Rationalizing Complex CTRM Technical Infrastructures by Commodity Point

A CommodityPoint Whitepaper

Rationalizing Complex CTRM Technical Infrastructures

Sponsored by

Prepared by

CommodityPoint, a division of UtiliPoint International, Inc. 19901 Southwest Freeway, Suite 121 Sugar Land, Texas 77479 www.commodity-point.com April 24, 2012

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Introduction CommodityPoint, in our recent study Data Management Solutions1, observes that the data management software category is one that has seen rapid growth in recent years, driven by the recognition that there are multiple and specialized issues in the commodity trading and risk management industry that have not yet been adequately addressed via traditional integration methods and tools. These issues include: • • • • • •

Management requiring access to results in a more timely manner Greater need for sophisticated analysis capability to adapt to changing conditions Increased focus on risk management both internally and externally Increasing compliance measurement standards Increased need for transparency of decision making from boards, stakeholders, investors, and government The ability to see an integrated view of data currently maintained in disparate databases and systems, requiring: − Basic data collection and aggregation (including the ability to quickly add new data sources – either internal or external; a capability that appears to be problematic for many solutions) − Ability to handle vast quantities of data and extract meaning from it (including the many subclasses of data, such as price, risk and other forms which may require specialized solutions) − A systematic approach to data cleansing, conformation, audit, balancing, and system of record identification from the various disparate sources

As a result of these drivers, the data management software category is growing and evolving rapidly, attracting new entrants from start-ups to established firms from the financial services arena, while existing vendors of price and data aggregation technologies ("price servers") are broadening their footprints to encompass many of these new needs. CommodityPoint has also observed that a majority of the larger energy marketing and trading firms are seeking to implement these types of solutions as their companies have become burdened with complex technical infrastructures that have evolved organically, driven by events such as the acquisition of specialized applications (including full ETRM/CTRM systems) in order to address sometimes unique needs of specific commodities or geographic markets. Additionally, the industry is seeing more and more M&A activity, resulting in the combining of system architectures of merged companies, leading to an infrastructure that, while operational, is certainly less than optimal and one that would have never 1

CommodityPoint Report ,"Data Management Solutions", February, 2011 ©UtiliPoint International, Inc. 2012 all rights reserved. For information and cost to reprint, distribute or translate UtiliPoint® material, contact UtiliPoint® at 1.505.244.7600 or e‐mail: research@utilipoint.com.

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been road-mapped under any other circumstances. Perhaps the most urgent changes trading and financial organizations are challenged with now relate to regulations like Dodd-Frank in the US and EMIR in Europe that place an immediate demand on global organizations who are active in those markets. Figure 1 shows just such an architecture (which is in fact a very close representation of an actual technical infrastructure at a real-world global energy company) that is the result of circumstances such as those out-lined above. In the diagram, each different color represents a separate software solution, including multiple ETRM/CTRM solutions, physical logistics systems, optimization solutions, risk management applications and various other sub-systems that have been implemented in an attempt to integrate the various end-point systems in order to combine data and facilitate reporting. Figure 1

The company represented in the above architecture is not unique in this industry. In fact, CommodityPoint research consistently shows that the vast majority of global energy trading utilizes two or more risk management systems in their business. CommodityPoint's most recent research effort in this area, Risk Management in Energy Trading2, returned the following result when we asked our respondent group how many risk systems do they utilize in their day to day operations:

CommodityPoint Report, "Risk Management in Energy Trading", November 2009 ©UtiliPoint International, Inc. 2012 all rights reserved. For information and cost to reprint, distribute or translate UtiliPoint® material, contact UtiliPoint® at 1.505.244.7600 or e‐mail: research@utilipoint.com.

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Reporting and analytics are increasingly difficult due to increased prevalence of multiple CTRM systems, data feeds, accounting and corporate reporting systems, settlements, market prices, etc. Additionally, cross commodity trading adds significant challenges in areas such as the need to gather settlement data for multiple commodities from unstructured sources such as emails, electronic market reports, screen scrapes, etc. Beyond the normal day-to-day difficulties engendered by these complex architectures, such as managing cross portfolio positions and creating timely reports, organic technical beasts such as this are becoming more of a liability as the "ecosystem" of energy commodity trading and marketing continuously grows more complex: 1. Uncertain Economic Factors – Global economic imbalances and impact on not only prices for commodities, but the actual physical flow of those commodities around the world. 2. Continuing high levels of volatility for all commodities, not just energy, bringing new traders into the markets – transportation, consumer goods, etc. 3. The breakdown of historical price correlations and the establishment of new correlations 4. The introduction of new trader types, tools, and products – NYMEX has just recently rolled out a dozen new crude derivative contracts and ICE is doing something similar. 5. Increasing regulation – Dodd-Frank and all that implies. Given all this, how do companies start to address the impacts – how do they rationalize these complex infrastructures in order to: 1. Reduce risks at all levels, including market risk, execution risk, and enterprise risk; 2. Better enable the business users to quickly respond to market innovation and take advantage of new derivative products and resulting arbitrage opportunities;

©UtiliPoint International, Inc. 2012 all rights reserved. For information and cost to reprint, distribute or translate UtiliPoint® material, contact UtiliPoint® at 1.505.244.7600 or e‐mail: research@utilipoint.com.

