BroadPeak Case Study:
A National Oil Company Optimizes Trader Workflow and Delivers Global Compliance with BroadPeak’s K3
Snapshot
- A national oil company significantly grew its footprint within derivative markets and, as a result, had difficulty completely hedging all of its physical strategies via its macrobook.
- Traders were left to manually check calculations to ensure that the firm’s macro hedge placed at the beginning of the week still covered multi-strategy exposures at the end of the week.
- BroadPeak’s K3 trade allocation solution was deployed across global trading desks within the allocated timeline and budget, offering the client enhanced flexibility, visibility, and control in operations.
Background
An integrated national oil company significantly expanded its operational footprint within the financial derivative markets. While primarily active in the physical markets, its growth within derivatives brought considerable complexity to its business. To address this, the client had recently centralized its operations on a single vendor ETRM. This system allowed traders to manage risk and exposures with a high level of detail, enabling them to create multiple strategies within the system to segregate each aspect of the firm’s physical business.
However, with K3 trade allocation, instead of hedging each strategy individually, traders/desks would aggregate their overall exposure and trade futures to hedge at a broader, macro level. This allowed them to streamline their hedging process, reducing the number of individual futures trades required, lowering trading effort and costs.
The Challenge
With incumbent methods, traders could see risk for each of their strategies, but not broader hedge positions. As a result, they could not easily ensure each strategy was adequately hedged as market conditions shifted daily.
Additionally:
- Traders had to manually check to ensure the macro hedges placed at the beginning of the week still covered their multi-strategy exposures as the week ended.
- Each trader needed to split unitary hedges across multiple strategies so they could manage each strategy independently.
The Solution
The company had initially attempted to have a solution custom-built with a large technology consulting firm specializing in energy trading, however, after a year of effort and much money spent, the consultant was unable to solve the problem. The issue with the solution presented was that it was far too slow, and its workflow didn’t account for how people intended to allocate trades, leaving traders frustrated. After a failed first attempt, the firm turned to BroadPeak to produce a trade allocation solution from the ground up.
The solution BroadPeak delivered needed to provide performance, scalability, and a simple user experience.
The BroadPeak design and technical team worked closely with the company’s operations team to find the right balance between customizing technology to suit the current workflow and ensuring broader technical challenges were addressed. BroadPeak delivered K3’s trade allocation module: a simple, web-based, trade allocation tool which allows traders to see all their derivatives trades, and then allocate proportionately to strategies in an ETRM system.
The Result
The company was able to deploy BroadPeak’s trade allocation tool across its global trading desks on 3 continents, all within the allotted time and budget. Traders were then able to manage a variety of minutiae physical activities, but hedge those activities at the macro level as their business required. This gave the firm’s physical business considerable flexibility to pursue varying strategies, each with different risk profiles. With this solution, the back-office team had full view of how each trader had performed allocations and, if corrections were needed later, they could fully manage the workflow without involving technical staff.
- The internal IT team could focus on their day-to-day activities without heavy involvement.
- The firm was able to take a standard vendor product and run it without having to deal with the idiosyncrasies of maintaining custom technology.
- The firm’s financial trades successfully flowed from various derivative markets through BroadPeak’s K3 trade allocation module into its central risk management system.
- Traders were able to leverage the trade allocation tool with little training.