London, January 2011

CommodityPoint will soon publish the results of its Data Management Study, an effort supported and sponsored by Datagenic, LIM, SAS, SmartCo, and SunGard. This research effort was designed to evaluate the current state of the market for data management tools and solutions in the commodity trading & risk management environment and provide some benchmark and trend data for further analysis.

Data Management in Commodity Trading: One of the key aspects of the study was to examine how the concept of data management has been taken up in the commodity trading & risk management business function, an area where CommodityPoint believes it has a bright future. As the number of exchanges and traded instruments continues to grow and expand, and as traders diversify their portfolios across other commodities and geographies, the amount of data that these market participants need to access, sift and analyze is growing dramatically. The speed of markets is also increasing, calling for faster and more informed decisions and strategies. Against this backdrop, new regulatory pronouncements, such as Dodd Frank, bring increased reporting requirements—not just in terms of the actual data or derived data attributes—but also in providing some insight into how decisions were made (audits). All of these factors add up to a growing problem for traders that has yet to be solved by vendors of other application classes such as C/ETRM software. In this environment, it's the vendors of "data management" solutions that stand to benefit most directly,

What is Data Management?

Data Management Solutions are a software product category that is still relatively new to the commodity trading and risk management space, having first come into common usage a few years ago in order to describe and define products that collect, aggregate, and serve out market data and information, including prices, weather data and other operationally oriented information.

These systems, previously known as "price servers," have been primarily focused on external data; that is, bringing aggregated market data and information into a users shop for integration into their various trading systems—to be used for marking deals, generating price curves and performing a number of analyses. SunGard's Fame group and Logical Information Machines (LIM) were among the earliest of these companies providing such capabilities. These companies' revenues are primarily derived from the selling of the data, more so than the provision of a particular technology; initially, the purpose of these companies' technology was to facilitate the sale and consumption of the data.

However, within the last couple of years, these facilitating technologies have become a more integral part of the vendors' business strategies as they seek to maximize their market potential and grow their revenue base. Several of these vendors, and in particular LIM and ZEPower, have seen considerable success with this new strategy; selling their products as viable solutions to complex integration issues while simultaneously providing significant business value through the provision of vast amounts of market data coupled with advanced analytic tools.

Recently however, the term "Data Management Solution" in the context of commodity trading and risk management has been more broadly adopted. A group of vendors has emerged that collect and aggregate internal, as well as external, data and also provide for various forms of aggregation and analysis of the collected data, including vendors such as DataGenic and Hyper Rig. Indeed, as the software product category has evolved in line with perceived industry requirements, many "price server" vendors have also begun to, or plan to, offer similar functionality.

To further complicate matters, as the data management software category has emerged and broadened in commodity trading and risk management, other traditional data management solution providers from outside of the commodities space, such as SmartCo, have seen a potential new market for their solutions and have now entered the market or are preparing strategies to do so.

CommodityPoint views the data management software category as one that continues to evolve, driven by the recognition that there are multiple and specialized issues in the commodity trading and risk management industry that have not yet been adequately addressed utilizing other solutions. These issues include:

• Basic data collection and aggregation (including the ability to quickly add new data sources - either internal or external; an capability that appears to be problematic for many solutions)

• The need to handle vast quantities of data and extract meaning from it (including the many subclasses of data, such as price, risk and other forms which may require specialized solutions)

• The ability to see an integrated view of data currently maintained in disparate databases and systems

• The emerging requirements for specific audit and reporting capabilities

• The need to perform more sophisticated analytics

• A number of more process specific requirements such as data cleansing, system of record identification and more.

How Broadly is it Utilized?

But to what extent has the concept of data management penetrated the commodity trading and risk management world? According to our sample, about half of the respondents said that they utilized a data management system (Figure 1). Of those that utilize such a system, a slight majority of respondents indicated that they utilize those systems primarily for the import, validation and storage of external price and market data (Figure 2), a function more fitting the category of "price servers."

The remainder of users, about 45% of the respondents, indicated that they utilize their solutions for a broad range of purposes that include many of the traditionally problematic areas discussed above such as risk aggregation, audit and compliance, and data aggregation and reporting. These findings do support our contention that "data management" is an emerging and evolving software category in the context of commodity trading and risk management.

Summary

There is little doubt that data management is coming of age in the commodities trading and risk management business function. The vast, and increasing, amounts of data that are required and employed by trading businesses today and into the future will dictate the employment of a structured data management approach in order to facilitate faster and more informed decision making. While these solutions have begun to find a ready market in the C/ETRM space, our study results appear to indicate that as a term and application category, "Data Management Solution" is still not fully understood by many in this marketplace. We believe this understanding is emerging rapidly, and for vendors of solutions in this market, the next several years should be particularly fruitful.

Ends --

In 2011, CommodityPoint will launch the CTRM Technical Conference Series. It will comprise of two one-day conferences around important technical issues in the commodity trading and risk management business function including; CTRM Software, Risk Management Software, Data Management and more. The two conferences will take place in Prague, Czech Republic and Houston, Texas.

http://ctrmconference.com