Data management best practices&

CTRM/ETRM challenges

By: AJAY KOOMAR

CTRM/ETRM- THE SCORECARD• Physical position reports for each location and commodity including long

and short status. (Position reports may be for current and forward time periods.).

• Estimated profit and loss on completed transactions and processes forecast present and future cash flows •

• Price risk exposure associated with current and forward positions •• Credit risk exposure associated with current and forward positions •• Operational risk exposure •

• Information required for regulatory compliance in areas such as financial accounting, futures, exchange activity, price transaction reporting, and government reporting.

THE SCORECARD DEPENDENCY-ON MARKET DATA

• ETRM system effectiveness depends on accurate and timely reporting and market information. Successful ETRM utilization involves effective reporting and analysis to navigate and improve trading performance.

The ETRM /CTRM system is a trading organization’s scorecard-Report

• Physical position reports for each location and commodity including long and short status. • (Position reports may be for current and forward time periods.)

• Estimated profit and loss on completed transactions and processes •• Forecast present and future cash flows •

• Price risk exposure associated with current and forward positions •

• Credit risk exposure associated with current and forward positions •

• Operational risk exposure •

• Information required for regulatory compliance in areas such as financial accounting, futures •

• Exchange activity, price transaction reporting, and government reporting.

ETRM/CTRM-DATA CHALLANGES• Maintaining up to date market data overtime

and adding it to when needed is a significant challenge for ETRM/CTRM sys-admin.

• Unexpected data changes.• Market data provider supplies a correlation to

a previously published rate , the ETRM system has to recognize the exception. In many cases

ETRM system finds it difficult to handle.

Data aggregator

CTRM/ETRM –Transaction life cycleCapturing infrastructure, contracts and

counterparties

Pre-deal analysis

Deal capture

Scheduling operations and logistics

Risk analysis.

Settlement and Invoicing.

Market data

Each stage of CTRM/ETRM transaction is dependent on external market data

All commodity transactions companies would ultimately will require the service of an external Data aggregation services to handle multi-

commodity, multi-source and multi-format market data.

External data dependency

Where trading is conducted with an exchange rather than a company, exchange commodity details and contracts have to be captured. These include contract termination dates and delivery timing, as well as broker intermediary details.The quantity of information to be captured and entered into the ETRM system before a transaction occurs varies widely with the business profile of the trading company.

Capturing infrastructure, contracts and counterparties

External data dependency

Before executing a trade and entering the transaction into the ETRM system, pre-deal analysis is usually performed. Traders analyze current market prices and fundamentals to identify optimal timing and pricing mechanisms for the trade. Data requirements for pre-deal analysis, in particular access to historical market prices and fundamental information such as storage and weather data, are not well served in ETRM/CTRM systems. Instead, analysts typically use outside software tools that contain broader market information. Access to market data within ETRM systems is a challenge because the system tends to contain only the market data needed to manage existing trades.

Pre-deal analysis

External data dependency

Deal capture includes all relevant transaction details. Typical details might include trade number, quantity, commodity, units of measure, counterparty, contract, delivery timing, buy or sell, location, financial or physical, trader name, price mechanism, transaction frequency, and link to other trades. Data management challenges arise when deal volume is high and errors in the details creep into the ETRM system, even with automation. Deal entry errors are time consuming to fix, render the scorecard inaccurate and threaten ETRM system integrity.

Deal capture

External data dependency

Scheduling logistics require data interaction (often on paper) with third-party transportation systems. Without up-to-date scheduling and logistics information, the ETRM scorecard cannot present accurate position reports to management. The data management challenge in scheduling and logistics is capturing data from third-party transportation, processing, and scheduling systems. Data may not be available in a timely fashion, and changes or corrections to volumetric measures may occur without notice.

Scheduling operations and logistics

External data dependency

Risk management

RISK MANAGEMENT

1. Market risk(price risk).2. Operational risk.3. Counterparty risk.4. Regulatory risk.

Market data management best practices

• Use straight-throughput processing and automation to eliminate manual efforts •

• Reduce data feeds to a minimum •• Ensure timely data updates •• Perform pro-active data quality control •• Maintain audit trails of data changes and track

corrections •• Manage data permissions to ensure data

integrity

Pre-deal Analysis

• Traders analyze especially historical data.

• Manages only market data required for the trade as against the broader market information.

Pre-deal analysis

Deal capture

• Errors in the details creep into the ETRM system even with automation for high deal volume. Deal entry errors are time consuming to fix, render the scorecard inaccurate and threaten ETRM system integrity.

Deal capture

Data from third party transportation , processing and scheduling systems poses a quite a challenge for the ETRM sys-admin.

Risk management

RISK MANAGEMENT

1. Market risk(price risk).2. Operational risk.3. Counterparty risk.4. Regulatory risk.

• Market data to manage market risk is primarily pricing. Generating daily forward curve prices from market data (mark to market) –Risk reporting.

• A forward curve for each forward position in the trading portfolio.

• Many commodities and in particular for periods further out into the future , no market data is available .

RISK MANAGEMENT CHALLENGES

Market data from multiple sources

Data often poorly organized

Data requiresFurther

massaging

ETRM

Forward curve- built outside

SOLUTION

Import i

nto ETRM

VAR calculation is data intensive where they use simulation method

Data manipulation in excel

Operational risk

• Transportation.• Processing.• Storage.

Primarily all the above mentioned data is coming from a third party and the same needs to be feed into the ETRM system

Challenges

Counter party –credit risk

• Market data from credit rating agencies.

• Financial reports.

Third party data collection.

Challenges

Note : Clearing houses removes counter party credit risk but incur overhead cost to manage the clearing processAnd meet daily margin calls.

Regulatory risk

• To comply with regulation, it is necessary to understand where outside data originates and track any changes occurring en-route to ETRM.

Access to original set of data is an important advantage in this process.

Associated contract

Trading infrastructure

CTRM/ETRM- transaction life cycle

ETRM

Data set-up

Market data

Data Aggregator

Transaction life cycle

CONTRACTS

Credit limit

Qty

Price

Delivery

Standard contracts derived from International swaps and derivatives association (ISDA). NorthAmerica energy standard boards (NAESB).

Best practices of market data management

• Use straight-through processing.• Reduce data feeds to minimum.• Ensure timely data updates are available.• Pro-active data quality control.• Maintain audit trails of data changes and track

corrections.• Manage data permissions.

In a era of “Free fall of crude oil prices , “cost management” has become the priority for energy companies /traders

Scope of cost optimizationCost centers

1.Product and commercial cost 1.Reduce number of product approvals.2.Streamline portfolio (product overlapping activities).3.Standardize front office set up /systems.

2.Support cost(including control requirements)

1.Reduce control and reporting requirements by way of maximum automation.2.Streamline trade process and increase end to end automation.3.Consolidate functions and evaluate near off shoring and outsourcing

3.Information and Technology Cost 1.Eliminate high cost /low benefit projects.2.Streamline application landscape.

4.Location Cost

1.Optimize location set-up/spread of departments.2.Increase building utilization.