2012 Dodd-Frank Market Survey and Report November 2012
Sponsored by
Contents Executive Summary .................................................................................................................................... 2 Methodology and Demographics .............................................................................................................. 5 Dodd-Frank Compliance Activities ............................................................................................................ 7 Impacts of Dodd-Frank on Commodity Trading Businesses ................................................................... 13 Summary ................................................................................................................................................... 17 About CommodityPoint ........................................................................................................................... 18 Other Resources.................................................................................................................................... 18 Other CommodityPoint Reports ........................................................................................................... 18 About the Report Authors ....................................................................................................................... 19 Patrick Reames...................................................................................................................................... 19 Ed Bell.................................................................................................................................................... 19 Study Sponsor - RISKADVISORY, A DIVISION OF SAS ...................................................................................... 21 Appendix A – Research Questionnaire .................................................................................................... 23
Executive Summary The Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank or DF) was signed into federal law by President Obama on July 21, 2010. Drafted as a response to the 2008 collapse of the financial markets and resulting recession, Dodd-Frank created sweeping regulatory changes in the financial markets and by extension, the commodity trading markets. The combination of an extended period of rule making, an aggressive timeline for implementation, and a highly politicized atmosphere surrounding the legislation have left a number of market players uncertain as to when and how to respond to the rules. After almost two years of debate and public comment, the final rules for Dodd-Frank Title VII, the section of the regulations dealing with financial swaps and, subsequently the commodity trading markets, were published in the summer of 2012. Under the timeline established by the publication, new position limits regulations were scheduled to come into effect October 12, 2012 (though these have been blocked in late Sept 2012 by a court ruling), and the swap data reporting regulations are set to be enforced on January 1, 2013 for swap dealers and major swap participants. For those companies receiving an "end-user" status, the deadline for reporting is currently April 10, 2013. Given these aggressive deadlines, it would be expected that market participants would undertake an equally aggressive program to ensure compliance including such activities as swap data repository (SDR) onboarding, connectivity and testing (as of this writing the approved SDRs are ICE, CME and DTCC); restructuring of internal processes to ensure proper data retention and reporting; and technology infrastructure changes. Though not affecting the responses and data collected for this report, a couple of notable events have occurred during the analysis and report writing phase of this research effort. First, and as noted above, the position limit requirements for market participants were blocked by the US District Court in DC and secondly, the CFTC revised their deadline from Oct 12, 2012 to the end of the year for companies to declare their status as swap dealers. These delays, along with other appeals and lawsuits that are working their way through the court systems, continue to create a confused outlook as to how and when the new Dodd-Frank regulations would ultimately be implemented.
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Despite the protracted nature of the process, or possibly in light of the long delayed rule making (instilling doubt as to the eventuality of the regulations), many market participants have made little or no progress in developing their compliance processes or deploying the necessary technologies for compliance. Within our group of respondents, a significant majority indicated they did have DF compliance initiatives underway, many (44% of the North American respondents) with teams of 5 or more internal resources assigned to the effort. Though fully 80% of the North American respondents indicated they did have some effort toward compliance underway, almost half the respondents (those that knew their dollar spend to date) had actually spent less than $25,000 on outside services or technology to support the effort. In terms of budgeted dollars for compliance activities (assumed through end of year 2012), more than 50% indicated they did not have any monies budgeted for DF compliance. Nonetheless, 45% did indicate some level of budget, though of that group, budgets of less than $500k were most commonly noted. In total, 4 of our respondents (3 in North America and 1 outside the region) noted they had budgeted more than $2 million for the effort, with three of those being very large oil and gas producers and one large financial institution. Of those that said they had no budget in place, the most common entity types were those that held hard assets, including oil and gas producers and utilities, perhaps reflecting their belief that they would be classified as "End Users" and exempt from many of the regulatory burdens of Dodd-Frank. That being said, it is important to note that while an "End Users" classification does change some reporting deadlines, it does not relieve those companies from all reporting and maintaining full life-cycle trade details. In reviewing the data, there appears to be a general lack of urgency on the part of many market participants – low or no budgets, few resources assigned to compliance efforts, and little engagement with third parties that could provide expert opinion or technology solutions that could facilitate compliance. Given the potential scale of the effort required to programmatically collect the volumes of data necessary to ensure compliance with DF regulations, we believe there is a significant risk that skilled resources (either those provided by commodity trading and risk management (CTRM) systems vendors or those from CTRM-centric consulting firms) could be in very short supply as the deadlines near. Should Dodd-Frank rules implementation continue, as it appears it will, lack of movement by a significant number of market participants (especially in the "end-user" segment) is creating a large 3
backlog of work across the industry and, we believe, this circumstance should be considered a significant risk as companies consider their compliance planning and efforts.