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3. Maximize returns on costly assets via the use of asset optimization tools that combine operational data and market information, both real-time and forward looking; 4. Meet time critical regulatory reporting and financial mandates? Unfortunately, there is no "out of the box" solution when seeking to develop new integration infrastructure or to improve an existing one. Packaged solutions are simply not able to adequately manage enterprise scale integration and risk management. While many may provide the technical "bits and pieces", they do not provide the modeling capabilities that are necessary to address the complexities found in today's markets, including highly structured deals, cross-commodity hedging strategies and the optimization of interdependent assets.

SunGard Global Services’ Approach to Delivering an Information Management Infrastructure Solution In order to address the issues of trying to address an increasingly complex market environment with an overly complex technical infrastructure, CommodityPoint believes a structured approach to rationalizing that architecture is necessary. One such approach is available from SunGard Global Services and leverages their experience in both technical design and ETRM/CTRM business processes. A brief outline of their approach is as follows: 1) Strategy – What is needed and why? What are the driving forces? a. Regulatory b. Shareholder c. Operations d. Asset Optimization e. Risk Management 2) Leveraging assets and accelerators 3) Building the infrastructure 4) Maintaining the infrastructure via managed services 5) Education – moving organizations forward along the information management maturity curve; gaining not just insight, but also foresight. Ultimately, SunGard Global Services believes a "best of breed" application approach is not only appropriate, but is generally most desirable, as it allows trading organizations the flexibility to maintain or acquire the best possible solution for their needs; yet, through SunGard Global Services’ integration approach, they allow for complete enterprise communication of transaction level detail amongst the various systems and ensure accurate and timely roll-up of information throughout the company via the customers preferred channels (BI tools, dashboards, reports, etc.). ©UtiliPoint International, Inc. 2012 all rights reserved. For information and cost to reprint, distribute or translate UtiliPoint® material, contact UtiliPoint® at 1.505.244.7600 or e‐mail: research@utilipoint.com.

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SunGard Global Services’ approach is tool agnostic, meaning that they will inventory all of the client's currently available tools and applications, making use of the tools that are in place and will supplement only as required. Their approach is not centric to any vendors product, rather is takes advantage of all products that are available. Potential applications in the technology stack can include Informatica, Terra Data, etc.

SunGard Brings Accelerators to the Process SunGard Global Services differentiates themselves from other consultative approaches to enterprise scale trading system integration via the use of numerous "accelerators" during the implementation process. These accelerators reduce the time and effort involved in the design and modeling of the integration solution, including definition of application interfaces, data stores, reports, to-be processes, and logical control frameworks. In terms of technical processes and design, SunGard Global Services provides a methodical approach to quality assurance and technical frameworks, including logical business models that accelerate the definition of the enterprise data model which accommodates position, asset optimization, P&L, market risk, and credit risk. SunGard Global Services believes these models can provide a 40-60% jumpstart toward completion of an enterprise information management project.

A SunGard Global Services Deployment Case Study Challenge The trading arm of a leading supplier of electricity and energy services engaged SunGard to upgrade its energy trading and associated decision-making IT infrastructure to better align with business growth drivers. The customer needed more than just a point solution upgrade of the existing ETRM to address their operational analysis issues - they needed the ability to calculate and analyze operational and financial results and perform reliable P&L/position/risk management across front, middle and back offices. The customer’s executive management also needed to improve the business capability from a current state of a static transaction reporting and numerous spreadsheets to an interactive solution delivering the results through a single, self service-oriented business intelligence portal.

Approach SunGard engaged the front, middle and back offices in creating a common view of business information that would drive the day-to-day operations, support the business’ operational and executive ©UtiliPoint International, Inc. 2012 all rights reserved. For information and cost to reprint, distribute or translate UtiliPoint® material, contact UtiliPoint® at 1.505.244.7600 or e‐mail: research@utilipoint.com.

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management needs, and analytical needs and decision making. SunGard managed and delivered the entire information management-focused software development lifecycle. The project team developed a state-of-the-art custom business intelligence application and information infrastructure designed to provide the business with a single consolidated view of activity from multiple source systems that will support reporting, analysis and new insights across front, middle and back offices.

Results SunGard successfully created a single platform to align the business processes and data for the front, middle and back offices, enabling the customer to spend less time on data gathering and more time on information analysis. As a result, the customer experienced enhanced transparency of position and risk reporting, an enhanced ability to evaluate opportunities, risks and profitability by portfolio, strategy and trader portfolios including marketing, trading and assets and increased efficiencies and productivity. Additionally, all regulatory and compliance reporting and accounting processes use data from the business intelligence platform.

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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 SunGard Global Services SunGard Global Services helps financial services and energy companies solve business problems by managing their complex technology and operational needs. Focused on large scale data and process management, custom application development and systems integration; we combine business and technology consulting and managed services to deliver innovative custom solutions. We help our customers capitalize on and manage the consequences of business, technology and regulatory change. For more information, visit us at www.sungard.com/globalservices/learnmore.

About SunGard SunGard is one of the world’s leading software and technology services companies. SunGard has more than 17,000 employees and serves approximately 25,000 customers in more than 70 countries. SunGard provides software and processing solutions for financial services, education and the public sector. SunGard also provides disaster recovery services, managed IT services, information availability consulting services and business continuity management software. With annual revenue of about $4.5 billion, SunGard is the largest privately held software and services company and was ranked 434 on the Fortune 500 in 2011. Look for us wherever the mission is critical. For more information, please visit www.sungard.com.