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Credit Risk in Commodity Markets – An Interview with Brady Technology’s Ian Tobin

ComTech Advisory: How do you see the market for credit solutions in commodities right now and what is driving that?

Ian Tobin: We are seeing a lot more activity in the market with many companies looking for credit risk solutions these days. These range from smaller regional companies looking to expand their trading activities from traditional exchange-based trading to OTC trading, to much larger companies, especially those with exposure to commodities that have become much more popular since the Russian invasion of Ukraine (e.g., LNG). What seems to be driving a lot of the interest is, of course, the market volatility and we are also seeing increased need for and interest in real-time alerting in areas like limit breaches, rating changes, outlook changes, through to understanding the impact on margin calls from exposure changes or rating changes.

ComTech Advisory: How has the volatility in commodities, FX and IR contributed to people looking more closely at credit risk?

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Ian Tobin: As stated above, companies are looking to do much more proactive exposure management in current market conditions with intra-day capabilities and real-time alerting being a hot topic for counterparties that approaching or breaking limits. This also applies to situations where counterparties have experienced rating downgrades or have a worsening outlook. We are also seeing increased interest in having PFE worst case scenarios and with people wanting to perform pre-deal checks in the trade capture software that are fully integrated with the credit system. Another area is around margin call interest payments given that interest rates are also on the rise.

ComTech Advisory: What about margin calls? What can people do to manage margin calls and cash better?

Ian Tobin: Yes, we are getting lots of interest in our integrated liquidity analysis module. This covers both OTC and exchange trading with forward projections of cashflow. The system can perform both deterministic (e.g., what if I double my power trading portfolio next year) or stochastic scenario analysis.

ComTech Advisory: What are the specifics of the Brady solution that you believe differentiate the software?

Ian Tobin: We see many differentiators, but I think that things like our integrated liquidity analysis capabilities and intra-day real time exposure reporting are very apt now. Other functions like automated LC feeds meaning that there is no need to manually update these, and seamless integration of credit solution with our flagship ETRM solution (Igloo).

ComTech Advisory: What are the needs to perform and expectations around implementing a credit solution?

Ian Tobin: I think first and foremost, it’s all about an implementation that is quick and efficient using a solution that is open and allows data to be imported and exported easily and allows users to create their own bespoke reports without getting a new SOW each time. Many are looking for a solution that can operate either on-premises or in the cloud though we are not seeing much demand for multi-tenanted systems. Here it seems nervousness around sharing the same environment with other counterparties systems is the issue.

ComTech Advisory: What’s next in terms of incremental functionality for the product?

Ian Tobin: We are currently migrating Brady Credit Risk customers onto CRisk and are very busy with those efforts. Coming in Q1 is our new Non-Financial Counterparty and EMIR regulatory work as well as improvements to our pre-deal check functionality. We are also working on the EFET broker initiative to standardize how the broker report is issued as currently many companies are seeing errors when their details are entered into platforms such as Trayport. Finally, we are also updating all our grids in the system to have user tailored capabilities.

Ian Tobin, Business Lead – Risk Management, Brady TechnologiesAbout Ian Tobin, Business Lead – Risk Management, Brady Technologies

Ian has over 30 years’ experience in financial risk software, covering investment banking and the energy and commodities markets.

He was a co-founder of a risk management software company that floated on AIM in 2000 and subsequently ran a successful consultancy business for credit risk management services, working with some of the largest energy and commodity trading companies.

Ian has detailed knowledge of credit risk policies, exposure analytics, collateral and margining as well as having a detailed understanding of the competitor landscape.

Previously Ian worked with major trading centres of Europe, America, the Far East, Australia and New Zealand, covering capital markets and treasury functions.

At Brady Technologies, Ian leads the delivery and development of CRisk, a cloud platform for credit risk management and liquidity forecasting designed for energy and commodities markets.