Additionally, as
compliance will be a CTRM system-centric effort, companies that have resisted moving forward to newer releases of their vendor supported solutions may face additional effort to upgrade those systems, as few vendors will "back code" Dodd-Frank specific capabilities (such as reports and new unique DF required data fields) into older versions of their products, especially those that are more than 2 or 3 generations old. This version upgrade effort can, by itself, be very costly and time consuming, requiring months of effort even prior to full implementation of SDR connections or data collection, achieving and retrieval strategies. Given the potential legal and financial exposures of non-compliance, we believe it is incumbent upon all levels of leadership, from risk managers to C-level executives, to create a culture of DF compliance within their companies. While many may think a manual work-around of the data reporting and retention requirements will be "good enough", such manual processes are prone to error and will most certainly evolve from being a high priority to one of a less urgent nature as the immediacy of the "business of the day" takes priority; after all, nothing bad will happen immediately if a trade doesn't get reported properly or if a report is late. Unfortunately, while the regulators' response will not be immediate, it will most likely be aggressive once in motion; and once a company is identified as one that has not been compliant in the past, that company will likely remain under CFTC scrutiny for a very long time. As with all regulations, companies exposed to Dodd-Frank rules will be considered guilty until they prove themselves innocent‌continuously and consistently.
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Methodology and Demographics The CommodityPoint Dodd-Frank Market Research effort was undertaken primarily via a survey instrument developed specifically for the study (appendix C). The survey received responses from a total of 51 companies. Of a total of 51 responses, 4 were eliminated due to incompleteness, invalid email addresses and contact names or they originated from a company not involved in commodity trading, leaving a total of 47 for inclusion in the study. The survey was conducted from April 2012 until the end of the third week of September 2012 using both HTML email pushes along with researcher contacts to likely candidates. It should be noted that some responses, such as "dollar spend to date" represent point in time metrics and therefore the responses to such questions may have evolved during the survey period – i.e. the respondent may have answered the question in May of 2012 and by the time of the drafting of this report, that respondent's company may have in fact continued to spend additional dollars for compliance efforts. That being said, the data does provide interesting data points as to the scale of compliance efforts/spend as companies prepare for the upcoming regulatory regime.
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Survey Demographics While companies that operate in the US commodity markets are most clearly impacted by the impending Dodd-Frank regulations, non-US entities are also exposed if they trade on US-based exchanges or commit to OTC
Respondents by Region
transactions
Europe, 4
with
US-based
entities. Therefore, in the course
Africa, 1
United States, 34
North America, 37
of our data collection we have permitted collection of non-US
Canada, 3
Asia Pacific, 4
based entity responses and have
South America, 1
included those responses in much of our analysis. In particular, we
have generally grouped the responses by North America and "Rest of the World", as the Canadianbased entities that responded to our survey are very likely to be impacted by Dodd-Frank regulations given the significant cross-border trading in energy commodities in North America.
Of the 47 responses considered in our analysis, 78% originated from respondents
based
in
Respondent Company Types
North
America, 8% from Europe, 8% from the Asia-Pacific region, and 6% from respondents based in other parts of the world. Given the concentration
Chemical/ Petrochemical 2%
Agricultural Producer/Mining 2%
Utility/LDC/Genera tor 19%
Pipeline/Refiner/ Processor 2% Other 11%
of responses from North America vs.
Hedge Fund/Investment Fund/Bank/ Financial Institution 17%
Merchant/Trader 15%
the rest of the world, the results of Broker 9%
the survey are often presented in total with the two geographies
Oil & Gas Producer/Marketer 23%
broken out separately. The respondents represented a good mix of industry sectors with oil and gas producers/marketers, merchant trading companies, utilities/LDCs and financial institutions/hedge funds being the most represented segments. Of the North American based respondents, oil and gas producers/marketers
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and utilities were dominant. Of the non-North American entities that responded, financial institutions/hedge funds, merchant traders and oil and gas producers/marketers were most often represented, which would expected as they would be the types of companies most likely to trade with North American based partners or on North American exchanges.
