CTRM
some degree of functionality for physicals (but often lacking operational and logistics management functionality). Not surprisingly, CTRM software suites tend to be
composed of a very complex set of functionalities that vary considerably depending on which commodities are traded and how, what (if any) assets are employed in the business, where those assets are located, and what the company’s business strategy and associated business processes are and how they alter in real-time.
Dynamic Commodity Markets The financial crisis has highlighted the
need to better understand and regulate risk in interconnected financial systems. Commodity price swings – together with a wide range of other variables including political, currency, transport, weather etc. – now require companies to protect their operating incomes as they strive to maintain competitiveness. They need to dynamically manage commodity price risks in the face of escalating relative input prices – with hedging costs a vital component of budgeting and inventory management. Commodity market investors (and speculators) also require sophisticated trading and risk management systems in order to be first to market, connect to a range of often disparate systems, and report activity to relevant authorities.
Most forward-looking commodity companies are
now upgrading their personnel and the technology infrastructure used to manage enterprise-wide risks
The commodity markets have undergone a
rapid advance with the partial financialisation of the sector meaning that they now serve the dual purpose of inputs into the production process and as financial investment vehicles. New traded markets have developed in coal, iron ore, freight etc. and existing ‘traditional’ product markets have expanded south and east as the liberalisation of the natural resource sector has spread. New commodity exchanges and online trading venues have proliferated, [DME, DGCX, MCX, SMX, Flett Exchange, globalCoal etc.] and new investment products – including second generation commodity indices, exchange traded products, specialised commodity funds and trusts – have added to the opportunities and ‘noise’ in the market which even the most super-human trader or risk manager would find impossible to digest without the assistance of sophisticated management frameworks and associated technology. These new instruments and markets, trading strategies, factors influencing price formation and
32 June 2012
changing commodity inter-relationships, have caused a major impact on risk management – and the systems required to manage trading, risk, operations, logistics and reporting. This globalised, integrated, multi-commodity
environment, with rising trading volumes and increasing data (and speed) requirements means that firms must seek out new solutions to managing their full enterprise. And if that were not difficult enough, the trend towards a more mobile workplace means that in order to ensure maximum productivity and efficiency, many business applications increasingly need to be accessible remotely.
Managing Risk The financial crisis led to general scepticism
around the effectiveness of risk controls within trading and investment companies. This has let to:
• Increased direct stakeholder scrutiny of the company’s trading and risk management
practices.
• A greater chance of credit spread where risk management appears opaque.
• Growing demands for financial statements of risk that are coherent and robust – with greater
adherence to transparency demands. As Dr. Chris Strickland, Director of specialist
software and advisory firm Lacima explains: “The production, distribution, trading and hedging of commodities has long been a complex business. The larger companies that operate in this space do so in multiple physical markets, across multiple geographies and currencies, own and dispatch multiple physical assets, and trade in multiple types of standard and complex commodity contracts. In addition, commodity companies are increasingly driven by economic circumstances and outside oversight to accurately value and measure the risk of these portfolios.” [see page 41]. Then there is the sheer volume of data in
todays trading, risk management and reporting environment which requires an architectural framework which provides flexibility for managing all types of data across the enterprise. Here, the challenge to organisations is to ensure compliance at a reasonable cost, while providing the flexibility needed in an increasingly complex regulatory framework and under tougher and more competitive market conditions [see page 57]. Most forward-looking commodity companies are
now upgrading their personnel and the technology infrastructure used to manage enterprise-wide risks. Companies are migrating from their legacy systems, point applications and paper/Excel- based procedures to an integrated enterprise risk management system developed as part of the
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96