Entries for September 2011

Gary Vasey of CommodityPoint has watched and/or participated in the CTRM software space for the last 19 years.  His research and commentary is always insightful and helps bring clarity to the complex E/CTRM marketplace.  If you aren’t already following his blog you should check it out.  It is a must-read for anyone involved in the commodities business.

In a recent post, The Race for Market Share in CTRM Software: Can Triple Point Catch Openlink?, Gary reports that, “Triple Point, by our estimates, is growing at a faster pace than the overall market. We estimate the market growth rate to be around 11 percent in 2011 and Triple Point’s growth to be more than twice that rate at around 26 percent.”  He believes that Openlink is growing at a much slower rate. To read the full article and see when and why Triple Point might catch Openlink click here.

The global financial crisis has sparked a rethinking of the reporting of fair value disclosures and given rise to concern about counterparty credit risk inherent in derivative portfolios. The credit position of an organization and their counterparties is critical to the transparent valuation of earnings and compliance with changing regulatory requirements.

With auditors, shareholders and regulators insisting on transparency, verifiability and validity of accounting figures, getting the credit haircut or credit value adjustment (CVA) wrong, or excluding it from earnings statements, will raise serious concerns.  Organizations cannot afford to ignore this issue, doing so risks the reputation of the firm and the confidence of stakeholders which could ultimately lead to potential business failure.

Triple Point has been helping companies optimize, value and manage their derivative portfolios for over 18 years. By taking into consideration counterparty risk, we enable organizations to provide consistent fair value measurements and disclosures which give all stakeholders confidence in the valuations of assets and liabilities.

Below is a list of 4 ‘must-have’ features that will enable organizations to make accurate credit value adjustments in their fair value disclosures:

  1. 360 View of all Counterparties  - A single, automated view of each counterparty, showing the asset and liability position which indicates the basis for the credit adjustment.

  2. Collateral Management - Ability to analyse all collateral within master netting agreements, ensuring a contractually accurate view of exposure and liquidity obligations.

  3. Credit Rating Assessment - Assessing the credit rating of the counterparty or your internal rating in conjunction with the maturity of each transaction will determine the credit adjustment, typically based on credit default swap (CDS) rates to the valuation.

  4. Transparent Accounting for CVA - Separate accounting entries for each CVA, showing the methodology for each credit adjusted Mark-to-Market

All of the above functionality is available within Triple Point’s Commodity XL for Fair Value Disclosure, a Software Assisted Compliance (SAC) solution which ensures organizations are able to optimize their portfolios, disclose accurate valuations, comply with regulations (IFRS 7, ASC 820) and maintain stakeholder confidence.  Counterparty credit risk should also be considered when applying hedge accounting and calculating hedge effectiveness. If you would like to learn more click here.

There has been a lot of discussion recently about how the credit function will undergo revolutionary changes in the next few years.  This highlights what Triple Point has been saying for the last 12 months, “Uncertain regulations in both the US and Europe will significantly increase the cost of trading and require the credit department to take a strategic position in optimizing portfolios.”

Rather than a revolution, we talk about the ‘New Rules for Credit Risk’.  By following these rules organizations can be ready today for whatever regulatory or economic changes occur in the future (revolution or not), safe in the knowledge that they don’t have to overhaul their IT systems. 

‘New Rules for Credit Risk’

  1. Margining: The impact of clearing OTC swap transactions is huge. According to Richard McMahon, Vice-President, Energy Supply and Finance at the Edison Electric Institute, the annual cashflow impact could be between $250 million and $400 million per company.  A credit department’s primary focus will need to shift from counterparty assessment to margining and collateral. This can only be achieved with robust collateral management.
  2. Reporting:  Enterprise-wide analysis and reporting to both the company and regulator will need to be a key priority, and with the ability to be performed within minutes of a transaction. Flexible reporting will prepare for today’s uncertain fiscal and regulatory environment.
  3. Exposure Monitoring & Management:  Monitoring cash flow risk and exposure is critical. Increasing capital requirements make it more important than ever to mitigate risk and seize opportunity. Rather than monitoring positive exposures (amounts owed to the company by counterparties), the credit function will need to monitor negative exposures (what the company owes exchanges and clearing houses).
  4. Analytics:  Changing and uncertain times have proved that many of the basic risk analysis and measurement techniques are not adequate and companies need access to more forward looking information. Credit analytics does just that. It provides a consistent framework to forecast, evaluate, and respond to future credit events.
  5. Internal Scoring  Don’t rely solely on credit rating agencies.  Collating and managing counterparty information, and applying custom scoring techniques, is critical for any organization that wishes to protect itself from defaulting counterparties. 

