ENERGY MANAGEMENT
changes to post trade services server infrastructure has the capability of eliminating layers of cost, self- build fixes, and maintenance. If left unchecked these costs pose a significant barrier to entry and will preclude some companies from ever participating in the market which will curtail new sources of liquidity. Such an unchecked result would reduce competition and is something regulators should, and are, keen to avoid. Reporting transactions (orders and trades) under REMIT could be greatly simplified if such a network was adopted as a trade reporting mechanism.
Which Regulator? The four items of legislation highlighted in this article will significantly impact the OTC commodity trading community and markets will need to be armed with tools to help them deal with these important reforms. Recent announcements suggest the burden will fall on trading counterparties to comply with the bulk of these reforms
Ultimately Trayport’s goal ... is to ensure that the needs of the regulator and market are met ...
– particularly when it comes to trade and position reporting. Given that there are more than 450 companies trading power, gas, coal and freight in Europe, this predicted burden raises serious cost and manpower implications. Apart
from the technical
challenges, there are pre-existing legislative challenges to overcome. Local confidentiality laws across the Member States, compliance and commodity trading rules within each jurisdiction will all have to be taken into account. For instance, consider a spread trade between German and French electricity traded on an execution venue operated in London with counterparties regulated in Switzerland and Italy with transactions all cleared in Germany. One immediate question this raises
78 September 2011
is; which regulator will oversee reporting of the trade? The answer, according to European regulators, is the new regulatory body (ACER )mentioned earlier. While this body is still in its start-up phase, details of how this pan-European regulator will function are gradually becoming more clear.
Improving Data Quality As the OTC market falls under widening regulation and the
volume of trades increases the need for real-time data flows becomes ever more essential. This ultimately places greater emphasis on the execution platform to provide a rich, high quality and timely flow of trade information. Such information will not only be used by the clearinghouse, but also by regulators, risk management and trade capture systems. The solution is to provide tools that permit this transition so that each execution venue has the ability to move at a pace of their own choosing. Additional value-added services can also be created if the
venues were to provide an enriched flow of trade information. Moving information that is traditionally added post-execution to the execution venue itself is likely to demand a significant effort on all sides. New services currently being deployed to the market by Trayport include Internal Markets and Post Trade Messages. Both have the possibility of improving back-office workflows. Interestingly, an indication of – or perhaps even a blueprint for
– the kind of system that might be adopted exists in Trayport’s instrument standardisation service called ‘Gold Server’. This service maps OTC instruments across many execution venues and standardises instrument attributes prior to the trade message entering the middle and back-offices. This greatly simplifies the presentation of data and permits customers to easily connect to multiple venues in the knowledge that a contract on one venue is the same as on another venue. Apart from being able to display contracts from multiple venues in the same ‘cell’, the power of this service means venues can advertise prices for newly defined contracts quickly. This speed of delivery allows originators of contracts, in this case, the brokers, to concentrate on what really matters – creating markets for new products. Ultimately, Trayport’s goal – and arguably that of the wider
industry – is to ensure that the needs of the regulator and market are met by simply upgrading a component of software with all the workflows necessarily built-in. Trade reporting will move to real time. All this can only be achieved with the cooperation of our existing participants and customers and the wider industry. However, whatever the industry decides is the best path
to take, Trayport’s role in the markets is such that it will play an important part in addressing today’s issues by making recommendations, producing solutions and solving the problems that will inevitably arise. •
Geoff Boon is Post Trade Services Manager and Dan Smith Head of Corporate Development with Trayport®, the foremost supplier of electronic trading and order matching software for Brokers, Exchanges and Traders in the energy industry worldwide.
Readers wishing to receive feedback on initiatives by Trayport to prepare for the changing regulatory landscape can contact:
posttrade@trayport.com www.trayport.com
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