Prices and P/L – There’s an App for That!
Trading natural gas and/or power in Europe means dealing with multiple exchanges, market operators, regulators, authorities and other bodies. Each region or country has its own infrastructure and access rules such that the more regions/countries that you trade in the more of a nightmare of operational risks it becomes. Yes, the E.U. is committed to removing some of this complexity and market coupling has had some impact but progress is often slow and the problem remains considerable.
One of the issues that arises out of this is generating a P/L. There are so many products and prices required across all these European markets that any P/L program winds up becoming a mass of exception processing. The broker sends yesterdays prices by mistake or sends today’s but with the wrong date or simply too late, an exchange is late publishing closing prices for a particular product or some other pricing issue and then P/L doesn’t run or it produces meaningless results.
Some markets lack meaningful prices that can be used for P/L. They are simply too opaque and not liquid enough. As a result, price curves need to be derived meaning they must be defined and calculated. The data used to calculate derived curves must be available of course. Similarly, the traders are keen to trade a new product but IT haven’t been able to add the required code to capture and/or calculate prices.
Then of course, management want to rerun P/L for the end of Q1 and they expect to obtain the same results they had originally meaning there had better be historical price curves out available in the database.
It has been my experience that many firms soldier on struggling with such issues. They capture trade and price data in their ETRM(s) and leave IT to figure it all out. Periodically and far more often than desired, some external web site gets changed and screen scrapers no longer work or, one or more of the issues identified above occur and management doesn’t get its P/L. Of course, if the price and trade data is poorly managed generally then there are many other business issues that can occur as well and unless an audit trail of changes is maintained, the whole system is simply open to abuse.
It doesn’t have to be like this.
The problem can be solved by adding a ‘Price Server’. Today, these can be purchased rather cost effectively and implemented with ease. For example, DataGenic provides a suite of state of the art tools to handle price data. I recently had a demonstration of some of the key aspects of the DataGenic solution and CEO Richard Quigley was on hand to explain the product, its benefits and uses.
The DataGenic solution can easily and effectively access numerous data sources bringing in price and other data. Perhaps as importantly, it can validate and clean the data as well and implement business rules and workflows when data is missing or late. Many prices can be provided by DataGenic as a service, others can be obtained in any number of ways and pulled into the product for further work. Each set of prices can be stored to provide historical data and prices can be corrected or over ridden manually (with that data set being stored too such that an audit trail and complete history can always be maintained). Rules can easily be set up to process or manipulate the data including to calculate derived price curves and yes, the price curves can all be visualized quickly, flexibly and easily inside the tool.
In short, DataGenic and Richard Quigley convinced me in a matter of 20 minutes that the issues I discuss above are really a thing of the past – or should be.
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