Dodd-Frank Compliance Activities We asked our respondents whether they
Does your company have a DoddFrank compliance initiative underway?
had an organized Dodd-Frank compliance initiative underway, and surprisingly, about
did not have such a program in place. Of those entities that indicated they did not have such an initiative, small to mid-sized oil and gas producers were the most common. In all, about three quarters of
Number of Responses
20% of the respondents indicated that they
40 35 30 25 20 15 10 5 0
Rest of the World North America
Yes
the respondents indicated that they did
No
Don't Know
have a DF compliance initiative under way. The group was asked if they knew, based upon the available information at the time, how their company would be classified according to the CFTC. While many did not yet know, including 12 respondents from North America and 2 from outside North America, most commonly the respondents indicated they believed they would be classified as "End User".
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The majority of those that indicated they would be awarded an "End User" classification were Utilities/LDC's, along with several oil and gas producers. However, the largest oil and gas producers that responded to our survey
What will be your Dodd-Frank CFTC classification?
noted that they anticipated they would be classified as a
Number or Responses
16 14
"Major Swap Participant" or
12
"Special Entity".
10
that
8
Rest of the World
6
North America
4 2
indicated
receive
the
Companies they
"Swap
would Dealer"
designation were almost all Financial Institutions / Hedge
0 End User
Major Swap Participant
Special Entity
Swap Dealer
Funds, though one global oil
Don't know
and gas producer also indicated
a "Swap Dealer" classification. Given the slow evolution of regulations and regulatory guidance, combined with a palpable sense that the regulatory process was politically
Do you believe the CFTC implementation of Dodd-Frank will be delayed long enough to justify delaying your compliance initiative into 2013?
influenced, we asked our respondents if they believed the CFTC implementation of 30
whatever reason) to justify delaying their
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compliance initiatives until after the end of 2012. Though 90% of the non-North American respondents indicated they felt it would be delayed, the North American respondents were less certain, with 57%
Number of Responses
DF regulations would be delayed (for
20 15
Rest of the World
10
North America
5 0 No
believing such a delay would not occur.
Yes
We further asked what activities have been undertaken to date to begin to address the upcoming regulations and become DF compliant. The respondents were asked to indicate all activities they had undertaken, from having done nothing to having purchased dedicated applications to support DF compliance. Though six of the respondents indicated they had not taken any real actions to date, the
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most common action noted was that they had begun internally researching DF compliance requirements,
What actions if any have you undertaken in terms of compliance?
a
number
that very clearly mirrors those that responded they had
Have taken no action to date
a
DF
initiative
Have begun mapping market interfaces to swap repositories
underway.
Have purchased specific Dodd-Frank compliance technology solutions or tools
third of all respondents
Have begun developing technology solutions for compliance
indicated that they had also
A technology review of compliance requirements as they may affect our trading systems
undertaken a technology review
Hired outside expertise to review compliance requirements
More than a
of
compliance
requirements as they might
Internally researched compliance requirements
affect their trading systems. 0
10
20
30
Number of Actions Noted
North America
Rest of the World
40
An equivalent number also noted
that
they
had
brought in outside expertise to review compliance requirements as they related to their company. Slightly over a quarter noted that they had begun developing technology solutions necessary for compliance, though fewer (about 15%) indicated they had actually begun mapping market interfaces to swap data repositories, such as ICE or DTCC. While none of the respondents indicated they had purchased specialized DF technology solutions or tools to assist in building-out a compliance architecture, CommodityPoint is aware that several of the vendors of specialized DF reporting and compliance tools and DF specific CTRM modules (such as that from SAS RiskAdvisory) have, as of this writing, begun to see some market up-take of those solutions, with several new sales announcements in recent weeks.
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Though the numbers of these sales to date are small, it is a positive indicator that the market is beginning to make the necessary investments in technology in anticipation of the impending deadlines for DF reporting. In order to gain insight into the efforts currently underway, we asked the respondents to identify how many individuals within their company were involved in researching the implications of Dodd Frank regulations on their companies.
Number of Employees involved in researching Dodd Frank Impacts 16 14 12 10 8 6 4 2 0
Of
the
North
American
respondent group, the most cited ranges for the team size were "2 to 4" and "more than 10".
