Historically, energy trading and risk management (ETRM) systems in Europe grew to address automation. In the 1990s, Brady ETRM developed in tandem with northern European markets, while firms like Energeya (bought by FIS) and Sinergetica had greater foothold in the south. The particular demands on energy traders have been made more poignant by the volatility in trade prices – monitoring exposure, risk, and global logistics have become differentiating factors in a high-volume, low-margin market. Following suit, ETRM systems have also evolved with their customers. Using real-time data, cloud services, SaaS, and complex sensitivity analyses, software providers can advance traders’ strengths. Traders’ reliance on the ETRM means expansion: the market is on track to increase at 3.5% CAGR between 2015 and 2020, according Market Research Engine. Several ETRM providers stand out of the crowd for their agility and foresight in risk management:
Founded in the US in 1984, Allergo has been around the ETRM market for over 30 years, providing risk management solutions to large energy and commodity firms. The company’s most recent software, Horizon, offers a compelling case for oil, gas and power traders. Two features stand out: Horizon’s ability to cater to front and back office, compliance and accounting teams; and flexible design. The software enables firms to carefully management their energy positions – but also take into consideration credit, counterparty and financial risk. Horizon is able to hone in on details on fuel blends, transport times and logistics, and client credit statistics – doing away with fragile spreadsheets owned by individual departments. The technology is also flexible. Implementation of Horizon can be done on-site or through the cloud. Central to energy traders, Horizon’s analytics can also be applied across products from natural gas to fracking.
OpenLink addresses the classic energy trading conundrum, tying together physical and financial operations. Energy traders often use delicate Excel spreadsheets, paper invoices and data storage systems to manage energy trades and hedges. OpenLink’s MTM detailed summaries and reporting lets users make real-time decisions and the associated risk functions shift accordingly. Risks in discount factors, FX rates, history and P&L shifts are taken into account. For reporting purposes, the software is also able to create dashboard reporting based on live data. Outlooks can also be created which show physical and financial transactions, and their associated hedge expiries – creating robust strategies to zero out risk. On the physical side, OpenLink’s scheduling and physical trading features enable traders to have full transparency on the comings and goings of physical loads.
Eka Software Solutions
Billing itself as both an ETRM and CTRM software platform, Eka’s Insight CM covers the entire lifecycle of energy transactions from front to back office. The platform also addresses compliance and regulatory aspects. At trade input, Insight CM captures deals simply, but can also incorporate complexities in pricing formulas, product quality, and structured transactions. For valuations, MTM reports can be generated, taking into account daily P&L, positions, derivative hedges and FX risks. Both physical and financial overviews can be generated. Interestingly, Insight CM’s risk simulations can be played with to uncover trade effects on risk levels and profitability. The dynamism of Eka’s solution means traders can manage and foresee risk without being exposed.
Brady’s ETRM offering is a demonstration of the firm’s attention to the energy market. While some suites come with bespoke entry forms, the software uses market standards and conventions making it easy for industry veterans to enter trade data. Traders can also craft their own pricing equations using the systems free forward curves, volatility, and index formulae while making use of MTM data. Accurate pricing helps downstream teams measure risk and positioning. For sophisticated risk analysts, Brady can also use Monte Carlo simulations for value-at-risk, enabling teams to make informed choices across the spectrum of potential risk outcomes.
FIS’ approach to risk and regulatory management offers much choice for risk managers. The company's Aligne reports directly addresses Dodd Frank and European requirements, making it ideal for regulated entities. Aligne, like many of the other software providers manages energy trading risk from front to back office. Across the range of energy products, the software can connect to to exchanges, take care of confirmations, and help manage physical deliveries. The automated connections and trading process reduce the risk of errors. In addition to mitigating risks associated with traditional energy products, FIS has harnessed the complex web of financial subsidies available to renewables trading. For both traditional energy and renewable traders, FIS offers a comprehensive platform for trading, risk management and compliance.