Is It Time To Write The Obituary For CTRM Software?

As an analyst, I speak to a lot of people across all walks of the industry. This morning I was talking to a risk executive from a trading firm who told me that with utilities slashing their budgets over the last few years, they had benefited from hiring some very seasoned and senior disgruntled traders, but that the regulations were now beginning to make their business very difficult. Yesterday, I talked to a sales manager for a vendor who actually raised the question “Is the CTRM market finally dead?” I knew what he meant by that question.

Actually, I think the CTRM market is about to evolve massively and I will make the prediction that the vendor landscape will too. Only a couple of days ago, I was informed that Tradepaq, a vendor serving the ags & softs arena primarily, had gone out of business. Even so, no, it isn’t time to write the software sector’s obituary – CTRM software is not dead.

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The last 2-3 years have been about the most impactful in terms of change on our industry that I have witnessed in over 20-years. The rush to regulate and the rush to ‘greenovate’ have both had massive impacts on the industry in terms of not just added costs but complexity as well. At the same time, almost every commodity price was in the toilet and volatilities dampened. The risk executive was spot on in that utilities with trading arms slashed costs and in the process, lost top trading talent – the same happened with the banks and funds. Many of these traders set up on their own, or went to out and out trading firms – often much smaller entities.

All of this came at a time when one prominent vendor was acquired and more or less disappeared from the market overnight leaving a lot of their customers very upset as that firm slashed costs and support to all but their largest customers. Others failed to deliver on promised capabilities and had contracts cancelled. Whether driven by these events, or as just part of the otherwise natural cycle in this market, several of the top-tier companies revisited the buy v build argument and opted to build – in numbers greater than we’ve seen in recent history.

The net result of all of this is two-fold. Firstly, there has been a slow down in procurement with companies opting to delay expenditures and put projects on hold – especially in the middle tier or traditional package market. Secondly, the buyers that are out there are more often smaller entities with fewer seats and favor a usage-fee based approach – opting for cloud-delivered solutions. Yes, there are other conclusions to be made but these are two very important trends for CTRM software.

The structure of the industry is changing and evolving. As we begin to climb up the other side of the commodity cycle to higher prices and increased volatilities – something that is already well under way across the complex, we will see growth again. The added regulatory burden means traders and commodity companies must have robust solutions in place and they will and have began to start buying again. It is always cyclical and those of us that have been through a few cycles already have confidence that the cycle will continue.

The problem for the vendor community however is this. As the market comes back and CTRM software sales recover, the buyers will be different – fewer top tier, fewer middle tier, and a lot more smaller tier companies. As a result, replacements and greenfield solution choices will be in the majority cloud-deployed and usage-fee based. There will be fewer large-scale implementations.

As the industry has changed and evolved, so too must the vendor community. The vendors must anticipate these shifts and adapt themselves. Some are well prepared…others are not.

If ComTech is to write an obituary in the next 12 to 18 months, it won’t be for the entirety of vendor provided CTRM software, but it could very well be for those vendors that aren’t prepared to adapt to this rapidly changing market.

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