Commodity Trading & Risk Management
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Data - part 2

So you have many offices globally, a data team has visited each office and worked out how to obtain an automated dump of their transactional data. Each day that data can be translated into a standardised unit and field structure. 
In the most basic form, this will be a spreadsheet template or csv file, populated from the local contract management system and translated into a structure which can then populate the central data-warehouse. The ultimate goal is a real time update from the source system to the data-warehouse. 

Once the transactional data becomes available as an homogenous and clean source, then many advantageous options present themselves. 

I must mention another critical element at this point that relates to correct mark-to-market. Forward open risk needs to be marked to a current market price. A dedicated price database should be available for this, there are many off-the-shelf options which pull in all the liquid market data from global exchanges, submitting brokers and forex rates and also allow a lot of customisation such that custom price curves, input directly or as a basis to an already existing curve. Price databases are a huge subject unto themselves and will be a feature of a future blog. 

So ultimately we should aim to have a scenario where the global transactional data sits in a data warehouse with all forward contracts marked to a real-time or daily updated price database. This is now a single view of the truth of the current state of the business at any time. Once in place, all reporting should be conducted from this source.
This does not only mean the centralised risk and financial management reports but also every office globally should have permissioned access and report accordingly. It ensures everybody is looking at the same data and reporting on the same data. 

Here are just some advantages. 
1. Consistency of information across the organisation.
2. Global foreign exchange exposure.
3. Counter-party exposure which can roll up subsidiaries into global group company exposures.
4. Consistency and accuracy of mark-to-market. The same price is used for all trades of the same product and location globally. 
5. Transparency and consistency of cost items.
6. Transparency of contract rolling or cancellation and replacement.
7. Clarity of contract management process and measurement of operational KPI’s such as trade input and independent confirmations.
8. Return on working capital by business, geography, product.
9. Global geographical and product position exposure.
10. Clear view of global trade payables and receivables.
11. Risk adjusted return by product and counterpart. 
12. Global working capital utilisation and forward projection including variation margin.
13. Ease of global stress test and scenario analysis.
14. Better tracking of geopolitical risk exposure. 

The other great advantage is the efficiency of information access. Custom dashboards can be provided to the desktop and ad-hoc analysis can be carried out by anybody within their data permissions. It cannot be underestimated how much time is spent in many companies on gathering, checking and consolidating data. Once there is a single source of truth, the process becomes efficient and allows for very significant cost savings. In addition fast analysis and reporting allows for more efficient and informed decision making across all functions and translates directly into improved outcomes.

The question is whether any global commodity business can really afford not to invest in efficiently managing their data?

Admin - 11:33 | 19 comments

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