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Contents
Executive Summary .................................................................................................................................... 2
Methodology and Demographics .............................................................................................................. 5
Dodd-Frank Compliance Activities ............................................................................................................ 7
Impacts of Dodd-Frank on Commodity Trading Businesses ................................................................... 13
Summary ................................................................................................................................................... 17
About CommodityPoint ........................................................................................................................... 18
Other Resources .................................................................................................................................... 18
Other CommodityPoint Reports ........................................................................................................... 18
About the Report Authors ....................................................................................................................... 19
Patrick Reames ...................................................................................................................................... 19
Ed Bell .................................................................................................................................................... 19
Study Sponsor - RISKADVISORY, A DIVISION OF SAS ...................................................................................... 21
Appendix A – Research Questionnaire .................................................................................................... 23
2
Executive Summary
The Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank or DF) was signed into
federal law by President Obama on July 21, 2010. Drafted as a response to the 2008 collapse of the
financial markets and resulting recession, Dodd-Frank created sweeping regulatory changes in the
financial markets and by extension, the commodity trading markets. The combination of an extended
period of rule making, an aggressive timeline for implementation, and a highly politicized atmosphere
surrounding the legislation have left a number of market players uncertain as to when and how to
respond to the rules.
After almost two years of debate and public comment, the final rules for Dodd-Frank Title VII, the
section of the regulations dealing with financial swaps and, subsequently the commodity trading
markets, were published in the summer of 2012. Under the timeline established by the publication,
new position limits regulations were scheduled to come into effect October 12, 2012 (though these
have been blocked in late Sept 2012 by a court ruling), and the swap data reporting regulations are set
to be enforced on January 1, 2013 for swap dealers and major swap participants. For those companies
receiving an "end-user" status, the deadline for reporting is currently April 10, 2013.
Given these aggressive deadlines, it would be expected that market participants would undertake an
equally aggressive program to ensure compliance including such activities as swap data repository
(SDR) onboarding, connectivity and testing (as of this writing the approved SDRs are ICE, CME and
DTCC); restructuring of internal processes to ensure proper data retention and reporting; and
technology infrastructure changes.
Though not affecting the responses and data collected for this report, a couple of notable events have
occurred during the analysis and report writing phase of this research effort. First, and as noted above,
the position limit requirements for market participants were blocked by the US District Court in DC and
secondly, the CFTC revised their deadline from Oct 12, 2012 to the end of the year for companies to
declare their status as swap dealers. These delays, along with other appeals and lawsuits that are
working their way through the court systems, continue to create a confused outlook as to how and
when the new Dodd-Frank regulations would ultimately be implemented.
3
Despite the protracted nature of the process, or possibly in light of the long delayed rule making
(instilling doubt as to the eventuality of the regulations), many market participants have made little or
no progress in developing their compliance processes or deploying the necessary technologies for
compliance. Within our group of respondents, a significant majority indicated they did have DF
compliance initiatives underway, many (44% of the North American respondents) with teams of 5 or
more internal resources assigned to the effort. Though fully 80% of the North American respondents
indicated they did have some effort toward compliance underway, almost half the respondents (those
that knew their dollar spend to date) had actually spent less than $25,000 on outside services or
technology to support the effort.
In terms of budgeted dollars for compliance activities (assumed through end of year 2012), more than
50% indicated they did not have any monies budgeted for DF compliance. Nonetheless, 45% did
indicate some level of budget, though of that group, budgets of less than $500k were most commonly
noted. In total, 4 of our respondents (3 in North America and 1 outside the region) noted they had
budgeted more than $2 million for the effort, with three of those being very large oil and gas
producers and one large financial institution. Of those that said they had no budget in place, the most
common entity types were those that held hard assets, including oil and gas producers and utilities,
perhaps reflecting their belief that they would be classified as "End Users" and exempt from many of
the regulatory burdens of Dodd-Frank. That being said, it is important to note that while an "End
Users" classification does change some reporting deadlines, it does not relieve those companies from
all reporting and maintaining full life-cycle trade details.
In reviewing the data, there appears to be a general lack of urgency on the part of many market
participants – low or no budgets, few resources assigned to compliance efforts, and little engagement
with third parties that could provide expert opinion or technology solutions that could facilitate
compliance. Given the potential scale of the effort required to programmatically collect the volumes of
data necessary to ensure compliance with DF regulations, we believe there is a significant risk that
skilled resources (either those provided by commodity trading and risk management (CTRM) systems
vendors or those from CTRM-centric consulting firms) could be in very short supply as the deadlines
near.
