NFR Energy has licensed Triple Point’s Commodity XL™ software for hedge accounting and fair value disclosure to ensure FAS 133, FAS 157, and FAS 161 compliance.

NFR Energy engages in the acquisition, exploration, development, and production of oil and natural gas and has invested $1 billion in business development to establish a focused asset base.

“Triple Point has a proven track record of providing risk management software to E&P companies,” said Ash Elias, controller, NFR Energy. “We’re confident Triple Point is the best choice to deliver a turnkey solution that manages our hedge accounting requirements, including mark-to-market analysis, effectiveness testing, and fair value disclosure reporting.”

US GAAP and international accounting standards are continually evolving. In a stringent and unforgiving regulatory environment, getting it wrong can put company reputation, earnings, and stock value at risk.

“Companies that rely on homegrown hedge accounting systems face a herculean task of keeping up with complex standards and ensuring modifications are reflected accurately in their systems,” said Michel Zadoroznyj, VP, treasury and regulatory compliance, Triple Point. “Triple Point stays on the forefront of regulatory change to ensure its treasury software remains compliant and to enable our customers to focus on growth.”

In addition to NFR Energy, notable companies that have recently selected Triple Point software for hedge accounting and fair value disclosure include World Fuel Services, Hunt Oil, Evonik, Alta Mesa, Magellan Midstream, Unilever, Xcel Energy, and Petra Foods.

Triple Point announced today the availability of Commodity XL for Dodd-Frank: End User Exemption™. The compliance solution is designed to ensure that organizations comply with Dodd-Frank rules for validating hedging programs in order to avoid central clearing and additional margin requirements.

 Dodd-Frank will require that all OTC trades be centrally cleared but exempts companies that trade to mitigate their commercial risk. Commodity XL for Dodd-Frank: End User Exemption enables the exemption process for each hedge, allowing companies to protect their hedging programs and ensure that valuable working capital is retained.

Triple Point’s compliance solution manages the exemption process on a hedge by hedge basis. Key functionality of the product includes a complete audit trail of hedging activity, effectiveness testing, and automated documentation and disclosure management. Commodity XL for Dodd-Frank: End User Exemption will be continually updated as regulations evolve.

“The business impact of failing to get Dodd-Frank end-user exemptions for bona fide hedges starts with increased margining but ultimately ends with hedging programs becoming too expensive to maintain. This puts organizations at risk of an increasingly volatile market,” said Michel Zadoroznyj, VP, treasury and regulatory compliance, Triple Point. “There are better uses of capital than having it sit in margin accounts. To ensure exemptions, organizations need to have the right software solution in place.”

For the third year running, top analyst firm Gartner has named Triple Point as a ‘Leader’ in trading & risk management. Among Triple Point’s many core strengths, Gartner stated that Triple Point continues to offer the most comprehensive FASB compliance solutions.

I am pleased to announce that recently Triple Point saw the fruition of its innovative credit research and development when our company was successfully granted US Patent #US007571138B2: “Method, System, and Program for Credit Risk Management Utilizing Credit Limits.”


Abstract: “Software aggregates and integrates credit exposure and credit data across accounting, trading, and operational systems within an organization and generates views of available credit in light of the exposure and credit limits.”

A comprehensive model of exposure to all counterparties, across all of their divisions and subsidiaries, is assembled, enabling the creation of a hierarchical view of each counterparty that models its real-world parent-child relationships.

Credit limits are set across the enterprise, supporting the organization's unique methodology and business process — and on a granular basis — incorporating factors such as external credit ratings, internal credit scores, commodity, geographic region, deal duration, and security instruments.

Credit, transactions, and risk are then determined at any level in the hierarchy. After aggregating exposure and credit limit information, the system presents a comprehensive, detailed, real-time, enterprise-wide view of current exposure, collateral requirements and available credit for both a company and its counterparties. This makes it easy for users to identify trouble spots by counterparty, geography, industry, and credit rating and to manage the company's liquidity.”

Posted in: @Triple Point   |   Tagged Credit Risk Management

The United Nations issued a press release this week stating that the world population, which is close to 7 billion right now, will surpass 10 billion by 2100.  Many analysts had believed that population growth would stabilize at around 9 billion globally.