Rest of the World North America
None
One
2 to 4
5 to 10
Seven
of
the
North
American respondents indicated there was a single person involved, 5 indicated that there
More than 10
were "5 to 10" persons involved and
three
of
our
North
American respondents indicated there was no one within their company that was actively reviewing the impacts of Dodd-Frank. The responses from other geographies outside of North America were fairly evenly split amongst each of the ranges, though a team size of "5 to 10" was noted slightly more often. When reviewing the data by entity type, utilities, oil and gas producers, and financial institutions/hedge funds were most often noted as having the largest teams of DF compliance researchers. The industry segments most likely to have smaller teams in place were the agricultural producers, mining, and petrochemical companies/refiners.
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Number of Employees Involved with Compliance Financial Institutions Utility/LDC/Generator
10 or More Oil & Gas Producer/Marketer
5 to 10 2 to 4
Merchant Trader
1
Agricultural Producer/Mining - Chem/Petrochemical Pipeline Refiner/Processor
None
Other
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
In terms of dollars spent (up to the date of the individual company's survey response) on outside consulting services or new technologies, of those indicating an answer other than "Don't Know", a third indicated that they had spent less than $25,000, a range that would include those that had spent nothing to date on
How much has your company spent to date on outside consultants or new technologies related to DF compliance initiatives?
outside resources or technology. 17% of the 18
respondents indicated they
spent
in
excess of $250,000 to date, with a few noting they had spent lesser amounts
in
each
category. In all, 40% of the indicated
respondents they
had
16
Number of Responses
that
14 12 10 8
Non-North America
6
North America
4 2 0 More than Between Between Between Less than $250k $100k and $50k and $25k and $25k $250k $100k $50k
Don't Know
spent in excess of $25,000. It should be emphasized that this spend reflects only monies spent on outside consultants and new technologies, not expenditures or costs related to internal resources.
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In terms of budgeted dollars for compliance activities (assumed through end of year 2012), more than 50% indicated they did not have current budget capacity for DF compliance, not necessarily surprising given the evolving nature of the regulatory process related to Dodd-Frank. Nonetheless, 45% did indicate some level of budget, though of that group, budgets of less than $500k were most commonly noted. In total, 4 of our respondents (3 in North America and 1 outside the region) noted they had budgeted more than $2 million for the effort. Of those with the largest budget, all were major oil and gas producers with the exception of one large financial institution. Of those that said they had no budget in place, the
What is your budget for internal staffing, consultants, hardware and third-party licenses for D-F compliance?
most common entity types were those that hard
assets,
including oil and gas producers and utilities, perhaps reflecting their belief that they would be classified as "End Users" from
and many
30 Number of Responses
held
25 20 15 10 5
Non-North America
0
North America
exempt of
the
regulatory burdens of Dodd-Frank.
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Impacts of Dodd-Frank on Commodity Trading Businesses In
order
to
better
understand the market's
What is the business impact of D-F requirements on your firm?
views of how Dodd-Frank would
impact
their
businesses, we asked our respondents to identify
Beyond compliance and reporting, it includes changes to our trading strategies, process flows, counterparty selection, etc.
I am unsure as to the impacts on our business
the single statement that best reflected their view of those impacts. While about 30% felt that they were
unsure
of
the
It is a larger opportunity to enhance risk management and business intelligence infrastructure.
Dodd-Frank is purely a compliance and reporting exercise, and nothing more.
ultimate impact on their
0
company, almost 45% indicated that the DF
5
10
15
20
25
Number of Responses North America
Non-North America
regulations would affect their business directly and would include changes to their trading strategies, process flows, counterparty selections, etc. Smaller numbers of respondents indicated the changes required would be less far-reaching, with 6 respondents saying DF compliance was nothing more than an exercise in compliance and reporting, with no real business changes indicated. A similar number indicated they felt the compliance effort was an opportunity to enhance their risk management and business intelligence infrastructure. Looking specifically at the effects of DF regulations on trading activities, we asked the respondents to indicate, from a list, potential impacts to those trading activities, allowing multiple selections. Most commonly, more than half the group indicated that their costs related to technology and support would increase. 40% of the respondents indicated that DF regulations would increase their costs of trading due increased margin requirements; perhaps reflecting, in part, the belief by slightly less than a third that they would be forced to reduce OTC transactions (and potentially move more deals to exchanges that have stringent margin requirements). Nine of the respondents indicated they may have to divest of some portion of their business (hard assets, business units, portfolios, etc) in order to reduce their DF exposures. A quarter of the 13
respondents indicated they felt there would be no changes to their trading activities – these were most commonly
agricultural
centric trading houses and a couple of small oil and
How do you believe DF regulations will affect your trading activities? Will increase costs related to technology and support Will increase our costs of trading due to higher margin requirements Will reduce the number of OTC transactions we do Will force us to divest some portion of our business in order to reduce regulatory exposures There will be no affect
gas producers.
