This report is an update to Energy Trading Risk Management Systems 2014. It reflects the notable shifts that have occurred in the market for Energy Trading Risk Management (ETRM) solutions in recent months. It analyzes:
- The emerging business and technology trends in the market, and how they are influencing energy trading firms’ solution requirements.
- How solution vendors are responding to these new demands.
To explain the structure of the market, the report uses Chartis’s RiskTech Quadrant®. The RiskTech Quadrant® uses a comprehensive methodology that combines in-depth independent research with a clear scoring system to explain which technology solutions meet a particular organization’s needs. The RiskTech Quadrant® does not simply describe one technology solution as the best credit risk management solution; it has a sophisticated ranking methodology to explain which solutions would be best for buyers, depending on their implementation strategies.
The report covers the leading vendors currently offering energy trading risk management systems, including: Allegro, Amphora, Ancoa, Aspect, Brady, CME Group, Eka, Fendahl Technology, FIS, GlobalView, ICE, Lacima, Molecule Software, Murex, OpenLink, Pioneer Solutions, S&P Global, SAS, Triple Point, ZE Group.
As banks withdraw from energy trading markets, the focus of many trading firms is shifting toward physical assets, changing the functionality they now require from their solutions. And vendors are responding. ETRM solutions’ enhanced capabilities now give them much of the functionality normally found in Enterprise Resource Planning (ERP) systems. Consequently, many firms are starting to give their ETRM solutions a more central role, in areas such as determining strategies, optimizing assets, fulfilling their accounting requirements, and providing universal data stores.
ETRM solutions that cover a range of physical commodities require access to multiple data sources covering aspects such as pricing, processing costs and efficiency, warehouse space, shipping fees, and losses during transit. The growing demand for data has made big successes of many specialist suppliers, including large data firms that aggregate data from other sources, and smaller firms that gather data directly, often using advanced technology.
Again largely because of FIs’ shift in focus toward physical assets, credit risk is featuring more in ETRM solutions, increasing their appeal. The volatility of physical energy commodities means that default rates are often high or uncertain, boosting the value of credit risk analytics. As a result, many vendors are now building integrated credit risk solutions into their ETRM offerings.
The regulators, meanwhile, are emphasizing improvements in trade surveillance and transparency via regular reporting, as stipulated by legislation such as the Market Abuse Regulation (MAR), the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT), and the Dodd-Frank Act. This growing demand for transparency is not new to financial services. But so far it has not been enforced in energy trading firms, so only a few have trade surveillance processes already in place.
In a departure from many other risk management areas, the balance between cloud and open-source solutions in energy trading firms currently favors the cloud. However, the customization power that open source offers is likely to boost the popularity of these systems in future.
Finally, vendors are broadly reflecting these market changes in their offerings, although the diversity of the sector means that no single vendor covers all possible requirements. But increasing consolidation may enable some vendors to offer broader coverage.