With rapid changes sweeping across energy and commodities trading markets, participants must constantly improve the performance of their Execution Trading Platform (ETP) from front- to back-office activities. Many legacy platforms must be upgraded and adapted to evolve with changing market conditions, in addition to accommodating new traded products. But the shift to transformative digital tools and consumer-centric systems can be complex and require shrewder implementation processes and talent deployment. HC Insider explores the benefits, difficulties, and talent challenges associated with implementing ETPs.
ETPs usually benefit the operations of businesses through enhanced process efficiency, cost reduction, while minimizing operational risks and maximizing business performance and profit margins. Many ETP solutions in the market support both physical and financial trading activities across a wide range of products.
ETPs combined with an efficient use of Enterprise Resource Planning (ERP) systems can be utilized to service specific needs of specialist commodity traders. For example, in the LNG sector, ETP solution providers can support physical LNG traders and their commercial teams with automation tools that manage their trading positions, contracts and optionality throughout the value chain, including the modelling of liquefaction and regasification processes. They provide businesses with real-time risk analytics and reporting to minimize supply chain risks, automate critical business processes, and make better-informed trading decisions.
The rapid evolution of cloud-based technologies and the ramp-up of digitalization across commodities and industrial sectors have made many legacy platforms obsolete. These were built on older technologies which have not adapted well to business conditions or facilitated a quicker application of new methodologies. Existing systems that have older technology architectures can be challenging and expensive to integrate into other systems due to their monolithic architecture. Furthermore, older platforms were predominantly installed ‘on-premises’, which can result in far higher maintenance costs.
The transformation of energy and commodity markets also plays a part. For instance, the electrification of energy markets through increased renewable capacity requires ETPs that support wind, solar and other cleaner fuels and products instead of the legacy systems built for crude, oil products and coal.
But legacy systems are still needed as the foundation of new ETPs and cannot clash with existing processes. Failing that, replacing them with more modern applications proves a cheaper and more efficient alternative.
Cloud-centric solutions represent a key characteristic of future ETPs as they help reduce infrastructure costs, improve reliability and security through scalable and flexible cloud technology. Other areas that businesses are exploring to optimize their ETP platforms are through Research & Development into concepts like Internet of Things (IoT), automation and artificial intelligence, big data, blockchain and enhanced cyber-security solutions. Software as a Service (Saas) is also becoming increasingly widespread.
But over the past years, the concentration of vendors of ETP solution providers through several mergers and acquisitions has been cited as a challenge. Not only do products become redundant over time, but customers have also less options to choose from when conducting a vendor selection process.
Such concentration has led some participants to decide to build their own system or hire a smaller company to do it for them. For candidates, being a part of a project, which is building a new, bespoke trading platform might be more enticing to work with innovative technologies, against an ETP talent market dominated by higher-than-usual attrition and turnover. “This may be an attractive opportunity for candidates looking for a new career challenge and test themselves in a greenfield environment,” says Farhan Janjua, Senior Associate at HC Group’ Technology and Innovation Practice.
On the flip side, smaller-sized vendors who are new entrants with their own solutions would typically be faced with a limited pool of talent with experience in their products. In this context, HC Group is seeing a significant shortage of trained ETP consultants with 3-to-7 years of experience. Instead, those firms apply greater flexibility and versatility to the skill sets that they prioritize on during their recruitment searches. Whether participants resort to a third-party solution or decide to build their own, they often end up building their in-house technology teams to maintain these systems and protect their Intellectual Property (IP).
With the current market climate and volatility, more than ever, there is a greater emphasis on improved risk management capabilities and protocols. This further stresses the importance of a trading platform which is customized specifically for the markets in which the business operates and trades.
But this is not a smooth road. It is essential that participants build a strong business case internally to articulate unique needs and identify solutions and their utilizations. “Companies can sometimes change their mind on what they want their solution to look like for instance, which delays the process. These delays can often be costly for organizations, which can leave companies feel frustrated by the pace of execution and impact to their commercial activities, especially if they do opt to work with a third-party vendor,” Janjua says.
A strong collaboration with the key business stakeholders at each stage of implementation is critical to shorten the lead time of the new system’s implementation, reduce costs and boost efficiency. Furthermore, a strong internal tech team who fundamentally understand the business, and can translate its needs into IT requirements is critical. "Increasingly, we are seeing that you'll also need more developers who are strong in cloud-based technology to integrate into the system,” Janjua says. “If a customer can shorten the implementation from seven-eight months to four months with more developers, there will be a significant use of that vendor in this space.”
To help with the hiring challenges in today's market, businesses are increasingly turning to developers who do not possess experience in commodities trading sector, but who can bring broader financial services experience instead. “This is helping organizations to combat rapidly rising salaries, and quickly identify suitable individuals to support these major projects,” Janjua explains. Business analysts are proving equally critical when implementing a new ETP, although suitable candidates with adequate knowledge on targeted ETP products are in short supply.
In addition to banking on hiring more developers, there are other aspects to address. The training of customers teams should be made easy too. “Complicated methods decrease efficiency, and morale of the users,” Janjua warns. A user-friendly system with adequate support and training is paramount. This also calls on a clear process with specific milestones and decisions to achieve, including an initial review of what the system can perform, of cost cutting and of user confidence. Finally, its new direction should be clearly defined to either complement or enhance the existing platform and for optimum competitiveness and operational efficiency.
For any queries related to HC Group’s activities in Execution Trading Platforms, please contact:
Farhan Janjua, Senior Associate at HC Group’s Technology and Innovation practice
Rick Lee, Portfolio Director at HC Group’s Technology and Innovation practice