Other
As
an
"End
User"
0
classification would appear
5
10
15
20
25
30
Number of Responses
to exempt those companies from
some
of
the
North America
Non-North America
regulatory burdens of Dodd-Frank, including margining, and would provide less stringent reporting rules, we asked those companies who believed they could possibly receive such a classification to indicate whether they anticipated they would need to clear more trades under the new rules. While a third of the respondents believed they would not receive such a classification, of those that felt an "End User" classification was a potential for their company, approximately a third felt
Should your company have an "End User" status, will that compel you to change your current process of clearing trades?
they would not make any change
to
their
current
process of clearing trades.
No change expected
We do not expect to be classified as an End User
Slightly less indicated they would clear more trades, and four indicated they would
Will clear more trades
Will clear less trades
clear less trades, though the
0
reason for that is unclear.
5
10
15
Number of Responses North America
14
Non-North America
20
Given that Dodd-Frank reporting regulations stipulate that trades must be reported as soon as "practicably" possible, there is a belief by many in the industry that such a standard would require reporting of the
We presently enter trades into our ETRM/trade system:
trade to trade repositories within
At midday and/or end of day
minutes of the time the trade was
Within 1 or 2 hours of execution
committed. past
Given that most of our
research
indicates
that
few
companies require traders to enter the
I do not know Trade capture is automated - we do not manually enter trades
0
trade as soon as the deal is committed,
5
10
15
Number of Responses
we wanted to identify the potential impact on companies if such a reporting
North America
requirement were to be enforced.
15
Non-North America
20
The survey asked the respondents to note when they required their traders to enter their deals into their ETRM or trade capture system, which of course would be the first step in recording the deal for reporting purposes. While a number of respondents indicated they didn't know what their companies' requirements were, a large percentage (36%) indicated that they did not require trades to be entered until after noon and/or by the end of the day. Another 25% indicated their requirement was that the deal had to be in the system within 2 hours of execution at the latest. Again, as the final regulations of DF may require near real-time or within minutes of deal commitment reporting depending on an individual company's CFTC market designation, the business processes of these companies may be significantly impacted and could require additional resources, such as deal entry clerks or trading analysts, in order to meet the trade entry deadlines - an additional cost that must be considered as companies work toward meeting their compliance obligations.
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Summary Though Dodd-Frank has been a lumbering giant for the last two years, the deadlines for compliance are rapidly approaching and many market participants are taking actions necessary to become compliant. However, based upon our research and conversations with many market participants, those efforts appear to be inconsistent across the market. Though several large companies have expended considerable effort and resources in developing a holistic DF compliance program, complete with programmatic solutions for reporting, SDR connectivity and data retention, many others (particularly those that anticipate end-user status) have taken a much less ambitious (and less costly) approach, including several that have essentially done little or nothing. Given this broad spectrum of responses, it appears that there still exists either widespread doubt in the market as to when the regulations will eventually come into force (as indicated by our respondent group), or there is a significant amount of confusion as to the requirements and burdens that DoddFrank places on any individual company. Based on our conversations with many market participants, it seems to be combination of both factors – many companies simply do not believe Dodd-Frank rules will ever come into full force in the energy markets; and even if they eventually do, the continual delays in implementation will afford them sufficient time to better plan their compliance response. However, if one were to look back on the late developing compliance efforts associated with Sarbanes Oxley regulations in 2003 and 2004, when many companies were caught off guard by the lack of knowledgeable resources to provide guidance and assist in developing compliance programs, it may well happen that many of the companies delaying their Dodd-Frank efforts may face similar difficulty finding the qualified resources necessary to deploy a compliance program in time and avoid what may be an aggressive regulatory response.
