Apr 14, 2015
This article is aimed to provide a brief overview of the middle office business processes Commodities and Energy Trading Risk Management (C/ETRM) software solutions are designed to encompass. This is the second of a three part series that separates C/ETRM systems’ functionality into three categories and defines the business processes involved in each.
C/ETRM Business Processes
The functions seen in C/ETRM solutions are often similar in nature, but they differ in the way they physically manage commodities. C/ETRM systems aim to provide organizational transparency and insight into complex portfolios encompassing all commodity types. Essentially the new operating system of a company, these software solutions also streamline the business processes of the entire organization. With the straight-through processing (STP) of information throughout the front, middle and back offices, these systems ensure efficiency and data accuracy. The specific functions and processes of these C/ETRM systems can be broken down into three categories:
1. Front Office Processes (Series Part One) | Read About the Front Office Processes Here
2. Middle Office Processes (Series Part Two)
3. Back Office Processes (Series Part Three)
This article aims to elaborate on the second category, Middle Office Processes, that are performed by Pioneer Solutions’ C/ETRM software solutions.
Middle Office Processes
Middle office C/ETRM business processes focus mostly on deal confirmation, mitigating risk, calculated risk, organizational transparency for better decision making and scenario reporting. This can be summed up in to four categories:
- Deal Verification & Confirmation
- Valuation and Risk Analysis
- Credit Risk and Analysis
Deal Verification & Confirmation
This C/ETRM software process automates the confirmation/verification process, logs the status of each deal, allows users to generate, receive and attach confirmation documents to each, respective deal, tracks changes in the logs and empowers authorized users to lock or unlock deals.
Valuation and Risk Analysis
This middle office process enables MTM and options valuations, volatility and correlation calculations based on historical prices, several methods of VaR analysis, stress testing, implied volatility and the ability to manage several limits at once.
Credit Risk and Analysis
AThis process involves robust counterparty risk management features, documentation and netting maintenance, limits management, exposure reporting, advanced credit risks measurement, PFE & TPE, user-configurable credit scoring models and formula-based credit limits management.
Leading-edge C/ETRM systems, such as Pioneer’sTRMTracker, equip their user with customized, formula-based financial models tailored specifically to their business needs. This process also involves what-if analysis, CFaR, EaR, advanced risk analysis reporting and any at risk models, calculations and reporting.
Check back soon for “Series Part Three: Back Office Processes” or click here to read, “Part One: Front Office Processes.”
Pioneer Solutions is a global provider of next generation CTRM, ETRM, environmental management and financial and regulatory compliance solutions. Offering the latest in business processing capabilities with a modern data structure, Pioneer’s products offer the user a configurable environment that allows for customizable templates for STP workflow and user-defined custom formula entry. Serving some of the largest utilities and energy companies across the globe, Pioneer’s flexible solutions are designed for rapid deployment and easily adapt to clients’ unique business processes, model complex trading scenarios and automate business processes.