Should Dodd-Frank rules implementation continue, as it appears it will, lack of movement by a
significant number of market participants (especially in the "end-user" segment) is creating a large
4
backlog of work across the industry and, we believe, this circumstance should be considered a
significant risk as companies consider their compliance planning and efforts. Additionally, as
compliance will be a CTRM system-centric effort, companies that have resisted moving forward to
newer releases of their vendor supported solutions may face additional effort to upgrade those
systems, as few vendors will "back code" Dodd-Frank specific capabilities (such as reports and new
unique DF required data fields) into older versions of their products, especially those that are more
than 2 or 3 generations old. This version upgrade effort can, by itself, be very costly and time
consuming, requiring months of effort even prior to full implementation of SDR connections or data
collection, achieving and retrieval strategies.
Given the potential legal and financial exposures of non-compliance, we believe it is incumbent upon
all levels of leadership, from risk managers to C-level executives, to create a culture of DF compliance
within their companies. While many may think a manual work-around of the data reporting and
retention requirements will be "good enough", such manual processes are prone to error and will most
certainly evolve from being a high priority to one of a less urgent nature as the immediacy of the
"business of the day" takes priority; after all, nothing bad will happen immediately if a trade doesn't
get reported properly or if a report is late. Unfortunately, while the regulators' response will not be
immediate, it will most likely be aggressive once in motion; and once a company is identified as one
that has not been compliant in the past, that company will likely remain under CFTC scrutiny for a very
long time.
As with all regulations, companies exposed to Dodd-Frank rules will be considered guilty until they
prove themselves innocent…continuously and consistently.
5
Methodology and Demographics
The CommodityPoint Dodd-Frank Market Research effort was undertaken primarily via a survey
instrument developed specifically for the study (appendix C). The survey received responses from a
total of 51 companies. Of a total of 51 responses, 4 were eliminated due to incompleteness, invalid
email addresses and contact names or they originated from a company not involved in commodity
trading, leaving a total of 47 for inclusion in the study. The survey was conducted from April 2012 until
the end of the third week of September 2012 using both HTML email pushes along with researcher
contacts to likely candidates. It should be noted that some responses, such as "dollar spend to date"
represent point in time metrics and therefore the responses to such questions may have evolved
during the survey period – i.e. the respondent may have answered the question in May of 2012 and by
the time of the drafting of this report, that respondent's company may have in fact continued to spend
additional dollars for compliance efforts. That being said, the data does provide interesting data points
as to the scale of compliance efforts/spend as companies prepare for the upcoming regulatory regime.
6
Survey Demographics
While companies that operate in the US commodity markets are most clearly impacted by the
impending Dodd-Frank regulations, non-US entities are also exposed if they trade on US-based
exchanges or commit to OTC
transactions with US-based
entities. Therefore, in the course
of our data collection we have
permitted collection of non-US
based entity responses and have
included those responses in much
of our analysis. In particular, we
have generally grouped the responses by North America and "Rest of the World", as the Canadian-
based entities that responded to our survey are very likely to be impacted by Dodd-Frank regulations
given the significant cross-border trading in energy commodities in North America.
Of the 47 responses considered in
our analysis, 78% originated from
respondents based in North
America, 8% from Europe, 8% from
the Asia-Pacific region, and 6% from
respondents based in other parts of
the world. Given the concentration
of responses from North America vs.
the rest of the world, the results of
the survey are often presented in
total with the two geographies
broken out separately.
The respondents represented a good mix of industry sectors with oil and gas producers/marketers,
merchant trading companies, utilities/LDCs and financial institutions/hedge funds being the most
represented segments. Of the North American based respondents, oil and gas producers/marketers
South America, 1
Asia Pacific, 4
Africa, 1
Europe, 4
Canada, 3
United States, 34North
America, 37
Respondents by Region
Agricultural Producer/Mining
2%
Chemical/ Petrochemical
2%
Hedge Fund/Investment
Fund/Bank/ Financial
Institution17%
Merchant/Trader15%
Oil & Gas Producer/Marketer
23%
Broker9%
Other11%
Pipeline/Refiner/ Processor
2%
Utility/LDC/Generator
19%
Respondent Company Types
7
and utilities were dominant. Of the non-North American entities that responded, financial
institutions/hedge funds, merchant traders and oil and gas producers/marketers were most often
represented, which would expected as they would be the types of companies most likely to trade with
North American based partners or on North American exchanges.