The news reminded me of an extremely interesting newsletter authored by Jeremy Grantham of GMO, titled “Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever.”

The main thesis of Mr. Grantham’s newsletter is that “the world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value.” The prices, in real-terms, of all important commodities other than oil have fallen by an average of 70% over the last 100 years until 2002.  From 2002 until now, the entire decline has been erased.  “Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.”


Here are a couple of key facts noted in the newsletter:

The world population was 800 million in 1800 and we’re on our way to 10 billion 300 years later.  On top of the population growth we are seeing “explosive growth in developing countries that have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land, and water.”

“Despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today. There is little productive new land to bring on and, as people get richer, they eat more grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin.”

The chart below demonstrates that most commodities are not on the same downward price trend that has existed for the last 100 years.  For example, there is a 1 in 2,200,000 chance that Iron Ore is still on the same trend line.



We’ve heard this before haven’t we – that the world will use up all its natural resources - the loudest of all being the “peak oil” theorists.  Here’s what Mr. Grantham has to say about previous forecasts:

“Aware of the finite nature of our resources, a handful of economists had propounded several times in the past (but back in the 1970s in particular) the theory that our resources would soon run out and prices would rise steadily. Their work, however, was never supported by any early warning indicators (read: steadily rising prices) that, in fact, this running out was imminent. Quite the reverse. Prices continued to fall. The bears’ estimates of supply and demand were also quite wrong in that they continuously underestimated cheap supplies. But now, after more than another doubling in annual demand for the average commodity and with a 50% increase in population, it is the price signals that are noisy and the economists who are strangely quiet. Perhaps they have, like premature bears in a major bull market, lost their nerve.”

Even with the paradigm shift and long-term trend of rising commodity prices, Mr. Grantham forecasts, with an 80% probability, that commodity prices will come down next year.  The two key drivers are a better weather year (this last year was the worst in decades), and a slowing of China’s economy.  If one of these events happens, “commodity prices will decline a lot.”  “If both events occur together, it will probably break the commodity market en masse” and “produce the second ‘once in a lifetime’ (investment) event in three years.” But this doesn’t change the long-term trend – “in the next decade, the prices of all raw materials will be priced as just what they are, irreplaceable.”

Have we really reached a paradigm shift?  I won’t pretend to be the expert, but what seems very clear is that we have a growing global population with more “western-like” appetites in food and consumer goods.  And commodities are getting harder and more costly to get out of the ground whether it is oil from tar sands in Canada or iron-ore from less developed regions like Zambia.  I absolutely believe we will have higher commodity prices at the end of this decade than we do now.  In addition to higher prices, we will see more and more volatility caused by a tighter demand/supply equation.

Where Mr. Grantham sees this as an investment opportunity, I see it as an opportunity for corporations to put best practices and systems in place to better manage commodity procurement.  The organizations that figure this out first will have a big competitive advantage.

House of Representatives Bill, H.R. 87, introduced by Rep. Michele Bachmann, R-Minn. back in January, called for the full repeal of the Dodd-Frank Act (DFA).  As one would expect a repeal to be worded, the bill’s text simply states, “The Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111–203) is repealed and the provisions of law amended by such Act are revived or restored as if such Act had not been enacted.”  

Oddly, even with Republican leadership in the House, the bill seemed to lack any serious momentum. There are, however, two nearly identical Senate bills, S. 712 and S. 746, introduced by Sen. Jim DeMint [R-SC] and Sen. Richard Shelby [R-AL], respectively, that have really started to gain support.  In fact both bills have the backing of the entire Republican Senate. But will it be enough?  Right now – not likely. Remember that in the Senate, the Republicans are still the Minority party – just ask Senate Minority Leader Mitch McConnell, whose title serves as a daily reminder.

Without winning over any Senate Democrats, neither bill will likely see the light of day. But, let’s just say they do indeed pick up some votes from the Democrats, and the bill passes - they still need to get it through the House.  This is fun! Ok, now let’s pretend that by some stroke of luck the bill squeaks past the House and now sits on the President’s desk. Come on - you know it’s veto time! There is absolutely no way that President Obama will let this go, and if you remember your civics lessons (Do they still teach that?), both Houses would need to pass it with a two-thirds majority to make it stick. Now, with that, we are stretching the boundaries of reality.

