CTRM SOLUTIONS
Logaviv Solutions in Agricultural
IN 1998, WHEN the first rapeseed futures contract was going to open on the NYSE Euronext market, Logaviv was already close to market operators in agricultural commodities. As a software company, we were concerned and so focused on the fact that operators had to integrate those new kinds of contracts into their information systems.
We decided to organise workshops with leading
agricultural industry operators. Those workshops helped us – and continue to – in understanding the needs of operators in terms of portfolio and risk management monitoring. We needed to decide what the best IT solutions were for these new requirements.
At that time, one clear wish was shared by the majority
of operators: they didn’t want to change their actual information system. Indeed, a great deal of investment had been made so their systems could manage every specific step of physical trading operations. The problem was those tools were not built for market risk management. There were two possibilities: either develop evolutions for their information systems in order to integrate derivatives contracts (futures, options …) or seek software dedicated to risk management that would be used in parallel with the information system. We opted for the second solution.
Indeed, it appeared that the flexibility demanded by front
and back offices was not obtainable without modifying the core of their information system. Our CTRM solution (WPRIOP/CleaX) exploits physical contracts data coming from IS through a gateway, and derivatives contracts coming from the clearer. It allows operators to work on consolidated data of their whole portfolio resulting in more efficient CTRM.
Another important issue appears
when a trader moves on from their position in the company and is replaced by someone with a position managed in a homemade system, with many figures, macros, and ‘ways to work’ not fully understood or plainly wrong. And spreadsheets,
Operators can opt for two kinds of CTRM solutions: a full value-chain system or a dedicated solution
often far from insuring security, open up the firm to serious errors – they are difficult to maintain, with a lack of audit traceability and stewardship management, not to mention much manual intervention – presenting serious shortfalls in today’s accounting and regulatory environment.
50 June 2012
CTRM Solutions Soft and agricultural commodity operators
such as cooperatives, trading companies, food processing industrialists (millers, feedstuff producers, manufacturers etc.), exporters, together with financial organisations (hedge funds) active in the sector, are using CTRM solutions as a decision-making tool in order to manage their margin in real-time and carry out strategies defined by head of sales/trading. Operators can opt for two kinds of CTRM solutions: a full value-chain system or a dedicated solution. “We had previously developed an in-house software solution capable of managing the price risk on our books of futures, options and basis physical contracts”, says Kim Benni, Risk Manager at Malteurop Group, a world leader in providing malted grains to the brewing and distilling industry. “As the number of contracts to manage and team head-count expanded, we decided we needed a comprehensive multi-user, safe and auditable price risk management solution to manage our business more efficiently,” he adds. International companies usually set up a
fully integrated suite up in order to manage the full supply chain. These solutions include market information system, risk management, portfolio management, analysis, logistic and reporting tools. A full trading value-chain system is often merged with the company data system. The main advantage is to centralise all data but the purchasing cost is often
expensive, the implementation and maintenance are complex, and evolutions often limited. Alternative CTRM solutions are available for operators who
want to manage specific activities. Among these is software dedicated to portfolio and price risk management.
The Choice of Specialised Solutions In our experience, trading and risk management tools must
have the following three characteristics: Simplicity, Flexibility, and Efficiency. Simple to use, in order to stay focused on the core part of the business – trading. Thus, a CTRM has to be implemented quickly. A dedicated solution requires less time, people, disruption and therefore money to be set up than a ‘whole’ solution. It also has to be immediately effective, and traders should neither lose time, nor functionality, during the transition process. According to Logaviv, traders have to be able to find all their common indicators in a short to medium timeframe. The system has to be intuitive, has to avoid the maximum captures, and has to be able to interact with other systems in order to allow, for example, automatic data capture. Accordingly, traders need quick and efficient training and full support on the solution, provided by market-experienced CTRM editors.
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