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FERDEC and Trade Surveillance

There are a host of consultancy companies that are focused on the various aspects of commodity trading and CTRM Software, and occasionally one of them morphs into becoming a software vendor. FERDEC, a German-based consultancy, now in its 5th year of business was founded as a very specific consultancy in the ETRM market, its Managing Director, Mr. Christian Endter told me recently. They started the business specifically to focus on various services that they felt were not provided by many of the established and larger consulting companies at the time. This included services in areas around risk and project quality management advising clients on various risk models, how to select software, and manage implementation projects successfully, and so on.

“Usually, the players involved in a project are non-neutral,” Mr. Endter explained. “All have a mutual interest in delivering the project but there are also conflicts between the various groups that need to be managed and FERDEC can be the neutral party that helps steer everyone through the process.” Mr. Endter explained how this can also be extended into the software selection process where there may be differences in understanding requirements and also the ‘generic’ RFP to sort through and reduce any attendant risks from. I was soon nodding my head in agreement with his assessment of some of the issues we discussed as ComTech definitely observe similar issues as being routine across the business adding to project costs and risks.

Mr. Endter explained how regulatory compliance became a topic of some of the risk-focused work the firm was doing and pretty soon, FERDEC was offering a service to help clients understand what REMIT and MAR meant to their businesses in terms of processes and people. They offer workshops and develop handbooks on how to structure client’s businesses with a regulatory focus. It wasn’t long before clients were asking FERDEC about trade surveillance. In 2015, FERDEC decided to build a software solution for trade surveillance that incorporated key criteria such as transaction patterns and a knowledge of the energy trading world.

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The solution was built in conjunction with design partner Verbund and a couple of other clients that engaged with FERDEC. The rest is history as FERDEC now have four customers using the solution and will issue v3.1 of the solution in the next couple of weeks. “We are the leader in the market,” said Mr. Endter. “Other packages are from the broader financial services arena and quite honestly, they lack an understanding of energy trading.” He cited as an example, the fact that power instruments can involve physical delivery on different time scales and often don’t have a financial side to them. He also believes that solutions from financial markets don’t necessarily spot certain potentially suspicious trading patterns that their tool can in energy trading.

FERDEC still offers its focused consulting services and will continue to do so, but in bringing a software solution to market, it is also evolving into a software vendor. Mr. Endter explained “there are surprisingly many companies that have not yet decided on an approach to trade surveillance at all yet, and also more than expected have decided to build solutions internally – a potentially costly approach with long term maintenance requirements as interfaces, regulatory policies, and so on are likely to keep changing.” However, as Mr. Endter also reminded us, “we don’t know when the regulators will get serious about trade surveillance but they have enough data now to perform the analyses and it can only be a matter of time before they show their teeth. Furthermore, the regulators can come back to traders even several years after the fact.”
So, the risk is with the traders!