What's likely is Congress will not increase the CFTC’s and SEC’s budgets. In the current economic climate, that really shouldn’t be a surprise. In fact, Congress intends to slash the agencies' budgets (see my March 23rd article). This will effectively hamper rule making and regulatory oversight as CFTC Chairman Gary Gensler has pointed out while relentlessly pleading for more funding.

As I see it, the killing off of DFA is not going to happen. As the DFA deadlines draw near, we may see some amendments to the legislation. I believe that Congress will be receptive to revise disputed sections of the Act, but to a wholesale repeal – no way. 

So, for now, don’t go dumping any plans relating to compliance. Remember, a bill is just a bill, but right now, Dodd-Frank is law.

The sweeping Dodd-Frank Act changes in the US for market participant classification, clearing, and margining are being closely watched and emulated internationally.  The dangers/opportunities between national regulations, adoption, and timelines can be significant.

In September of last year, the European Commission proposed a framework to regulate OTC derivatives, central clearing counterparties, and trade repositories.  In December, the Commission also published a consultation paper on the Markets in Financial Instruments Directive (MiFID) to "improve the regulation, functioning and transparency of the financial and commodity markets to address excessive commodity price volatility."  In a joint statement from EU Commissioner, Michel Barnier and CFTC Chairman, Gary Gensler, Barnier stated, "It's essential --across the board on all financial regulation--that the United States and Europe move in parallel and that we don't create new space for regulatory arbitrage."

It still remains to be seen how significant the differences will evolve, and which countries and companies will be most affected or take the most advantage (China stands out as a likely recipient of business fleeing costly or time-consuming regulations.)  Below is a table with some of the key similarities/differences.  Also of note is that some of the regulations at the bottom that are US-centric may be applied to US-listed companies or those operating in the US (e.g. Canada.)

 Description

US

 EU

 Clearing

 Mandatory for standardised OTC contracts (unless end-user exempted)

 X

 X

 End-User 
 Exemption

 Hedging for non-financial entities

 X

 X

 Mandatory
 Reporting

 Uncleared swaps to SDR (US) or trade repository (EU)

 All

 Specified
 Threshold

 Volker Rule

 Prohibiting bank proprietary trading

 X

 

 Swap Push Out

 Banks to establish separate trading entity ("too big to fail")

 X

 

 Timeline

 Deadlines for most major provisions to be published

9/2011

 12/2012

 Policy 
 Fragmentation

 Regulatory bodies that are responsible for enforcement

 Many
 Agencies

 Many
 Countries

 Payment
 reporting

 Reporting on payments to non-US governments (provinces and municipalities)

 X

 

 Compensation 
 Limits

 Executive compensation drawbacks

 X

 

 Safety 
 Regulations

 Companies operating mines in the US

 X

 

 Whistleblower
 Recovery

 Up to 30% >$1M in damages

 X

 

 Conflict
 Minerals

 Independent review of minerals being conflict free (e.g. Congo)

 X

 

Can you mark all derivatives and perform all hedge accounting requirements for testing, documentation and reporting with only a few clicks? Are you confident you meet all FAS 133, 157 (ASC 815/ASC 820) and IFRS 7 requirements? Are you worried you might fail an audit because of hidden spreadsheet errors?

Triple Point recently hosted a webinar on Hedge Accounting Management and Fair Value Disclosures and how you can streamline your compliance efforts, gain control of operational risk and avoid financial restatements and other regulatory pitfalls. In case you missed the live webinar, here is a link to download the webinar and view at your convenience.

In this webinar, Triple Point’s regulatory experts, Mike Zadoroznyj and Scott Holzman, discussed how Triple Point’s Treasury and Regulatory Management Suite is the only solution that supports all Commodity, FX and IR hedge accounting and fair value disclosure requirements on a single platform. Attendees discovered an easier way to meet strict hedge accounting requirements, how to optimize hedging strategies, and new features including: extended MTM regression functionality and support for commodity swaptions and inventory fair value hedges.