Dodd-Frank Compliance Activities
We asked our respondents whether they
had an organized Dodd-Frank compliance
initiative underway, and surprisingly, about
20% of the respondents indicated that they
did not have such a program in place. Of
those entities that indicated they did not
have such an initiative, small to mid-sized
oil and gas producers were the most
common. In all, about three quarters of
the respondents indicated that they did
have a DF compliance initiative under way.
The group was asked if they knew, based upon the available information at the time, how their
company would be classified according to the CFTC. While many did not yet know, including 12
respondents from North America and 2 from outside North America, most commonly the respondents
indicated they believed they would be classified as "End User".
05
10152025303540
Yes No Don't Know
Num
ber o
f Res
pons
es
Does your company have a Dodd-Frank compliance initiative
underway?
Rest of the World
North America
8
0
2
4
6
8
10
12
14
16
End User Major Swap
Participant
Special Entity
Swap Dealer
Don't know
Num
ber o
r Re
spon
ses
What will be your Dodd-Frank CFTC classification?
Rest of the World
North America
0
5
10
15
20
25
30
No Yes
Num
ber o
f Res
pons
es
Do you believe the CFTC implementation of Dodd-Frank will be delayed long enough to justify delaying your compliance initiative
into 2013?
Rest of the World
North America
The majority of those that indicated they would be awarded an "End User" classification were
Utilities/LDC's, along with several oil and gas producers. However, the largest oil and gas producers
that responded to our survey
noted that they anticipated
they would be classified as a
"Major Swap Participant" or
"Special Entity". Companies
that indicated they would
receive the "Swap Dealer"
designation were almost all
Financial Institutions / Hedge
Funds, though one global oil
and gas producer also indicated
a "Swap Dealer" classification.
Given the slow evolution of regulations and regulatory guidance, combined with a palpable sense that
the regulatory process was politically
influenced, we asked our respondents if
they believed the CFTC implementation of
DF regulations would be delayed (for
whatever reason) to justify delaying their
compliance initiatives until after the end
of 2012. Though 90% of the non-North
American respondents indicated they felt
it would be delayed, the North American
respondents were less certain, with 57%
believing such a delay would not occur.
We further asked what activities have been undertaken to date to begin to address the upcoming
regulations and become DF compliant. The respondents were asked to indicate all activities they had
undertaken, from having done nothing to having purchased dedicated applications to support DF
compliance. Though six of the respondents indicated they had not taken any real actions to date, the
9
0 10 20 30 40
Internally researched compliance requirements
Hired outside expertise to review compliance requirements
A technology review of compliance requirements as they may affect our trading systems
Have begun developing technology solutions for compliance
Have purchased specific Dodd-Frank compliance technology solutions or tools
Have begun mapping market interfaces to swap repositories
Have taken no action to date
Number of Actions Noted
What actions if any have you undertaken in terms of compliance?
North America Rest of the World
most common action noted was that they had begun internally researching DF compliance
requirements, a number
that very clearly mirrors
those that responded they
had a DF initiative
underway. More than a
third of all respondents
indicated that they had also
undertaken a technology
review of compliance
requirements as they might
affect their trading systems.
An equivalent number also
noted that they had
brought in outside expertise to review compliance requirements as they related to their company.
Slightly over a quarter noted that they had begun developing technology solutions necessary for
compliance, though fewer (about 15%) indicated they had actually begun mapping market interfaces
to swap data repositories, such as ICE or DTCC. While none of the respondents indicated they had
purchased specialized DF technology solutions or tools to assist in building-out a compliance
architecture, CommodityPoint is aware that several of the vendors of specialized DF reporting and
compliance tools and DF specific CTRM modules (such as that from SAS RiskAdvisory) have, as of this
writing, begun to see some market up-take of those solutions, with several new sales announcements
in recent weeks.
10
02468
10121416
None One 2 to 4 5 to 10 More than 10
Number of Employees involved in researching Dodd Frank Impacts
Rest of the World
North America
Though the numbers of these sales to date are small, it is a positive indicator that the market is
beginning to make the necessary investments in technology in anticipation of the impending deadlines
for DF reporting.
