Mitigating Risks with Right ETRM Systems Selection

The rapid growth of information technology over the past 20 years introduced the financial and commodity sectors to a new way of doing business. The financial markets saw the tremendous growth possibilities the new technology provided, and subsequently created the online trading platforms. As a result, customers could execute trades from personal accounts without the intervention of a broker. Likewise, the commodity markets saw the great potential of such technology and soon followed suit with straight-through processing of trades – from deal capture to settlements. The need for Energy Trading and Risk Management (ETRM) applications has seen immense growth throughout the IT boom. Initially these applications were very rudimentary, handling physical commodity deal capture and limited in terms of lack of mid and back of ce processing capabilities. Today, ETRM applications are robust enough to manage front through back of ce processing, plus physical commodity scheduling and derivatives trading. With the need for software applications to manage large volumes of energy trading activity, the selection process of these applications is very critical to a company’s margins. This paper discusses the importance of selecting the right software solution to address all trading activities and risk monitoring. Introduction The need for ETRM applications and its development has skyrocketed in recent years. These software solutions have simpli ed once complicated and tedious tasks, with powerful applications that can manage the risks of all energy commodities. Organizations (including non-energy companies) have taken advantage of the ease of use and cross-commodity aspect. Based on speci c business needs, compliance and the ef ciency with which business is conducted, organizations need to select the right ETRM system. Reduction in overall operating costs and increasing revenues makes a compelling argument to choose the right application(s), which, in turn, have a positive impact on ROI. Energy companies have not only taken to trading of physical commodities via the ETRM route, but also have taken advantage of energy derivatives, options, swaps and swaptions. This allows all companies willing to do business, in energy trading the ability to do non-physical speculation. The ETRM application demand has spawned a new industry. With the need for the various applications, the ETRM industry’s two main components -the end user and the developer activity, have grown in tandem. With increased popularity, there has also been an increase in the number of vendors developing ETRM solutions. Each application basically offers the same services, but most are stronger or weaker in certain areas. For example, the bigger vendors offer solutions that handle a wide range of trading activity, while the smaller ones target speci c areas. There are some vendors that develop complete front through back of ce systems, including commodity scheduling capabilities, giving them a distinct competitive edge