Market Risk Management (MRM) Project background

Up until 2014, SEFE Marketing & Trading (SM&T) used an in-house, bespoke trading system. This was originally a curve repository but was adapted over time to also store trades and to provide valuations of simple gas trades. Power trading was subsequently added to the platform, while gas trading was later transferred into a vendor-based ETRM.

The MRM project had the following goals

  • Creation of a new core risk management platform with a new set of Monte Carlo VaR models, to handle more complex linear trades and larger processing volumes.
  • Improved accuracy in key areas of existing marketing and trading risk systems.
  • Access to additional metrics, such as Monte Carlo Potential Future Exposure (PFE), Earnings-at-Risk, Cash Margin at Risk, and improved stress testing.
  • Improved extensibility, to enable the system to be enhanced in the future.
  • Improved maintainability.

Real Time Curves (ARC) Platform background

SM&T used a bespoke curve repository tool up until 2017. However, there was a plan to adopt a vendor-based curve management tool, which aggregated market data, provided analytics, and automation price curves. The fundamental problem with this approach was that there was a whole swathe of tools, systems, and capabilities that needed direct or API access or SQL access to be able to consume time series curves and price data, and the vendor product did not support that level of system integration. This meant that although it was a great product, it was unusable by the rest of the organisation.

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Our Solution

Market Risk Management (MRM) project:

Digiterre and SM&T formed a well-integrated, tightly-knit project team to maximise the chances of successful collaboration and to optimise knowledge transfer in both directions.

  • Phase 1: Creation of the core risk management platform which incorporated new Monte Carlo VaR models, to handle the more complex, non-linear trades and larger processing volumes.
  • Phase 2: Delivery of additional metrics e.g., Monte Carlo PFE, Earnings at Risk, Cash Margin at Risk and Stress Testing.

Real Time Curves (ARC) project:

  • A pricing curve repository was built to overcome previous problems and to ensure pricing data was attributed systematically and correctly according to type, date, country, and currency.
  • The aim of the project was to create a solution that was operationally more efficient than the vendor tool, while also creating a much-improved user experience.
  • This was achieved by aggregating all the required source data into a single, consistent, controllable platform; successfully incorporating direct, API, and SQL access points.

Key Benefits

What have been the business benefits of implementing the MRM and ARC platform?

  • “It certainly made a big difference to our trading and risk management, to have one of the very best risk management tools in the industry available to support us, in the form of MRM. ”Cuan Brown.“
  • The MRM platform has enabled us to make the right decisions in terms of the optimisation of our portfolio and our exposure to the markets, to potential credit exposures under the current price, at a time when prices have risen, and margin percentages have gone up. It really is business critical to optimise for these factors and MRM allows us to do that. ” James Ronnie.
  • The ARC project was very successful. To this date, many years on, we’ve never had a complaint that the ARC curve repository is too slow. I genuinely think it’s about the best piece of inhouse developed software I’ve seen. The business perception of it is still high, which in a world of big-name software product brands, I think is phenomenal. But ARC has managed to survive that. ”Cuan Brown.“
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In the words of our client

The project was a big success. Phases 1 and 2 were delivered on time. The commercial reality for the business was that it needed to complete the project, resource it externally and deliver on time – and this is exactly what happened.

James Ronnie

Digital Trading Manager

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