In order to gain insight into the efforts currently underway, we asked the respondents to identify how
many individuals within their company were involved in researching the implications of Dodd Frank
regulations on their companies.
Of the North American
respondent group, the most
cited ranges for the team size
were "2 to 4" and "more than
10". Seven of the North
American respondents indicated
there was a single person
involved, 5 indicated that there
were "5 to 10" persons involved
and three of our North
American respondents indicated there was no one within their company that was actively reviewing
the impacts of Dodd-Frank. The responses from other geographies outside of North America were
fairly evenly split amongst each of the ranges, though a team size of "5 to 10" was noted slightly more
often.
When reviewing the data by entity type, utilities, oil and gas producers, and financial
institutions/hedge funds were most often noted as having the largest teams of DF compliance
researchers. The industry segments most likely to have smaller teams in place were the agricultural
producers, mining, and petrochemical companies/refiners.
11
0
2
4
6
8
10
12
14
16
18
More than $250k
Between $100k and
$250k
Between $50k and
$100k
Between $25k and
$50k
Less than $25k
Don't Know
Num
ber o
f Res
pons
es
How much has your company spent to date on outside consultants or new technologies related to
DF compliance initiatives?
Non-North America
North America
In terms of dollars spent (up to the date of the individual company's survey response) on outside
consulting services or new technologies, of those indicating an answer other than "Don't Know", a third
indicated that they had spent less than $25,000, a range that would include those that had spent
nothing to date on
outside resources or
technology. 17% of the
respondents indicated
that they spent in
excess of $250,000 to
date, with a few noting
they had spent lesser
amounts in each
category. In all, 40% of
the respondents
indicated they had
spent in excess of $25,000. It should be emphasized that this spend reflects only monies spent on
outside consultants and new technologies, not expenditures or costs related to internal resources.
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Other
Agricultural Producer/Mining - Chem/Petrochemical -Pipeline Refiner/Processor
Merchant Trader
Oil & Gas Producer/Marketer
Utility/LDC/Generator
Financial Institutions
Number of Employees Involved with Compliance
10 or More
5 to 10
2 to 4
1
None
12
0
5
10
15
20
25
30
Num
ber o
f Res
pons
es
What is your budget for internal staffing, consultants, hardware and third-party
licenses for D-F compliance?
Non-North America
North America
In terms of budgeted dollars for compliance activities (assumed through end of year 2012), more than
50% indicated they did not have current budget capacity for DF compliance, not necessarily surprising
given the evolving nature of the regulatory process related to Dodd-Frank. Nonetheless, 45% did
indicate some level of budget, though of that group, budgets of less than $500k were most commonly
noted. In total, 4 of our respondents (3 in North America and 1 outside the region) noted they had
budgeted more than $2 million for the effort. Of those with the largest budget, all were major oil and
gas producers with the exception of one large financial institution. Of those that said they had no
budget in place, the
most common entity
types were those that
held hard assets,
including oil and gas
producers and utilities,
perhaps reflecting their
belief that they would
be classified as "End
Users" and exempt
from many of the
regulatory burdens of
Dodd-Frank.
13
0 5 10 15 20 25
Dodd-Frank is purely a compliance and reporting exercise, and nothing more.
It is a larger opportunity to enhance risk management and business intelligence
infrastructure.
I am unsure as to the impacts on our business
Beyond compliance and reporting, it includes changes to our trading strategies, process
flows, counterparty selection, etc.
Number of Responses
What is the business impact of D-F requirements on your firm?
North America Non-North America
Impacts of Dodd-Frank on Commodity Trading Businesses In order to better
understand the market's
views of how Dodd-Frank
would impact their
businesses, we asked our
respondents to identify
the single statement that
best reflected their view
of those impacts. While
about 30% felt that they
were unsure of the
ultimate impact on their
company, almost 45%
indicated that the DF
regulations would affect
their business directly and would include changes to their trading strategies, process flows,
counterparty selections, etc. Smaller numbers of respondents indicated the changes required would
be less far-reaching, with 6 respondents saying DF compliance was nothing more than an exercise in
compliance and reporting, with no real business changes indicated. A similar number indicated they
felt the compliance effort was an opportunity to enhance their risk management and business
intelligence infrastructure.