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About CommodityPoint CommodityPoint is the industry leader in providing Commodity Trading & Risk Management (CTRM) research, analysis and advisory services. Our services bring insight into business issues, trends, processes and technology, to utilities, energy companies, banks, brokers, funds, investors and vendors that enhance their competitive position and support critical business decisions around the wholesale commodity trading markets. Our team provides expert analysis of market trends and, in particular, the technologies and applications supporting those that participate in regional or global commodity markets. With offices in Europe and the US, and backed by an experienced research team, our organization provides an unparalleled view of the marketplace. CommodityPoint is a division of leading energy and utilities analyst and consulting firm, UtiliPoint International, Inc. Other Resources The CTRM Blog – http://www.ctrmblog.com CommodityPoint – http://www.CommodityPoint.com TRM Products and Services Online Directory – http://www.trmdirectory.com Other CommodityPoint Reports CommodityPoint research reports are available at http://www.Commodity-Point.com For Additional Information regarding this report or any CommodityPoint product or service, please contact Patrick Reames at preames@utilipoint.com or Mark Tredway at mtredway@utilipoint.com. CommodityPoint Locations The Americas 19901 Southwest Freeway, Suite 121 Sugar Land, Texas 77479 USA Phone: 281-207-5440 Europe & Asia/Pacific International Business Center Prikop 4 602 00 Brno Czech Republic Tel: +42 0 533 433 658
UtiliPoint International is a wholly owned subsidiary of Midas Medici Group Holdings, Inc. (OTCBB:MMED).
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About the Report Authors Patrick Reames Managing Director, CommodityPoint Mr. Reames has more than 30 years of energy industry experience. He has a deep understanding, developed through hands-on experience and managerial oversight, of upstream and midstream oil and gas operations including exploration, production, gathering, gas plant operations and pipeline operations. Additionally, he has 5 years of energy commodity trading, transportation, and risk management experience with Hess Corp. (formally known as Amerada Hess), a Fortune 100 integrated energy marketing company. Over the last twelve years, he has been focused primarily on information technology serving energy trading, marketing, and risk management. Prior to joining UtiliPoint, Patrick served as an executive for several technology companies (including TransEnergy Management, Altra Energy, and TradeWell systems) providing products and services to energy and commodity marketing organizations. In these roles, his focus was on the creation and delivery of high value service products designed to ensure the successful implementation and on-going use of technology solutions. Patrick is a frequent speaker at industry conferences and events. He has published numerous articles in industry publications and contributes regularly to the UtiliPoint's IssueAlert and CommodityPoint's CommodityAlert series. Patrick is the primary author of the CTRMblog.com website and is the co-author and editor of the books “Selecting and Implementing Energy Trading, Transaction and Risk Management Software – A Primer” and "Trends in Energy Trading, Transaction and Risk Management, 2009-2010". Patrick holds a B.S. in Business Administration – Finance from Oklahoma State University.
Ed Bell Founding Member – Global Energy Management Institute, University of Houston Mr. Bell is an experienced business and IT executive, focused on practical solutions to long-standing business problems. He has worked on risk management technology, strategic review and organizational realignment projects for the oil and gas, merchant trading, utility and IPP sectors within the energy industry. Mr. Bell’s assignments have spanned the merchant energy value chain from the technologies of price discovery to largescale systems implementation in commodity trading and risk management. He is a former divisional CIO for the wholesale trading division of a major investor owned electric utility and was one of the principal developers of the energy industry’s original commodity risk management infrastructure. For the last 12 years, Mr. Bell has consulted with energy clients ranging from business unit managers to corporate officers on issues of technology strategy, corporate risk management and business process and practice improvement. He is currently serving as CIO of Richard Heath and Associates (RHA). In this role, he leads the company's service-oriented Information Technology and Systems team, building their agility and capacity to design the customized tools and applications that support RHA’s sophisticated program management approach. Mr. Bell is a founding member of the Global Energy Management Institute at the University of Houston, and has been a member of the Dean’s Advisory Council at the C.T. Bauer College of Business. Mr. Bell teaches courses in energy and commodity trading systems at Bauer College.
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Study Sponsor CommodityPoint™ appreciates the financial and technical support provided by our sponsor, enabling us to provide this report at no cost to its readers.
