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SunGard Adaptiv Eyes Regulatory Changes in Energy and Commodities

Last week, I took a briefing from SunGard regarding its Adaptiv software product line. The software was originally designed for the capital markets that are already highly regulated and already fall under regulations such as MiFiD. With an eye of MiFiD2 and CRD IV impacting energy and commodity trading in the future, SunGard are already seeing a lot of interest from that sector as it prepares for the coming regulations. In particular, the increased emphasis on credit risk, price risk and capital adequacy is driving the interest I was told.

Indeed, Sungard already has a major energy client for the product and has worked with it to complete the product for risk and capital management in the energy space. I was intrigued to learn that in early marketing around the product into the energy space, SunGard had experienced an entire range of responses from extremely interested in being proactive about the coming regulations to those that desire to fight it tooth and nail and plan on doing nothing until it is inevitable.

Despite this, the Adaptiv platform provides a comprehensive solution for those interested in being ahead of the compliance curve I was told. The concept is that under CRVD IV, companies will need to allocate capital against market risk and counterparty credit exposures. It will also need to calculate a number of ratios and undertake stress testing that will need to be reported. They may also need to partake in Credit Valuation adjustments (CVA). SunGard argues that an optimal approach to compliance can reduce costs, enable trading and increase return on equity and so the solution offers a basic approach to compliance as well as more advanced models for those with the appetite. The advanced models SunGard believes offer a 25-50% capital saving and a higher ROE for trading by using simulation based modeling.

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Adaptiv can be deployed as an overlay, bringing in the required data from E/CTRM solutions and Treasury systems to perform market risk capital, credit risk capital, CVA capital, Liquidity risk, Capital reporting and optimization and position limit tracking and report to the regulators. It also can pass information back to the source systems such that the capital cost of a trade can be priced in for position management at the level of the E/CTRM solution.

I found the overview compelling and the fact that the solution is energy-ready and already implemented at a major energy company was also intriguing. ComTech hopes to learn more in the coming weeks regarding the SunGard solution including a demonstration. Meanwhile, it appears MiFiD2 may have been postponed for a period. SunGard expect possible further delays, but in the end, the new regulations as they apply to energy and commodities probably cannot be avoided.