The holistic commodity management approach. 25-3-2014. Agenda. Introduction Trends The PwC holistic commodity management approach Different types of trading require different system Functionality CTRM Systems Roadmap Dycotrade. High volatility in commodity prices. Trends.
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Agenda • Introduction • Trends • The PwC holistic commodity management approach • Different types of trading require different system Functionality • CTRM Systems • Roadmap Dycotrade
Trends • From decentralised to centralised commodity management • More liquidity in markets/ more products and banks offer more and smaller products • Awareness and increased opportunities for portfolio optimisation (Arbitrage) • Interest in Commodity Risk Management Systems • More Regulations (MiFID II, MAD, EMIR, Dodd Frank act) • New Accounting Regulations (IFRS 9, IFRS 13) • Need for improved liquidity forecasting and cash management • Need for a system that supports valuations including basis risk and CVA/DVA
Holistic Commodity Management Approach • The Commodity Management value chain Influencingbusiness strategy What Maximizingshareholdervalue Value throughout the business Integrated Commodity Management Minimizingcost How Efficient and effective processes Regularly compliance & control Complyingwithregulation Safeguardingassets Time
An end to end view on Commodity Management deal life cycle Commodity Management Strategy Deal Negotiations Deal Capture Deal Management Deal Execution Settlement Planning & Portfolio Management Risk Management & Reporting Accounting & Reporting Systems
Our Holistic approach Deal Negotiations Deal Capture Deal Management Deal Execution Settlement Process Future State Environment • Deal Analysis • Deal Entry • Logistics and Nominations • Deal Management • Inventory Management • Deal Entry Validation • Transaction Reconciliation • Confirmation • Contract Management • Limit Monitoring • MTM & Valuation • P&L Calculation • Risk Measurement • Performance Measurement • Credit Risk Management • Actualization • Settlement • Journal Entries • IAS 39/ IFRS 7 • Disclosures • Actualization • Settlement • AP/AR • Journal Entries • IAS 39/ IFRS 7 • Disclosures People Infrastructure Organization Reporting Measurement & Analysis Technology • Business Objectives and Risk Appetite • Front, Middle and Back Office Functions • Risk Reporting • Performance Reporting • Compliance & Regulatory Reporting • Financial Reporting • Risk Limits • Portfolio/book management • Pricing Models & Analytics • Metrics/KPI
We distinguished three different types of Trading for benchmarking 1. Supply chain Trading 2. Asset backed Trading 3. Proprietary Trading Freight/physical trading Paper trading Low Risk profile High Sales/procurement driven Arbitrage Directional Less Controls / open positions /MtoM accounting More
CTRM systemsCommodity Trading & Risk Management requiresspecificfunctionality GartnerMagicQuadrant • The ETRM market is dominated by niche vendors • Average ETRM supplier revenue is in the range of $20 – $24 million per vendor • Many consolidations in the last years • There is not a wide variation in the platforms offered by vendors
Selection criteria and weighting factors • Overall we differentiate between the following areas, the final criteria will be determined in close cooperation with Customer: • Overall system vendor information (credentials) • Cost estimations (license / maintenance fees) • Deal Negotiations • Deal Capture • Deal Management • Deal execution • Settlement • Portfolio Management • Freight Logistics • Risk Management, Treasury & Reporting • Governance & Controls • Systems & Interfaces
Roadmap Dycotrade • Some of the elements currently in place • segregation of Duties • Deal capture, pre deal analytics, real time reporting • Portfolio management, Wash outs, circles and strings. • Interfaces with back-office and logistics • FX Management Some of the work in progress elements • More advanced pre-deal analytics • Regulatory reporting under EMIR/MIFID II • Hedge accounting solution (these are the elements where PwC is involved)