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RISKADVISORY, A DIVISION OF SAS Helping Accelerate Your Dodd-Frank Compliance Energy companies, financial institutions, manufacturers and other commodity-oriented corporations operate in a challenging environment of risk, uncertainty and volatility. Now game-changing Dodd-Frank Act regulations are increasing the regulatory compliance burden for any firm that engages the derivatives market for hedging and other business purposes. Successful compliance requires a capability to consolidate a range of data from multiple systems into an auditable database of record, generate timely, accurate reports and communicate that information correctly to regulators, Swap Data Repositories (SDRs) or other end-points. This real-time, “big data” environment demands a Commodity Trading and Risk Management (CTRM) solution that can help accelerate your Dodd-Frank compliance by quickly meeting five core technology goals. 5 Steps to Mastering the Technology Challenge 1. Aggregate all trade data from any system, in any format, into a centralized data store where trades can be maintained, cleansed and organized into required reporting formats and structures. 2. Capture the ancillary meta-data around a transaction, such as universal counterparty identifiers, emails, voicemails and instant messages, as well as the links to trading strategies that express the purpose of a hedge or speculative trade for auditing. 3. Manage limits and thresholds, from commodity, counterparty and trader limits to the firm’s aggregated net limit, maintained with fully auditable date-aware reporting that can produce a to-the-second limit or threshold reports on past trades, with all of the concurrent market and strategy data presented in real time. 4. Report over a business intelligence dashboard providing both a position tracker and limits manager to generate real-time reports and alerts in real time, as well as daily reporting functions for auditing and compliance. 5. Communicate with confidence to SDRs, regulators and other external entities from a master reporting record that generates accurate reports in a compliant format. Drive Business Value Across Your Organization by Accelerating Dodd-Frank Compliance Managed correctly, a strong Dodd-Frank solution not only helps you achieve compliance – it drives additional business value across your organization. Our team of experts is available for on-site consultation to demonstrate the benefits for your enterprise. Schedule yours by emailing RiskAdvisory@SAS.com. The team has also prepared a host of materials to assist you in preparing for compliance, including:
RiskAdvisory’s complimentary podcast series explores the compliance effort from five separate angles: • Making the Most of Dodd-Frank for CTRM. When investment is inevitable, monetize it. How should energy and commodity companies seek out business opportunities in compliance mandates under the Dodd-Frank Act? How can they learn from past responses to similarly draconian regulatory burdens in the financial services sector? • Understanding Dodd-Frank Definitions. How will Dodd-Frank change your trading day? Explore the new, more real-time operating environment for energy and commodity companies who trade swaps under the DoddFrank Act. • The Business Value of Data Aggregation for Dodd-Frank. Upgrading CTRM systems is a time-consuming process that can disrupt your regular trading business. Aggregating data into a master regulatory record is a preferable approach to contending with the many regulatory compliance “tweaks” anticipated over the next few years for commodity companies who trade swaps under the Dodd-Frank Act. • Cost-Benefit Analysis of Dodd-Frank. Activity Based Costing is just one of the broader business benefits of technology investments made to address the compliance requirements imposed on energy and commodity companies who trade swaps under the Dodd-Frank Act. • Whistle-Blower Provisions Under Dodd-Frank. In the light of recent regulatory reporting penalties, how should companies respond to whistleblower incentives under the Dodd-Frank Act?
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Our hour-long webcasts bring thought leaders from across the industry to describe and discuss fundamental issues in responding to the compliance burden, including: • Dodd-Frank 2012: To Compliance And Beyond. Examine the full range of Dodd-Frank challenges, from regulatory shifts to changing business obligations to data management issues. Explore how your organization can benefit from realigning your data collection and analysis approach, beyond pure compliance. Featured speakers: Mike Gill of Crowell & Moring; James Allison of ConocoPhillips; Thomas Lord, formerly of PricewaterhouseCoopers; and Patrick Woody of SAS RiskAdvisory. • Know It All Now! CTRM in the Dodd-Frank Era: success through risk aggregation and analytics. Dodd-Frank regulations demand that every affected company revisit and refine its energy and commodity trading and risk management strategies and the technology that enables them. Learn more about the business implications of Dodd-Frank and the requirements for technology systems in the commodities trading area. Featured speakers: Mike Gill of Crowell & Moring; James Allison of ConocoPhillips; and Louis Caron of RiskAdvisory.
RiskAdvisory offers a range of articles, fact sheets and white papers specific to regulations, such as: 1. Dodd-Frank Title VII Compliance: Optimize your investment to increase business value. Learn how to leverage your compliance efforts to benefit your organization’s operations in this SAS white paper. 2. Race To The Finish. Discover how firms are sprinting to comply with the new Dodd-Frank rules in this EnergyRisk magazine article featuring a RiskAdvisory expert. 3. Lemonade From Lemons: Analytics benefits of Dodd-Frank compliance. SAS guidance on the analytics advantages derived from the regulatory effort, featured in Electric Light & Power magazine. 4. Impact of Dodd-Frank on ETRM systems. Energy Metro Desk explores the intersection of energy trading and regulatory compliance in this interview with a RiskAdvisory specialist.
