London, 21 July 2010

CommodityPoint will shortly issue a new free report on Non-Traditional Delivery Methods for CTRM Software and this article provides a snapshot of some of the findings of the study. The study was kindly sponsored by Aspect Enterprise, Allegro Development, IHS, OATI, Navita and SolArc. The full and complete report will be available for download on the UtiliPoint International website and CTRM Blog by the end of July.

Software as a Service, hosting and leasing are all alternative methods for delivery of CTRM software and they seem to be growing in popularity in many segments of the industry. Indeed, our study indicates that these delivery methods are already more widespread than at first we thought and are set to grow rapidly over the coming years.

The results of the survey component of the study were intriguing. Firstly, alternatively delivered CTRM solutions or components of such solutions appear to have already gained broader acceptance across the market than might otherwise have been thought. The survey suggests that slightly more than 40 percent of the respondents already had SaaS or hosted CTRM solutions or CTRM components installed and 22 percent had a totally SaaS delivered solution installed. However, the sheer complexity of the trading and risk management software solution architecture is also alluded to in the diversity of different combinations of delivery mechanisms utilized by the respondents.

The results also suggest that alternatively delivered CTRM software has significant upside potential with around 52 percent of the respondents stating that they would consider procuring SaaS delivered solutions in the future although there is still a majority favoring traditional delivery (62 percent). Other alternative delivery mechanisms are less popular than SaaS, and infact, the preference for alternatively delivered CTRM may be weaker than these numbers would seem to indicate as respondents choosing just a single delivery mechanism for their CTRM solution strongly favor traditional delivery and only 11 percent would opt for SaaS with no respondents opting for hosted or leasing as a single preferred delivery mechanism.

In fact, what the survey appears to indicate is that alternative delivery mechanisms of CTRM software delivery are being more broadly considered by much of the industry but would be the first choice for only a small percentage. In many instances, it seems that various aspects of CTRM functionality are already being provided on a SaaS or hosted basis, but that the overall platform remains in house or traditionally licensed. The survey results suggest that respondents are more likely to consider alternative delivery for aspects of CTRM functionality not included in their primary platform including incremental commodity coverage for example.

What is apparent in both the survey and follow up calls and research is that there is a strong dichotomy of views regarding alternative delivery mechanisms between what appear to be larger companies (No Group) who view the need for control over, and access to, data to be critically important, and smaller companies (YES Group) who perhaps have fewer internal IT resources.

The NO Group of larger companies identified in the data are a substantial minority who place little value on the perceived benefits of SaaS or hosted delivery of CTRM software but do have strong feelings about the perceived pitfalls of such delivery mechanims. They rank security issues, inability to customize and lack of control highly as reasons to not consider SaaS or hosted delivery and prefer software delivery via the traditional license/install model, or to develop solutions in house. Follow up interviews found additional information to support the survey results including:

These companies are generally much more comfortable with in house installation so that they can control access to data and to the applications that provide access to that data;

• They have significant investments in IT infrstructure and staff and are less likley to walk away from such investments;

• They view 'being secret' about trading strategies etc. as maintaining their competitive edge;

• As oversights and controls increase they are more keen to control everything internally as much as possible;

Bigger companies are more monolithic and less open to change generally, a move to a SaaS model, for example, would require senior management approval and that, in the words of one interviewee, could take years.

In the current environment of the threat and potential for more oversight, more reporting, more controls, these companies are increasingly reluctant to give up what they see as control over their data and application assets. Furthermore, they view their operations and strategies as unique and strategic and therefore feel that they must have an ability to deploy customized solutions and to keep the details of some of their processes, etc. in house.

On the other hand, the YES Group sees significant value in the perceived benefits of SaaS delivery in particular and is less concerned about the perceived pitfalls. They place value on lower demand on internal IT, lower TCO, ease of upgrades and faster deployment while placing less emphasis on perceived loss of control. The smaller companies in this group have fewer IT resources and budgets available and perhaps take the view that what they do isn't essentially that different to others in the industry and so they are more willing to consider lower cost approaches. This group of respondents is likely to be representative of smaller trading floors, end user commercial & industrials, hedge funds and the bottom and lower mid tier of other industry segments.

The survey indicates strong future procurement rates generally in both Europe and North America for CTRM software but it appears to be particularly strong within the YES Group of smaller entities that are more disposed towards considering alternatively delivered CTRM solutions. In fact, the procurement rates indicated by the survey are the strongest observed in any CommodityPoint survey to date. The survey data also indicates strong levels of demand for SaaS and hosted CTRM solutions (which given the strong apparent demand within the YES Group is probably not surprising). Whether in fact that demand turns into a larger market for SaaS or Hosted CTRM solutions has yet to be seen but it is certainly indicated by the survey data.

Despite the strong indications around procurement and interest in SaaS and hosted delivery, the issue confronting CTRM vendors that specialize in this type of solution is the lack of knowledge, indicated by the survey respondents, regarding vendors in the space. The vast majority of respondents don't know which vendors, if any, provide SaaS or hosted versions of CTRM software and have no real opinions regarding market leadership perceptions either. This seems to suggest that while there is interest in alternative delivery mechanisms for CTRM software there is little awareness that there are a set of vendors who specialize in delivering SaaS and hosted solutions. It appears to suggest that the likely beneficiaries of the higher levels of demand may well be the usual set of well known vendors who, of course, will happily offer their software on a SaaS, hosted or leased basis.

The procurement data also tends to suggest that the CTRM market is maturing (as indicated by other CommodityPoint studies recently). The appetite for lower cost solutions suggested by this study in the lower and middle tier of the industry is evidence of that maturity. The total market size for CTRM software is expanding as a result.

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