Each year, Chartis conducts an independent study of the energy trading risk management (ETRM) system landscape and determines rankings based on certain classifications, focusing on solutions and industry segments. It then ranks the top 50 technology providers and identifies the top players in specific solution categories. Overall, Nasdaq’s solutions ranked #18 and in the trade surveillance: oil and gas solution category, Nasdaq ranked #1.
Robust Risk Platform
Regulators require exchanges, marketplaces, banks and brokers to monitor an array of risks because the default of one or a group of participants could rapidly result in contagion across the energy and financial markets. As an example, energy markets can be volatile at times. An extreme case occurred in April 2020, when the price of West Texas Intermediate crude, the U.S. benchmark, dropped to minus $40 per barrel. In another case, natural gas prices hit record levels after Russia invaded Ukraine in February 2022. Such events highlight the importance of knowing your clients’ liquidity position, always keeping clients’ cash balances visible, and performing rigorous, complex stress tests intraday.
Nasdaq Risk Platform (NRP) was recognized in the Energy50 awards for its comprehensive feature set and robust approach to energy risk management across North America, Europe, and Asia Pacific. Importantly, because NRP is a cloud-based SaaS solution, it reduces operational complexity and allows clients to be onboarded quickly.
NRP enables clients to monitor their trading activity in real time and comply with multiple regulations – from net capital and customer protection to market access and more. Each time a new trade, position, or price is updated, the entire portfolio is recalculated. It dynamically updates positions, initial margin and stressed initial margin calculations, liquid equity, value at risk (VaR) and high value at risk (HVaR), P&L, and net exposure. It performs multi-factor stress testing across multiple market input, instrument and industry code dimensions. Energy risk managers can set limits and receive alerts before reaching a material threshold.
The feature set spans power analytics, energy data, futures and options, and algorithmic trading. The solution calculates market risk for cash-settled power, oil and refined products, gas (pipeline, LNG, and NGLs), coal, freight, OTC energy derivatives, floating offshore wind (FOW) in energy assets, and energy portfolio management. The margin analytics functionality helps energy risk managers assess credit risk. Further more, the solution supports trade surveillance and provides enterprise applications support for asset management.
Users can aggregate risk results across a broad range of configurable dimensions and slice and dice risk based on their own risk policy and reporting requirements. This component supports aggregation of position, account, and stressed P&L results across dimensions, such as industry classification, execution venue, instrument details and account attributes. It also supports custom calculations and filtering.
In addition, users can use the real-time what-if functionality to model the risk impact of several different use cases across their accounts and positions. Use cases include changes in portfolios, VaR, market data and margin models, as well as the impact of onboarding new accounts.
Nasdaq’s ETRM offering is now even more comprehensive with the integration of Adenza’s regulatory reporting solution, which allows clients to comply with many regulations including:
- Regulation on Wholesale Energy Market Integrity (REMIT)
- European Market Infrastructure Regulation (EMIR)
- Market Abuse Regulation (MAR)
- Dodd-Frank Wall Street Reform and Consumer Protection Act
- Securities Financing Transaction Regulation (STFR)
- Markets in Financial Instruments Directive II (MiFID II)
Trusted Trade Surveillance
Orderly trading, fairness, efficiency and reliability of energy supply is critical to consumers and businesses. Any breakdown or disorder in the energy supply chain has an immediate impact on society. To this end, regulators expect energy market participants to police themselves and ensure that their traders comply with exchange and national rules. Since the financial crisis, market supervision and rulemaking have been driven by concerns about systemic risk, predatory behaviors, and price manipulation. Moreover, the authorities have converged energy and financial markets regulation because derivative instruments are common to both.
A compliance and surveillance process that relies on spreadsheets and pivot tables is inadequate for today’s complex forms of manipulation and market abuse. Companies need an analytical engine with the capability to ingest massive amounts of trade data and to automatically detect suspicious trading patterns.
Nasdaq Trade Surveillance (NTS) is a fully hosted SaaS service that works with contracts spanning 40 energy and commodity markets globally. It aids the detection, investigation, and analysis of potentially abusive or disorderly trading patterns, enabling participants to effectively identify potential market abuse and mitigate and manage market abuse risk.
The solution provides full client data management by sourcing and integrating trading data from the public market, including from news feeds and a client’s trading data. Its comprehensive alert management capabilities provide for easy user workflows and the ability to tailor alert parameters based on each client’s business needs. Clients can use the calibration function to test data already in the system and deploy changes to parameter values for alerts.
The updated web-based user interface, called NTS Workbench, allows for maximum configurability and even more dynamic visualization functionality. NTS has a comprehensive suite of investigative tools that provide the analytics and trade visualizations to support alert analysis and market abuse investigations. These tools, which include Spread, History, Depth, Replay, Daily Report, Correlate View, and Fixed Income View, allow clients to visualize and add market context to the alerts generated by NTS.
Promoting Market Integrity
Energy products are traded in marketplaces across the globe at lightning speeds and sometimes in volatile conditions. The ability to monitor, measure, mitigate, and manage risk in this complex environment and comply with myriad regulations is critical because it promotes market integrity and inspires investor confidence.
Technology is the key enabler for an effective ETRM program and exchanges, marketplaces, banks, brokers, regulators and corporations have many solutions to choose from. We appreciate the recognition of our work in the Chartis Energy50. Nasdaq is committed to innovating, adapting, and investing in these and other technology solutions to help our clients manage risk across their organizations.