Looking specifically at the effects of DF regulations on trading activities, we asked the respondents to
indicate, from a list, potential impacts to those trading activities, allowing multiple selections. Most
commonly, more than half the group indicated that their costs related to technology and support
would increase. 40% of the respondents indicated that DF regulations would increase their costs of
trading due increased margin requirements; perhaps reflecting, in part, the belief by slightly less than a
third that they would be forced to reduce OTC transactions (and potentially move more deals to
exchanges that have stringent margin requirements).
Nine of the respondents indicated they may have to divest of some portion of their business (hard
assets, business units, portfolios, etc) in order to reduce their DF exposures. A quarter of the
14
0 5 10 15 20 25 30
Other
There will be no affect
Will force us to divest some portion of our business in order to reduce regulatory exposures
Will reduce the number of OTC transactions we do
Will increase our costs of trading due to higher margin requirements
Will increase costs related to technology and support
Number of Responses
How do you believe DF regulations will affect your trading activities?
North America Non-North America
0 5 10 15 20
Will clear less trades
Will clear more trades
We do not expect to be classified as an End User
No change expected
Number of Responses
Should your company have an "End User" status, will that compel you to change your
current process of clearing trades?
North America Non-North America
respondents indicated they
felt there would be no
changes to their trading
activities – these were most
commonly agricultural
centric trading houses and
a couple of small oil and
gas producers.
As an "End User"
classification would appear
to exempt those companies
from some of the
regulatory burdens of Dodd-Frank, including margining, and would provide less stringent reporting
rules, we asked those companies who believed they could possibly receive such a classification to
indicate whether they anticipated they would need to clear more trades under the new rules. While a
third of the respondents believed they would not receive such a classification, of those that felt an
"End User" classification was
a potential for their company,
approximately a third felt
they would not make any
change to their current
process of clearing trades.
Slightly less indicated they
would clear more trades, and
four indicated they would
clear less trades, though the
reason for that is unclear.
15
0 5 10 15 20
Trade capture is automated - we do not manually enter trades
I do not know
Within 1 or 2 hours of execution
At midday and/or end of day
Number of Responses
We presently enter trades into our ETRM/trade system:
North America Non-North America
Given that Dodd-Frank reporting regulations stipulate that trades must be reported as soon as
"practicably" possible, there is a belief
by many in the industry that such a
standard would require reporting of the
trade to trade repositories within
minutes of the time the trade was
committed. Given that most of our
past research indicates that few
companies require traders to enter the
trade as soon as the deal is committed,
we wanted to identify the potential
impact on companies if such a reporting
requirement were to be enforced.
16
The survey asked the respondents to note when they required their traders to enter their deals into
their ETRM or trade capture system, which of course would be the first step in recording the deal for
reporting purposes. While a number of respondents indicated they didn't know what their companies'
requirements were, a large percentage (36%) indicated that they did not require trades to be entered
until after noon and/or by the end of the day. Another 25% indicated their requirement was that the
deal had to be in the system within 2 hours of execution at the latest.
Again, as the final regulations of DF may require near real-time or within minutes of deal commitment
reporting depending on an individual company's CFTC market designation, the business processes of
these companies may be significantly impacted and could require additional resources, such as deal
entry clerks or trading analysts, in order to meet the trade entry deadlines - an additional cost that
must be considered as companies work toward meeting their compliance obligations.
17
Summary
Though Dodd-Frank has been a lumbering giant for the last two years, the deadlines for compliance are
rapidly approaching and many market participants are taking actions necessary to become compliant.
However, based upon our research and conversations with many market participants, those efforts
appear to be inconsistent across the market.
Though several large companies have expended considerable effort and resources in developing a
holistic DF compliance program, complete with programmatic solutions for reporting, SDR connectivity
and data retention, many others (particularly those that anticipate end-user status) have taken a much
less ambitious (and less costly) approach, including several that have essentially done little or nothing.
Given this broad spectrum of responses, it appears that there still exists either widespread doubt in the
market as to when the regulations will eventually come into force (as indicated by our respondent
group), or there is a significant amount of confusion as to the requirements and burdens that Dodd-
Frank places on any individual company. Based on our conversations with many market participants, it
seems to be combination of both factors – many companies simply do not believe Dodd-Frank rules
will ever come into full force in the energy markets; and even if they eventually do, the continual
delays in implementation will afford them sufficient time to better plan their compliance response.
