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Sponsored article: How CTRM can help traders through volatile times

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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 been predicted.

"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 technology

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.

Array

• 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 system did.

"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 errors."

MIFID fallout

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 controls.

"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 says.

He believes the new MIFID regulations, when they come in, will add to the burden facing traders, and that they must prepare for the changes.

"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.

Agiboo is a sponsor of Agrimoney LIVE in London on May 23-25. For more details, click here

By Emma Penny

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