that regulated entities record and maintain clear records of who did what, and why. Making traders be responsible for capturing the data associated with their deals and input that data in the ETRM system is the most transparent method for ensuring regulatory clarity.
In a recent survey of trading
companies, more than 30%
indicated that spreadsheets, or a
combination of spreadsheets and
commercially-supplied ETRM/
CTRM products, were still in use
as a trade capture solutions
within their businesses.
1 THE USE OF SPREADSHEETS IN COMMODITY TRADING – 2015; COMMODITY TECHNOLOGY ADVISORY LLC
SunGard
How refined deal entry and capture is changing the playing field
03
A trading portal can be cool!
The majority of the ETRM systems that are common today began as two-tier client-server applications more than a decade ago; and even today, most maintain the same or similar user-interface look and feel with which they were originally deployed. Though most vendors have sought to web enable their systems by using Java or HTML, these changes have been made primarily to address the under lying technology constraints encountered when deploying those applications via a web-interface. Unfortunately, these technology changes provided little improvement in addressing the issue of poor usability and ergonomics of their deal capture and associated trader-centric screens. However, with the recent availability of latest web technology, HTML5, developers now have the technical capabilities to create a new breed of user interface – a visually rich and configurable space in which the data entry fields reflect the trader’s needs. HTML5 applications also allow key metrics to be embeddable directly into the deal capture screen, providing the detailed market intelligence and position management monitoring that is necessary to meet the business critical needs of the trader.
Though HTML5 is a relatively new technology (having reached official release in 2014), it has been rapidly and widely adopted in the financial trading markets. Using HTML5, application providers are equipping financial traders with quickly deployable, web-based solutions that overcome many of the legacy issues associated with previous generation technologies.
These business users are realizing a number of improvements in their trading solutions:
¡
¡ Improved screen layouts and use of richer colors for more rapid identification of data trends and exceptions
¡
¡ Improved use of data visualizations for position management, risk metrics and forward curves ¡
¡ Dynamic updates of individual data fields or metrics without constant screen refreshes
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¡ Configurable layouts that allow for screens to best match trader roles
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¡ Access to the same screens and information when trading on mobile devices
These latest generation of applications developed in HTML5 truly rival the latest desktop deployed software while maintaining the key advantages of web deployment, including cross platform compatibility for mobile devices. HTML5 is the technical facilitator of an improved trader-oriented solution, one that will eliminate the use and risk of spreadsheets. ETRM applications developed in HTML5 can provide improved trader ergonomics, ensuring faster and more accurate trade capture, faster notification of position changes, and improved identification of potential trading exceptions or issues; all leading to a positive impact on the bottom line of their users.
Gain a competitive advantage
Today’s competitive energy trading environment requires the ability to cost-effectively execute trades across multiple platforms, instruments and geographies while managing the complexity of trade structures, changing markets and
regulations. In this consumer world of highly intuitive systems, the market demands “pick-up and use” ergonomics. It’s time for traders to step away from the spreadsheet and embrace their ETRM systems.
Transforming the trade & position management experience
The transformation of the trade entry experience begins with – an easy to use, classic desktop and modern mobile
technology enabled, web-based portal with real-time access to physical and financial positions in a single view. The evolution of existing trade and risk management solutions now leverage the HTML5 framework.
Ergonomics provides traders, risk managers and senior management with a highly intuitive work-bench for trade entry and risk management. These interfaces help simplify the deal entry experience that commodity traders rely on and use every day – it’s that simple.
In developing and deploying a trader-centric solution, there needs to be an understanding of the key issues facing traders and enable business drivers of a smarter, faster trading experience:
¡
¡ Compliance, speed and efficiency of capturing
transactions – Precision and timing becomes increasingly important and traders want easy system configuration to allow faster and precise deal capture. This is accomplished with simple ‘Drag & Drop’ technology that allows the user to quickly set-up personalized deal entry templates. ¡
¡ Need for real-time data – The ability to quickly capture all positions, regardless of their genesis, is the only way to have a true view of your company’s position and exposure. ¡
¡ Mitigating risk – Organizations need visibility around potential market and credit risks. Traders need to understand how their notional position and/or mark-to-market position affects their counterparty credit line. One solution is technology that allows for deal capture screens to be layered with analysis tools, displaying credit limits, counterparty exposure and book PnL. Traders can then view the economic impact of ‘what-if’ transactions prior to them being committed into the application.
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¡ User experience and system flexibility – An ideal system must have the flexibility to catch and monitor the most important metrics change on-demand.
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¡ Strategy and performance – When organized and consistently used, a trading journal can provide vital information to a trader looking to improve his or her strategy and performance.
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¡ Portability and lower cost of deployment browser – The overall deployment costs of trader environments can be greatly reduced if the core solution is web-based, using just a browser.
SunGard
How refined deal entry and capture is changing the playing field
05
Shouldn’t your trading interface work more like a Smartphone?
Inspired by the consumerization of technology, ergonomic trading seeks to help companies become more agile and cost-effective by providing an alternative to spreadsheets and outdated technologies. Individuals can execute trades across multiple platforms, instruments and geographies while managing the complexity of trade structures and ensuring regulatory compliance. This approach helps transform the manual trade and position management experience into an easy to use, mobile enabled portal with real-time access to physical and financial positions in a multi-dimensional, real time view available anytime and anywhere.
Leveraging HTML5, ergonomic trading portals utilize adaptable technology available on your desktop, tablet or smartphone allowing you to conduct business in the most real-time, risk mitigated, stable way with the efficiency and flexibility needed to slice-and-dice data in a single view. The trader, risk manager or executive can interrogate their PnL and positions by drilling into these values to the trade level.
At SunGard, we can help you make the most of every trading opportunity while controlling costs and supporting regulatory compliance. Our solutions provide users with an ergonomic, user definable experience including a single view for trade capture, real-time position management, PnL, credit and risk reporting. Customers benefit from a true web application that lowers the cost of deployment to the desktop. The increasing use of secure mobile technology can be adopted to provide greater visibility and greater mobility.
©2015 SunGard.
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