Trayport Contigo ETRM / CTRM
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In Retrospect, ETRM Was Probably The Wrong Abbreviation

A couple of decades ago, locked in mortal combat with another vendor in the early gas marketing, then power marketing, and then risk management software market, there were any number of terms around to describe the emerging CTRM software category. Energy Trading and Transaction Management (ETTM) was the one we were using meanwhile, our competitor was calling it Energy Trade Management as I recall or ETM. Others among the fledging group of small vendors had slightly different variations such as Energy Trade Management (ETM), for example. Who knows, maybe someone was already calling it ETRM, I don’t recall who that may have been though.

Back then, it was all energy-focused activity. After FERC 636 it was gas marketing and then as power was also de-regulated, there was a rush to develop power marketing solutions as well. Of course, people wanted both sets of functionality in one solution and so there were solutions that purportedly handled both gas and power marketing. It was around that time that I recall getting a number of phone calls at our help desk asking about ‘risk management’. Actually, I recall being a bit puzzled at the time. Why were people calling us for risk management solutions and what was risk management anyway? We soon caught on however and very quickly began adding rudimentary risk management tools – both operational risk and market risk tools. Over night, a number of new entrants also emerged offering just risk management for energy – among them Openlink as I recall. There was also a small group of vendors that had spilled over from E&P into oil trading and whose focus was on crude and liquid hydrocarbons. It was a fragmented industry with a lot of different solutions for specific needs. But it had no name.

At some point in time, it was decided that if vendors started to use common terminology, it would catch on as a software category. Energy Trading and Risk Management was the term decided upon for at that time, to be honest the risk management bit was very rudimentary and often comprised being able to hedge and track position. So, ETRM was born eventually to spawn CTRM……

Most ETRM or CTRM vendors recognized that they had a bit of an advantage if they could offer more on the risk side. Pretty soon, leading and innovative vendors were adding Value at Risk and other such measures. Most however, continued to offer fairly rudimentary position management, PnL, and possibly a simplistic VaR model. It would take the collapse of Enron to create a push for credit risk. Some even very well known vendors relied on third party plug ins for almost all of their risk management content, others continued to offer basic functions mostly as reports.

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Over time, the need for risk management has become paramount. Much more sophisticated tools are now routinely deployed for stochastic risk measures around profit, cash flows and so on. Stress testing is another area where there has been significant developments along with credit risk, models around storage, generation facilities and much, much more. Those CTRM vendors that tried to add risk functionality either found that they ran into calculation timing issues so that a VaR took 18-hours to run or that in fact, they didn’t have the quantitative expertise required to develop the tools. Partnerships were in vogue at that point.

Of course, in an era of massive amounts of near real-time data, reduced profit margins, regulatory interest and the like, risk management has taken on a much bigger significance and rightly so. In our recent paper on architecture, we pointed out that a lot of risk management probably belonged outside of the transaction management solution in its own layer using in memory databases and calculations and extracting trade and other data from multiple systems or, it was a point solution for a specific purpose embedded in the transaction management solution.

Whether you agree or not with our view of CTRM as an Architecture, one thing now seems clear. ETRM was the wrong choice of name for a software category that is all about trades, transactions and management but quite often doesn’t pack a lot of risk management. Oh well…. ETM/CTM anyone?

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