Cubelogic has had a very busy summer, said Sales Director Ian Sloggett. “There was no lull in July and August this year,” he told me. Trade surveillance interest has been very high, but credit and market risk solutions are also in demand. He points to the very large fines being dished out for market abuse as helping drive interest in trade surveillance. “The regulators have real teeth and in commodity trading, very few of the trade surveillance solutions really understand market design and can identify market abuse in commodity trading,” he said. In fact, this has been an issue for some time. Solution providers in other asset classes have moved into commodities sensing an opportunity, yet they lack the functionality and understanding of commodity markets. “Cubelogic has solved this problem,” Ian told me.
Indeed, the interest in trade surveillance solutions appears to have been driven by a couple of factors and that includes the very visible and very high fines that have been reported recently. For example, in June it was announced that Glencore would pay over $1.1 billion in fines for market manipulation. In October 2020, JP Morgan paid fines of close to $1 billion for market abuse in precious metals and US treasury markets. So, while a couple of years ago, many forms would be content to run a trade surveillance solution even if it really wasn’t very effective. It was an acceptable risk. Now, it is not.
On the credit side, the European power issues have recently helped to ignite the market with very large companies like Uniper needing Government bail outs. The sales of commodity credit software tend to mirror what is going on in the industry in terms of credit and liquidity issues. With Norwegian firm Equinor pointing to $1.5 trillion in margin calls in European energy, credit and liquidity will continue to be issues. Ian also points out that the volatilities are driving interest in market risk solutions as well as companies seek to try to predict margin calls to manage cash optimally. “Anyone with exposure to power or gas in Europe is also interested in VaR,” he told me. “Even industrial consumers with exposure to power like transportation companies.” Cubelogic is also seeing demand for its risk aggregation and calculation services where “it helps companies analyze their positions and PnL,” he told me. Current market conditions are also exposing the lack of risk analytics in some ETRM and CTRM solutions and helping drive people to look at ETRM independent, advanced risk analytics technology providers like Cubelogic.
This all translates into market demand and steady growth for Cubelogic, which sees itself as one of just a very small number of true risk management solutions out there.