Traditionally, commodity trading has been reliant on location/space arbitrage, time arbitrage and blending/transformation-based arbitrage to make sustainable profits. But this set up has been challenged in many dimensions.
- Regulatory pressure and the need to comply with regulatory reporting, has put more strain in systems and operational processes. Regulations such as MiFiD2, EMIR, ReMIT in Europe, Dodd Frank in US, Trade Facilitation and Trade enforcement Act of 2015 (TFTEA) have impacted commodity companies as well. These regulations span multiple dimensions like fair and competitive trading, financial fair play, sustainability (green and renewable energy), transparent risk management, trades reporting and sustainable credit risk management.
- Various geopolitical risks have impacted the volatility of commodity prices, distribution dynamics, trading patterns. Various political uncertainties, like Brexit as well as trading wars, has also impacted the commodity trading dynamics.
- Alternate and renewable energy (solar, wind, bio fuel, etc) has challenged traditional operational and business processes. This not only reduces the margins from traditional commodities, but also the need to support new commodity types that would bring in diverse business processes. Our clients need to adapt quickly to trade, process and manage these new commodities in an efficient manner, without an explosion in operational costs and risks.
- To make it more difficult, real time availability and transparency in information has reduced the opportunity to arbitrage, while dramatically increasing the competition. Inability to process this information, for making efficient trading decisions and effectively and with a timely management of risk, will put commodity trades and service companies at higher risk point.
- Availability of alternate (non-economic and non-traditional) data, like weather, satellite imagery, shipping and logistics movements, customer demands/usage, etc, has created additional an dimension of useful information for our client. The proliferation of advanced data science tooling and infrastructure has created further challenges, as well as an eco-system that can be leveraged to process that information. Not considering these alternate data for decision making will be a disadvantage for our clients.
We are extending and re-engineering our software product suite to meet these various demands and challenges. We are moving away from having been a traditional CTRM system to focus on key dimensions as mentioned below so that our clients can address these complexities and demand;
- Intuitive and user-friendly user experience: Explosion of information, volatile markets and stronger competition requires quick and informed decision making. This requires a more intuitive, user friendly user experience, that is capable of providing relevant, decisive data points, for various user personas quickly, while not overloading the user with garbage. Leveraging state of the art UI and UX technologies, to give seamless front to back visualization, at the fingertips of traders, middle office, operations and risk offices, is a key dimension we are focusing on in our product engineering.
Data and analytics: In order to keep pace with the influx of information and decipher various useful data point requires real time and up-to-date pricing, risk, PnL , positions, inventory and valuations while giving 360-degree insights to make the right trading and risk decisions quickly. This requires different software architectures, as well as artificial intelligence and machine learning capabilities.
- Service based cross product functionality: Monolith platforms are disadvantageous in many ways. They are inflexible in providing extensibility, adaptability and lacks quicker time to market. A volatile, diverse and information rich eco system warrants a more component and service-based architecture, that provides the ability to extend into multi-asset/product support and the ability to extend component by component. This helps us avoid the need to build different and parallel product suites to support diverse products, but rather support multiple products through single extensible architecture.
- Open APIs and easy access : In complex commodity trading processes there can be many systems and the need for accessing data efficiently. Historically, processes have been built towards end of day processing with traditional ETL (Extract transfer load) jobs and database extracts which made data access constrained and time boxed. In current dynamic market environment, not having the ability easily access data, on demand and user-friendly way (through more standard open API mechanisms) will risk business operations. Hence it being essential to have an open API, not only for accessing data from CTRM platform, but also to provide simple integration to and from other systems.
- Efficient IT eco system: Time to market, flexibility and adaptability is key to success in such volatile and ever-changing market place. If technology can’t adapt to increased demand, while also been nimble and cost efficient, then it will pose a serious threat for our clients to sustain their operations. Adopting secure cloud-based infrastructure and services will enable financial services and commodity traders to efficiently manage their IT costs, while being flexible on growth. Extending beyond from managing cloud infrastructure to moving towards using managed service offering, better known as “Software as a Service – SaaS”, will give more flexibility for our clients to use CTRM software.
Sajindra Jayasena is CTO of Amphora inc. He is responsible for driving the technology vision, strategy and execution of its product suite. Before joining Amphora he played several CTO positions in Deutsche Bank in London, including head of disruptive technologies for DB’s global transaction banking business, CTO for their flagship Trade Finance business, CTO for securities and equities business as well as CTO for margin, clearing and collateral platforms. He has extensive experience in enterprise software engineering, both from product and enterprise perspective.
CTO of Amphora inc.
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