However, if one were to look back on the late developing compliance efforts associated with Sarbanes
Oxley regulations in 2003 and 2004, when many companies were caught off guard by the lack of
knowledgeable resources to provide guidance and assist in developing compliance programs, it may
well happen that many of the companies delaying their Dodd-Frank efforts may face similar difficulty
finding the qualified resources necessary to deploy a compliance program in time and avoid what may
be an aggressive regulatory response.
18
About CommodityPoint
CommodityPoint is the industry leader in providing Commodity Trading & Risk Management (CTRM) research, analysis and advisory services. Our services bring insight into business issues, trends, processes and technology, to utilities, energy companies, banks, brokers, funds, investors and vendors that enhance their competitive position and support critical business decisions around the wholesale commodity trading markets. Our team provides expert analysis of market trends and, in particular, the technologies and applications supporting those that participate in regional or global commodity markets.
With offices in Europe and the US, and backed by an experienced research team, our organization provides an unparalleled view of the marketplace. CommodityPoint is a division of leading energy and utilities analyst and consulting firm, UtiliPoint International, Inc.
Other Resources The CTRM Blog – http://www.ctrmblog.com CommodityPoint – http://www.CommodityPoint.com TRM Products and Services Online Directory – http://www.trmdirectory.com
Other CommodityPoint Reports CommodityPoint research reports are available at http://www.Commodity-Point.com For Additional Information regarding this report or any CommodityPoint product or service, please contact Patrick Reames at [email protected] or Mark Tredway at [email protected]. CommodityPoint Locations The Americas 19901 Southwest Freeway, Suite 121 Sugar Land, Texas 77479 USA Phone: 281-207-5440 Europe & Asia/Pacific International Business Center Prikop 4 602 00 Brno Czech Republic Tel: +42 0 533 433 658
UtiliPoint International is a wholly owned
subsidiary of Midas Medici Group Holdings, Inc.
(OTCBB:MMED).
19
About the Report Authors
Patrick Reames Managing Director, CommodityPoint
Mr. Reames has more than 30 years of energy industry experience. He has a deep understanding, developed through hands-on experience and managerial oversight, of upstream and midstream oil and gas operations including exploration, production, gathering, gas plant operations and pipeline operations. Additionally, he has 5 years of energy commodity trading, transportation, and risk management experience with Hess Corp. (formally known as Amerada Hess), a Fortune 100 integrated energy marketing company. Over the last twelve years, he has been focused primarily on information technology serving energy trading, marketing, and risk management. Prior to joining UtiliPoint, Patrick served as an executive for several technology companies (including TransEnergy Management, Altra Energy, and TradeWell systems) providing products and services to energy and commodity marketing organizations. In these roles, his focus was on the creation and delivery of high value service products designed to ensure the successful implementation and on-going use of technology solutions. Patrick is a frequent speaker at industry conferences and events. He has published numerous articles in industry publications and contributes regularly to the UtiliPoint's IssueAlert and CommodityPoint's CommodityAlert series. Patrick is the primary author of the CTRMblog.com website and is the co-author and editor of the books “Selecting and Implementing Energy Trading, Transaction and Risk Management Software – A Primer” and "Trends in Energy Trading, Transaction and Risk Management, 2009-2010". Patrick holds a B.S. in Business Administration – Finance from Oklahoma State University.
Ed Bell Founding Member – Global Energy Management Institute, University of Houston
Mr. Bell is an experienced business and IT executive, focused on practical solutions to long-standing business problems. He has worked on risk management technology, strategic review and organizational realignment projects for the oil and gas, merchant trading, utility and IPP sectors within the energy industry. Mr. Bell’s assignments have spanned the merchant energy value chain from the technologies of price discovery to large-scale systems implementation in commodity trading and risk management. He is a former divisional CIO for the wholesale trading division of a major investor owned electric utility and was one of the principal developers of the energy industry’s original commodity risk management infrastructure. For the last 12 years, Mr. Bell has consulted with energy clients ranging from business unit managers to corporate officers on issues of technology strategy, corporate risk management and business process and practice improvement.
He is currently serving as CIO of Richard Heath and Associates (RHA). In this role, he leads the company's service-oriented Information Technology and Systems team, building their agility and capacity to design the customized tools and applications that support RHA’s sophisticated program management approach.
Mr. Bell is a founding member of the Global Energy Management Institute at the University of Houston, and has been a member of the Dean’s Advisory Council at the C.T. Bauer College of Business. Mr. Bell teaches courses in energy and commodity trading systems at Bauer College.