Don’t just cross your fingers and hope catastrophe won’t happen. Start following the rules today and safeguard your organization against credit risk failure.

In recent years, the world agricultural markets have seen a surge in prices and volatility brought about by several factors including poor harvests, sustained demand, increased use of agricultural products for fuel, increased activity on commodity markets and soaring oil prices causing fuel and fertilizer costs to rise. As a result, Growers, Originators and Producers are starting to adopt CTRM systems, typically used by energy companies, in order to gain the real-time business intelligence they need to make optimal decisions around trade execution, position management, and physical logistics.

Triple Point has been helping traditional energy and commodity trading companies manage the unique complexities of their commodity trading and risk management business for over a decade. In order to help Agriculture companies identify the most critical components of a CTRM solution for their business, Triple Point has compiled a checklist of the key functionality Agriculture companies should look for when considering CTRM tools.

Here are seven to consider:

Trading – A CTRM solution should provide complete control over trading operations and enable traders to better manage current positions and gain real-time information to take advantage of market movement. It should integrate physical and financial trading, improve trading efficiencies with deal entry templates/blotters, provide sensitivity analysis, and enable "what-if" scenarios.

2.     Price Risk Management-  Look for sophisticated analytical tools for portfolio stress testing and sensitivity analysis to run what-if trades. These tools should enable you to analyze real-time position and exposure — market, volumetric, credit, delivery, and FX risk — at granular and rolled-up levels for optimized price risk management.

3.     Chartering and Vessel Operations- Commercial chartering and vessel operations are a crucial part of the agribusiness supply chain and must be seamlessly integrated into the CTRM system.  At a minimum, the system should allow  you to manage all chartering, post-fixture activities including freight risk management, and financial aspects of commercial vessel operations in a single system.

4.     Scheduling- Schedulers must be able to plan, conduct, and optimize complex physical movements in real time. The system should manage the logistical complexities and streamline the supply chain operations required to transport bulk commodities. It should handle all transactions from straight forward physical trade matching, to complex itinerary scheduling involving multiple trades, commodities, methods of transportation, and inventory movements.

5.     Counterparty Credit Risk Management- Recent financial and debt crises demand the ability to proactively measure, manage, and mitigate the risk arising from counterparty default. The CTRM solution should address the entire credit risk process and provide a full range of credit analysis and operational tools in 3 key areas: exposure, collateral, and counterparty management. The most advanced solutions also provide credit analytics.

6.     Hedge Accounting- A key component of any CTRM solution is the ability to manage the daunting set of requirements under hedge accounting regulations, including the detailed testing, documentation, and reporting that must be performed in order to qualify for hedge accounting status. Make sure that the solution provides full compliance with ASC 815 (FAS 133), ASC 815-10 (FAS 161), IAS 39 (IFRS 9) and similar national hedge accounting regulations.

7.     Fair Value Disclosure- The system must provide the tools and framework to define, measure, and manage fair value levels and meet all disclosure requirements for ASC 820 (FAS 157) and IFRS 7 compliance.

Triple Point’s Commodity XL for Agriculture can help you meet all of these requirements.  If you would like to learn more about Triple Point’s CTRM solution for Agriculture companies click here.


Procemin 10th International Mineral Processing Conference

October 15-18, 2013 | Chile

XXV Brazilian National Meeting of Mineral Treatment and Extractive Metallurgy (ENTMME)

October 20-24, 2013 | Brazil

Opinions expressed on this blog are those of its individual contributors, and do not necessarily reflect the views of Triple Point Technology, Inc.