CTRM stands for “Commodity Trading and Risk Management.” CTRM refers to specialized software solutions designed to capture the complete trade life cycle, streamline and optimize processes involved in commodity trading and risk management for companies in the commodities market.
CTRM software is primarily used by regulated entities engaged in hedging and trading commodities for example metals, agricultural products, oil, natural gas and other raw materials. The software’s primary goal is to help these entities optimize their trading strategies, manage market, credit and operational risks effectively, logistics and inventory management and ensuring compliance with industry regulations.
The CTRM software landscape is continuously evolving with new features and advancements emerging. With increasing market and price volatility there is greater need of sophistication including real-time risk management (position, valuation, VaR and credit), consolidated risks across the portfolio and incorporation of advance data analytics leveraging artificial intelligence and machine learning models providing new trading insights and for scenario analysis.
Before choosing a CTRM solution, businesses should carefully assess their requirements and evaluate various software options to find the best fit for their trading and risk management operations.
The following are recommended features and functionalities of a CTRM solution covering Front, Middle to Back Office functional capabilities:
- Trade Capture: Efficiently capture and record trades in real-time, enabling traders to manage their positions and exposures accurately. Efficient Trade Capture must include straight through processing with event driven automated trade capture of electronically executed trades from exchanges and brokerage platforms covering Listed and OTC vanilla deals covering derivatives and physicals. For complex deals including structured products to have a configurable deal blotter.
- Risk Management: Assess and manage price, position / portfolio, credit / liquidity management, limit management, operational, and other risks associated with commodity trading. It is essential in today’s dynamic and volatile commodity markets that the CTRM software must provide tools for risk modelling including VaR, scenario analysis, and stress testing. The importance of pre-trade and at trade pricing for the capture of structured products with complex pricing / valuation modelling requirements within the CTRM solution.
It is increasingly important to have a consolidated view of risks across multi-commodities, physicals and derivatives, vanilla and structured products, across markets in one holistic CTRM platform.
- Logistics and Supply Chain Management: Track the movement of commodities from suppliers, producers to customers, including transportation covering on-land logistics to vessel tracking and storage / warehousing, to ensure inventory and position management, scheduling, timely deliveries and minimize logistical inefficiencies.
- Contract Management, Confirmations & Settlements: Manage and track various types of contracts through the full deal life cycle (new trades, amendments, deletions) for physical contracts, futures contracts, and options. Ensure the CTRM solution has contract management controls including electronic trades sign off, broker / exchange trade reconciliation, electronic confirmation matching, paper confirmations to settlements.
- Market Analysis and Data Integration: Integrate market data feeds, market prices, news, and analytics to provide traders and risk managers with valuable market insights for decision-making. CTRM solutions are increasingly encompassing Artificial Intelligence and Machine Learning models to provide new behavioural insights including predictive analytics and forecasting.
- Compliance and Regulatory Reporting: Support companies to comply with industry regulations and reporting requirements through automated processes and audit trails such as compliance with Dodd Frank position and regulatory reporting requirements, EMIR derivatives reporting requirements and REMIT reporting requirements. Increasingly CTRM solutions are encompassing capabilities for Trade Surveillance for the monitoring and reporting of Suspicious Transaction & Order Reports (STOR’s) to comply with Market Abuse Regulation. CTRM solutions are also integrated with AML and KYC solutions.
- Financial Accounting: Facilitate accounting processes related to commodity trading, such as mark-to-market valuations, profit and loss calculations (realized and unrealized), IAS 39 intercompany and hedge accounting and general ledger management.
- Analytics and Reporting: Generate customizable reports and dashboards to monitor key performance indicators, risk exposure, and other critical metrics.
Integration with Other Systems: Seamlessly integrate with other enterprise systems, such as ERP (Enterprise Resource Planning), Electronic Confirmations, Electronic Settlements to Trade Surveillance, KYC and AML.