20
Study Sponsor CommodityPoint™ appreciates the financial and technical support provided by our sponsor, enabling
us to provide this report at no cost to its readers.
21
RISKADVISORY, A DIVISION OF SAS Helping Accelerate Your Dodd-Frank Compliance
Energy companies, financial institutions, manufacturers and other commodity-oriented corporations operate in a challenging environment of risk, uncertainty and volatility.
Now game-changing Dodd-Frank Act regulations are increasing the regulatory compliance burden for any firm that engages the derivatives market for hedging and other business purposes.
Successful compliance requires a capability to consolidate a range of data from multiple systems into an auditable database of record, generate timely, accurate reports and communicate that information correctly to regulators, Swap Data Repositories (SDRs) or other end-points. This real-time, “big data” environment demands a Commodity Trading and Risk Management (CTRM) solution that can help accelerate your Dodd-Frank compliance by quickly meeting five core technology goals.
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Drive Business Value Across Your Organization by Accelerating Dodd-Frank Compliance
Managed correctly, a strong Dodd-Frank solution not only helps you achieve compliance – it drives additional business value across your organization. Our team of experts is available for on-site consultation to demonstrate the benefits for your enterprise. Schedule yours by emailing [email protected].
The team has also prepared a host of materials to assist you in preparing for compliance, including:
RiskAdvisory’s complimentary podcast series explores the compliance effort from five separate angles: • Making the Most of Dodd-Frank for CTRM. When investment is inevitable, monetize it. How should energy
and commodity companies seek out business opportunities in compliance mandates under the Dodd-Frank Act? How can they learn from past responses to similarly draconian regulatory burdens in the financial services sector?
• Understanding Dodd-Frank Definitions. How will Dodd-Frank change your trading day? Explore the new, more real-time operating environment for energy and commodity companies who trade swaps under the Dodd-Frank Act.
• The Business Value of Data Aggregation for Dodd-Frank. Upgrading CTRM systems is a time-consuming process that can disrupt your regular trading business. Aggregating data into a master regulatory record is a preferable approach to contending with the many regulatory compliance “tweaks” anticipated over the next few years for commodity companies who trade swaps under the Dodd-Frank Act.
• Cost-Benefit Analysis of Dodd-Frank. Activity Based Costing is just one of the broader business benefits of technology investments made to address the compliance requirements imposed on energy and commodity companies who trade swaps under the Dodd-Frank Act.
• Whistle-Blower Provisions Under Dodd-Frank. In the light of recent regulatory reporting penalties, how should companies respond to whistleblower incentives under the Dodd-Frank Act?
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Our hour-long webcasts bring thought leaders from across the industry to describe and discuss fundamental issues in responding to the compliance burden, including:
• Dodd-Frank 2012: To Compliance And Beyond. Examine the full range of Dodd-Frank challenges, from regulatory shifts to changing business obligations to data management issues. Explore how your organization can benefit from realigning your data collection and analysis approach, beyond pure compliance. Featured speakers: Mike Gill of Crowell & Moring; James Allison of ConocoPhillips; Thomas Lord, formerly of PricewaterhouseCoopers; and Patrick Woody of SAS RiskAdvisory.
• Know It All Now! CTRM in the Dodd-Frank Era: success through risk aggregation and analytics. Dodd-Frank regulations demand that every affected company revisit and refine its energy and commodity trading and risk management strategies and the technology that enables them. Learn more about the business implications of Dodd-Frank and the requirements for technology systems in the commodities trading area. Featured speakers: Mike Gill of Crowell & Moring; James Allison of ConocoPhillips; and Louis Caron of RiskAdvisory.
RiskAdvisory offers a range of articles, fact sheets and white papers specific to regulations, such as: 1. Dodd-Frank Title VII Compliance: Optimize your investment to increase business value. Learn how to
leverage your compliance efforts to benefit your organization’s operations in this SAS white paper. 2. Race To The Finish. Discover how firms are sprinting to comply with the new Dodd-Frank rules in this
EnergyRisk magazine article featuring a RiskAdvisory expert. 3. Lemonade From Lemons: Analytics benefits of Dodd-Frank compliance. SAS guidance on the analytics
advantages derived from the regulatory effort, featured in Electric Light & Power magazine. 4. Impact of Dodd-Frank on ETRM systems. Energy Metro Desk explores the intersection of energy trading and
regulatory compliance in this interview with a RiskAdvisory specialist.