To learn how you can simplify reporting, eliminate risk, and ensure compliance, download the webinar below.



















“Thanks to the global financial meltdown, we now know what a "black swan" is,” writes Russ Banham in the April edition of CFO Magazine, “but do we know from which direction the next one will swim into view, and what to do when it does?” Black swan events are highly unpredictable, but it appears more and more companies are implementing ERM programs in hopes of being better prepared to identify and mitigate the impacts of the next one. What is causing this uptake? Is it really the fear of the next black swan event?

Possibly, but Banham shares 3 other converging trends that he thinks will propel ERM to a new level of acceptance and maturity.

Regulatory Pressure on Corporate Boards.  Corporate boards can no longer ignore risk management. The Dodd-Frank Act establishes new requirements for board risk oversight and reporting,” explains Banham. “Rating agencies, led by Standard & Poor's, now factor ERM criteria for financial and nonfinancial entities into the ratings process. The Committee of Sponsoring Organizations (COSO) rolled out COSO II (referred to by many as "COSO ERM") in 2004 to establish requirements for risk identification, management, and reporting. And the Securities and Exchange Commission has sharpened its stance on risk management.”

ERM Recognition as an overall Risk Management Best Practice. Historically, companies have struggled to implement ERM due to a lack of overall standards. A set of standards is now emerging. "If you can demonstrate that you have identified and analyzed risks according to a best-practice standard, you have an advantage over competitors that do not closely hew to the standard," explains Bill Ingram from Zurich Services.

New Technologies.  New risk management tools are making critical risk analytics including stress-testing and "what-if" scenarios easier to perform and report. "Things are never static, so you need business intelligence on risks that flows in real time to senior stakeholders to enhance their decision making," says Henry Ristuccia, the leader of Deloitte's governance and risk-management practice.

Check out the full CFO Magazine article “Disaster Averted?” to learn more about what is driving ERM acceptance and predictions on what’s next for ERM.  It is an excellent read.

Gartner recently published its 2011 Magic Quadrant for Energy Trading and Risk Management Platforms. 

Here are my take-aways from this year's report:

  • It's the 3rd straight year that Triple Point is positioned as a leader
  • The gap between the 2 top leaders (Triple Point and OpenLink) and the rest of the vendors is getting wider each year

It’s interesting to see the ETRM market evolve similar to other software markets where there are 2 lead vendors (such as SAP and Oracle in ERP) and a handful of other vendors that fill niches.

Triple Point has purchased the rights to the report; below is a link to view a complimentary version of the full 28-page report.

Report Link: Gartner 2011 Magic Quadrant for Energy Trading and Risk Management Platforms

 

Karur Vysya Bank (KVB), India's leading private sector bank, has licensed Triple Point's commodity management software to control precious metals price volatility in its newly established bullion business.

Founded in 1916, KVB operates more than 350 branches across India and reported revenue of $8 billion for the financial year ending March 2010. New to the precious metals market, KVB was seeking a comprehensive commodity management platform to effectively handle inventory, reconciliation, risk, and regulatory compliance. Triple Point's Commodity XL for Precious Metals™ provides KVB with advanced stock and inventory management, secure transaction processing, and a real-time view of risk across the enterprise.

More than 60% of all gold imported to India is transacted through Triple Point's precious metals software to manage complex wholesale bullion operations. Triple Point bullion customers include HDFC Bank, ICICI Bank, Standard Chartered Bank, Kotak Mahindra Bank, Diamond India, AXIS Bank Limited (formerly UTI), State Bank of India, Bank Muscat, Su-Raj Diamonds, and the Indian Bullion Market Association (IBMA).

"Triple Point's precious metals software is the leading market-proven solution for the treasury bullion business," said Mike Ravo, VP, industry solutions, Triple Point. "The system monitors client exposure and margins in real-time, integrates trading and logistics, and supports robust risk management and compliance. We welcome the opportunity to help KVB manage its new bullion business, as well as future growth."
Posted in: @Triple Point
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Events

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.