CTRM Systems are Just the Tip of the Iceberg by Patrick Reames
Every company that trades commodities is using some type of system capture their trades, manage their positions, and account for the value of the trades. That’s not to say that all the systems being used are created equal —they are most certainly not, after all a paper ledger book can be considered a system. Fortunately, ledger books have gone the way of buggy whips, and now when the term “system” is used, it implies that some form of computer software. “Software”, though, is a pretty broad term and can, and does, mean everything from Excel spreadsheets to a highly sophisticated commercially produced software packages that can cost up to tens of millions of dollars.
Regardless of its form, every CTRM system is intended to provide the following core capabilities for any trading organization:
- System of record—What did we do? Who did we do it with?
- Decision support—Given that we’ve done what we have, what should we do next?
- Trade accounting—Who do we owe and how much? Who owes us and how much?
And, should that trading company manage inventories of physical commodities:
- Logistics management—How do I take inventory from here and sell it there?
Experience has shown that spreadsheets, given the complexities of today’s markets and increasingly intrusive regulations and reporting requirements, are really not a viable option as a core CTRM system. Though their flexibility and general ease of use make them useful as a decision support tool, their inherent lack of transactional integrity prevent them being serious contenders for the role of system of record.
More and more, the world of CTRM has become one of commercially produced software. The systems supplied by the leading vendors do provide the key functionality necessary to capture the business of trading, and many also provide the capability to manage the logistics of physical commodities. However, though broad in their capabilities, CTRM systems rarely if ever live in isolation. In fact, our research has shown consistently that while CTRM systems form the core of the technical architecture for trading organizations, those systems are increasingly being integrated with other software products in order to address the seemingly infinite number of variables and complexities associated with today’s markets—such things as managing massive amounts of external data, preparing regulatory reports, or modeling complex assets like generation or storage. For example in the area of commodity risk management, our latest research indicates that 95 percent of traders rely on two or more systems, with more than 80 percent utilizing three or more.
These other software systems, what we at CommodityPoint call Ancillary CTRM Products, include those that facilitate data collection, analytics, asset modeling, reporting, market interfaces and numerous other functions that are not covered by, or are not adequately addressed in the core CTRM product that may be in use in any given trading shop. These ancillary systems are more and more becoming necessary components in the overall infrastructure used to manage the business of commodity trading, and new vendors and new products are constantly joining the CTRM market.
In order to help the market place gain some insight as to what specific solutions are available, CommodityPoint is developing a follow-on publication to our very successful SourceBook of CTRM Vendors and Solutions (available for free download here. This new report, appropriately titled SourceBook of Ancillary CTRM Products, will be the market’s first and only comprehensive catalog of those systems that provide increased functionality or enhance the existing capabilities and utility of large scale CTRM systems. In this publication, we’ll be cataloging the many products available and categorizing the universe of systems, including Data Management, Integration, Analytics, Reporting, Scheduling and Settlement, and Market Data and Analysis. We are about to launch the data collection phase of this effort and intend to have the new SourceBook available as a free download in a couple of months.
If you’re a vendor of a product that supports the process of commodity trading and risk management, we do want to make sure you and your products are included in this new CommodityPoint SourceBook. It costs nothing to be listed, so please do contact Mark Tredway, Director of Business Development at mtredway@utilipoint.com and he will ensure your company and products are covered.
