Post Trade Energy Management
The financial services industry is facing the most far-reaching shake–up in regulation in a generation, sparked by a combination of failures during the financial crisis and long planned
reforms.Geoff Boon &Dan Smith look at the pending regulatory changes, issues facing the market, and how the provider of software to brokers, exchanges and front office traders in the wholesale commodity trading market is gearing up to support the market.
ANOTHER DAY, ANOTHER weighty piece of reform moves ever closer. The back-office of today’s banks and commodity trading houses is gearing up for its most significant shift in a generation. And this time it is being driven by regulation. To meet the multitude of reforms
and challenges this will create, Trayport – which provides software to brokers and front office traders in the wholesale commodity trading market – is planning a series of changes to help trading companies and brokers meet their regulatory obligations.
introduced hard-pressed and dedicated back-office staff have been forced to deal with ever greater complexity. With a burgeoning array of systems, markets, products, data sets, reconciliation tools and hubs to contend with, back-offices have made herculean efforts to connect such diverse services and platforms together.
Why Wholesale OTC Trading is Important While the back-office is dealing with all this complexity, there
is also a constant demand from the front office to develop new products and new markets, drive revenues and profitability. As new markets develop and become established they migrate to an electronic trading model. As part of that route to maturity, OTC commodity trading is a fundamentally important mechanism that can stimulate investment in the underlying physical infrastructure.
The back-office of today’s banks and commodity trading houses is gearing up for its most significant shift in a generation
“Our approach is to minimise
disturbance, allowing market participants to focus on their core business,” says Elliott Piggott, Trayport’s CEO. “Trayport’s systems already deliver
standardised
information to the front office, and raw trade information in a consolidated feed to the back. It is natural that we should work towards standardisation for the back-office as well”. Liaising with regulators to
understand the principles underlying the factors driving new regulation and the practical implementation has been an imperative. Trayport has embarked on a large consultation exercise concerning regulatory reform, speaking to all sectors of the market, including back and middle offices throughout Europe. Ever since the notion of straight through processing (STP) was
74 September 2011 Trayport also maintain that the OTC
market satisfies a wider social good – it helps to stimulate greater efficiency and supply- side infrastructure to allow the supply and delivery of raw materials and energy to
the places where they are needed. The OTC markets supply the underlying base inputs needed to produce goods and services. It is vital to the European economy – and elsewhere – that an efficient, liquid and broad OTC commodity market exists. Unlike complex paper-based products that are traded in other asset classes, commodity trading directly contributes to the social good and produces tangible assets that can help power economies for generations. As an example, if geographic spread trading of power between
the UK and France becomes profitable, additional investments in transmission lines and pipeline networks tend to follow. One major concern is that inefficient regulatory change has
the potential to stifle such investment. It is therefore vital to strike the right balance – a thorny issue which is currently occupying large numbers of focused industry professionals and pragmatic regulators. The goal is to identify a solution that allows trading to continue, but provides a level of transparency so that systemic risks can be identified and dealt with.
Regulatory Landscape & Reform The scope of regulatory change includes surveillance,
position reporting, standardisation, transaction reporting, risk management and transparency – new requirements that are currently on the table for discussion and adoption. The
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