Changes in banking regulations, the credit crisis and the
implications of MIFID regulations are all pushing companies towards the need
for much greater visibility in their systems.
When Bart Kroon, CEO of Agiboo, became involved in
commodities trading in the early 2000s, grain prices were flat, and had been so
for a long time.
"It made people think it was a boring environment as there
were no changes. But from 2003, we saw volatility as never before.
"Traders used to prefer the speculative business model, but
a lot of mistakes made in 2005, 2008 and 2009 were where volatility had not
"Since then, most trading businesses now focus on making
money on the supply chain, rather than pure speculation, and the credit crisis
meant banks were far less willing to back a speculative approach too.
"Now, most of our clients today have, as a basis strategy, their
portfolio fully hedged."
Benefits of new
Mr Kroon says all of these changes have meant traders need
to have much more visibility and efficiency across their businesses, and CTRM
systems have become one way of doing this.
And while smaller commodity traders often think CTRM may be "too
much" for them, justifying a bank loan can no longer be "done on the back of a
cigar carton", he says.
Considerations for new systems
• Understand your business model and determine what brings value
• Your new system will probably be in use for 10-15 years, so opt for one which is scalable (up and down)
• Look for flexibility if you change environment, eg moving from London to Amsterdam because of Brexit
• If you need it to fit with ERP systems, bear in mind changing accounting system is less complex than changing your trading system
• Look for something which can be intertwined with suppliers
• Consider how the next generation of traders will use the system, so go for something which is modern today.
At the other end of the scale, big companies will often have
systems they developed in-house in the 1980s and 1990s but are now so locked
into these that it becomes very difficult to change.
"Many people want the new system to do what the old
"But where people are prepared to adopt to the new
technology, they will reap the benefits of it - lower implementation and back
office costs, and getting rid of spreadsheets, which can often be a source of
When addressing the implementation risk, during the switch
from one system to the other, where any discrepancies occur, companies often
assume the old system is correct, he says.
"But as a consultant, I have seen that in a number of
companies, three to four months down the line, it turns out the new system is
actually right as people are usually better focused on the new system, and have
checks and balances in place while the old system has less attention and
"The key is to have a focus on how to transition from old to
new systems, and to have milestones for reconciliation between the two," he
He believes the new MIFID regulations, when they come in,
will add to the burden facing traders, and that they must prepare for the
"Think about how you will handle the future requirements -
it is a six-month process, not six days."
Increased automation will also affect trade flows, he says,
with some back and middle office roles disappearing as a result.
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