National Oil Company Simplifies Trader Workflow and Delivers Global Compliance With A Single Technology
Key Results
- Simplified trader workflow by eliminating the need for internal trades
- Delivered trade allocations functionality for globally distributed trading desks
- Achieved global compliance coverage with a single piece of technology
- Optimized workflow through granular control over trade flows to CTRM system
The Customer
An integrated national oil company was going through tremendous growth. While primarily active in the physical markets, their growth increased volumes on the financial side which was bringing considerable complexity to their operations. They had recently centralized on a single vendor risk system which gave traders the ability to manage risk and exposures at a low level of granularity. A single trader/desk was able to create many strategies in the system to segregate each aspect of their physical business. This in turn gave them risk and exposure calculations at the strategy level.
However when looking at derivatives markets to hedge their risk, a given trader/desk would aggregate their overall exposure and trade futures to hedge at that macro level. This allowed them to make less futures trades which is more efficient than executing many small trades to hedge risk in each strategy.
The Challenge
While traders could see the risk for each strategy, their hedge positions were at a higher level. Thus, they could not easily ensure each strategy was effectively hedged as the market moved day after day. Traders would be left to do the math to ensure the macro hedge they placed on Monday, still covered the exposures from their multiple strategies on Friday after the markets moved over the week. Ideally, each trader needed to split a single hedge trade across strategies so they could manage each strategy independently.
It’s like asking 10 people how many slices of pizza they want, then ordering 4 large pizzas to cover the total. When you get those whole pizzas, you need to divide them up so people get the slices they ordered. The common term for this is “trade allocation”.
The Solution
The company attempted to have this solution custom built with a large technology consulting firm with energy trading expertise. After a year of effort and much money spent, they were able to line up a solution. Challenge was that it was far too slow and the workflow didn’t account for how people intended to use the tool. It left traders frustrated.
The firm then turned to BroadPeak to redesign from the ground up. Performance, scalability, and a simple user experience were paramount. The BroadPeak design and technical team worked closely with the company’s operations team to find the right balance between molding technology to the current workflow and ensuring broader technical challenges were addressed. By finding a balance, the collective team was able to shape the user experience and also find ways to optimize trader workflows.
BroadPeak delivered Eiger, a simple, web-based, trade allocation tool which allows traders to see all their derivatives trades, and then allocate proportionately to strategies in a downstream risk system.
The Result
The company was able to deploy Eiger across its global trading desks in 3 continents, all within the allotted time and budget. Traders were then able to manage all sorts of physical activities at a low level and separately hedge a higher level as their business required. This gives their physical business considerable flexibility to pursue all sorts of varying strategies each with quite different risk profiles.
The back office team has full view over how each trader has performed allocations and if corrections are needed later, can fully manage the workflow without involving technical staff.
Lastly, the internal IT team was able to focus on their day-to-day activities without heavy involvement in the effort. They were able to take a standard vendor product and run it without having to deal with the idiosyncrasies of the custom piece of technology previously supported.
Over the past 3 years, all of ’s financial trades have successfully flowed from various derivatives markets through K3 / Eiger into their central risk management system. Traders are able to leverage Eiger with little training. No major bugs have arisen, performance has been stellar, and the effort has become a central piece of how the company manages operations and risk.