How RiskAdvisory Can Help RiskAdvisory is a leader in compliance software solutions that enable firms to streamline their response to Dodd-Frank and other new regulations while continuing to drive business value. Email RiskAdvisory@SAS.com to schedule an on-site consultation with our regulatory team. To learn more about our innovative CTRM solutions including the SAS® BookRunner® suite and the best practice of Enterprise Commodity Risk Aggregation and Analytics (ECRAA) it supports, visit www.RiskAdvisory.com.
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Appendix A – Research Questionnaire 1) Does your company have a Dodd-Frank Compliance initiative underway? (single selection) a. Yes b. No c. Don't Know 2) Does your company maintain a permanent Regulatory Compliance department/function? (single selection) a. Yes b. No c. Don't know 3) What will be your company's Dodd-Frank CFTC classification? (single selection) a. Swap Dealer b. Major Swap Participant c. End User d. Special Entity e. Don't know 4) Do you believe the CFTC implementation of Dodd-Frank will be delayed long enough to justify delaying your compliance initiative into 2013? (single selection) a. Yes b. No 5) What actions if any have you undertaken in terms of compliance? (multiple selection) a. Internally researched compliance requirements b. Hired outside expertise to review compliance requirements c. Have undertaken a technology review of compliance requirements as they may affect our trading systems d. Have begun developing technology solutions for compliance e. Have purchased specific Dodd-Frank compliance technology solutions or tools f. Have begun mapping market interfaces to swap repositories g. Have taken no action to date 6) How many people in your company have been involved in research/compliance related to Dodd Frank? (single selection) a. None b. 1 c. 2 to 4 d. 5 to 10 e. 10 or more 7) How often does your Dodd-Frank compliance project team meet? (single selection) a. We do not currently have a D-F compliance team in place b. Daily c. Weekly 23
d. Monthly 8) How much have you spent to date on outside consultants or new technologies related to DoddFrank compliance initiatives? (single selection) a. Less than $25k b. Between $25k and $50k c. Between $50k and $100k d. Between $100k and $250k e. More than $250k 9) Have you established a budget for internal staffing, consultants, hardware purchases and thirdparty licenses for Dodd-Frank compliance? (single selection) a. Less than $500,000. b. Less than $1 million. c. Less than $1.5 million. d. Less than $2 million. e. More than $2 million. f. We do not currently have a budget for Dodd-Frank compliance 10) What is the business impact of Dodd-Frank requirements on your firm? (single selection) a. Dodd-Frank is purely a compliance and reporting exercise, and nothing more. b. Beyond compliance and reporting, it includes changes to our trading strategies, process flows, counterparty selection, etc. c. It is a larger opportunity to enhance risk management and business intelligence infrastructure. d. I am unsure as to the impacts on our business 11) How do you believe Dodd-Frank regulations will affect your trading activity? Please select all that you believe will apply to your business. (multiple selection) a. There will be no affect b. Will reduce the number of OTC transactions we do c. Will increase our costs of trading due to higher margin requirements d. Will increase costs related to technology and support e. Will force us to divest some portion of our business in order to reduce regulatory exposures f. Other, please specify 12) Should you have an End User status, will that compel you to change your current processes of clearing trades? (single selection) a. Will clear more trades b. Will clear less trades c. No change expected d. We do not expect to be classified as an End User 13) We presently enter trades to the ETRM/trade system: (single selection) a. Within 1 or 2 hours of execution b. At midday and/or end of day 24
c. Trade capture is automated – we do not manually enter trades d. I do not know 14) What is your name? 15) What is your email address? (This is required in order to verify responses) 16) What is your company’s name? 17) In which country are you based? 18) What Type of company is that? (single selection) a. Hedge Fund/Investment Fund/Bank/Financial Institution b. Utility/LDC/Generator c. Oil & Gas Producer/Marketer d. Pipeline/Refiner/Processor e. Merchant/Trader f. Agricultural Producer/Mining g. Industrial Commodity Consumer (e.g. transportation, airlines, food & Beverage etc.) h. Chemical/Petrochemical i. Other, please specify 19) In which Commodity Segment does your company primarily trade? (single selection) a. Energy b. Agriculture/Softs c. Metals d. Other, please specify
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