How RiskAdvisory Can Help
RiskAdvisory is a leader in compliance software solutions that enable firms to streamline their response to Dodd-Frank and other new regulations while continuing to drive business value. Email [email protected] to schedule an on-site consultation with our regulatory team.
To learn more about our innovative CTRM solutions including the SAS® BookRunner® suite and the best practice of Enterprise Commodity Risk Aggregation and Analytics (ECRAA) it supports, visit www.RiskAdvisory.com.
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Appendix A – Research Questionnaire
1) Does your company have a Dodd-Frank Compliance initiative underway? (single selection) a. Yes b. No c. Don't Know
2) Does your company maintain a permanent Regulatory Compliance department/function? (single selection)
a. Yes b. No c. Don't know
3) What will be your company's Dodd-Frank CFTC classification? (single selection) a. Swap Dealer b. Major Swap Participant c. End User d. Special Entity e. Don't know
4) Do you believe the CFTC implementation of Dodd-Frank will be delayed long enough to justify delaying your compliance initiative into 2013? (single selection)
a. Yes b. No
5) What actions if any have you undertaken in terms of compliance? (multiple selection) a. Internally researched compliance requirements b. Hired outside expertise to review compliance requirements c. Have undertaken a technology review of compliance requirements as they may affect
our trading systems d. Have begun developing technology solutions for compliance e. Have purchased specific Dodd-Frank compliance technology solutions or tools f. Have begun mapping market interfaces to swap repositories g. Have taken no action to date
6) How many people in your company have been involved in research/compliance related to Dodd Frank? (single selection)
a. None b. 1 c. 2 to 4 d. 5 to 10 e. 10 or more
7) How often does your Dodd-Frank compliance project team meet? (single selection) a. We do not currently have a D-F compliance team in place b. Daily c. Weekly
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d. Monthly 8) How much have you spent to date on outside consultants or new technologies related to Dodd-
Frank compliance initiatives? (single selection) a. Less than $25k b. Between $25k and $50k c. Between $50k and $100k d. Between $100k and $250k e. More than $250k
9) Have you established a budget for internal staffing, consultants, hardware purchases and third-party licenses for Dodd-Frank compliance? (single selection)
a. Less than $500,000. b. Less than $1 million. c. Less than $1.5 million. d. Less than $2 million. e. More than $2 million. f. We do not currently have a budget for Dodd-Frank compliance
10) What is the business impact of Dodd-Frank requirements on your firm? (single selection) a. Dodd-Frank is purely a compliance and reporting exercise, and nothing more. b. Beyond compliance and reporting, it includes changes to our trading strategies, process
flows, counterparty selection, etc. c. It is a larger opportunity to enhance risk management and business intelligence
infrastructure. d. I am unsure as to the impacts on our business
11) How do you believe Dodd-Frank regulations will affect your trading activity? Please select all that you believe will apply to your business. (multiple selection)
a. There will be no affect b. Will reduce the number of OTC transactions we do c. Will increase our costs of trading due to higher margin requirements d. Will increase costs related to technology and support e. Will force us to divest some portion of our business in order to reduce regulatory
exposures f. Other, please specify
12) Should you have an End User status, will that compel you to change your current processes of clearing trades? (single selection)
a. Will clear more trades b. Will clear less trades c. No change expected d. We do not expect to be classified as an End User
13) We presently enter trades to the ETRM/trade system: (single selection) a. Within 1 or 2 hours of execution b. At midday and/or end of day
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c. Trade capture is automated – we do not manually enter trades d. I do not know
14) What is your name? 15) What is your email address? (This is required in order to verify responses) 16) What is your company’s name? 17) In which country are you based? 18) What Type of company is that? (single selection)
a. Hedge Fund/Investment Fund/Bank/Financial Institution b. Utility/LDC/Generator c. Oil & Gas Producer/Marketer d. Pipeline/Refiner/Processor e. Merchant/Trader f. Agricultural Producer/Mining g. Industrial Commodity Consumer (e.g. transportation, airlines, food & Beverage etc.) h. Chemical/Petrochemical i. Other, please specify
19) In which Commodity Segment does your company primarily trade? (single selection) a. Energy b. Agriculture/Softs c. Metals d. Other, please specify