Kirk Howell, chief operating officer of SunGard’s Kiodex business unit, said, “Geopolitical events, an unclear demand and supply picture, and new activities by central banks –such as unconventional monetary policies like quantitative easing – are broadening the range of potential outcomes and risks for commodities transactions. The growth of electronic and algorithmic trading, intraday price volatility, and new regulations will require firms to change their business processes, especially for processing commodity derivatives.”
SunGard has identified ten trends shaping commodities trading:
1. The use of options will become an increasingly common way to hedge exposure while preserving the ability to profit from price volatility.
2. Firms will recognize the importance of counterparty credit risk measurement in the aftermath of brokerage failures and as more volumes are cleared through exchanges.
3. Real-time risk analytics and reporting will be required to help control market and counterparty risk effectively and better value and assess trading decisions.
4. Central clearing will drive a need for more precise analytics for predicting capital requirements and adequacy not only on a daily basis, but in real time.
5. Electronic trading is creating near round-the-clock liquidity, access to global exchanges and an increasingly diverse product set.
6. The volume and complexity of data, including reference and market data, are increasing, making timely data management and interpretation necessary.
7. New instruments such as ETF’s and structured products are driving a need for cross-asset class platforms that can support trade capture valuation and monitoring.
8. Commodity exchanges will become increasingly consolidated and global, with mature exchanges looking to Asia for growth and Asian exchanges looking to establish themselves through acquisitions.
9. The globalization of the energy commodities markets and the continued deregulation of regional markets will lead firms to integrate and optimize the mission-critical systems that manage their energy business processes.
10. Continued development of the Liquefied Natural Gas commodity markets will increase arbitrage opportunities and attract new participants to commodities trading.
Patrick Reames, managing director at CommodityPoint, said, “Regulations such as Dodd-Frank in the US and EMIR in Europe are putting huge pressures on commodity trading firms to adapt both their business processes and technology environments. An increase in mergers and acquisitions among energy firms is creating more complex technical infrastructures that require a structured, enterprise-wide approach, along with advanced technology for trading, data management and analytics. This will help firms develop the modeling capabilities that they need to address the latest challenges in commodities trading.”