Commodity trading and risk management

The increasing volatility of prices and complexity of commodity markets make risk an especially critical factor of business performance than ever before. Market forces can generate large price fluctuations, often surpassing other indices including foreign exchange and equity markets, resulting in dramatic movements in a company’s financial performance. Commodity markets have also become more complex with new participants entering to profit from this volatility and regulators implementing changes to the ways in which these markets are controlled.

“The commodity ecosystem is constantly evolving. Commodity players are increasingly exposed to greater competition, volatile prices, and regulatory changes. Having the right operating model, governance structure, and functional capabilities are critical for growth. It is important for companies to reassess whether their commodity risk management systems, process controls, and reporting framework are still fit for purpose during these times.”

Chen Voon Hoe Partner, Risk Assurance

A robust control environment together with the right trading systems will enhance insight, efficiency, control, and resource utilisation, thereby allowing for more thorough and accurate reporting and a reduced risk of fraud and rogue trading.
 

Critical issues

It is strategically important for companies to recognise and manage these risks and volatility effectively. However, there is no “one size fits all” approach as companies vary significantly in their objectives and rationales for managing such risks. Here is an overview on key critical issues you might wish to consider:

Strategy and risk management

  • Risk appetite and trading strategy
  • Supply chain optimisation
  • Risk analysis and models
  • Valuation methods

Operating model, governance and control

  • Book structure, organisational structure across front, middle and back offices
  • Roles and responsibilities across the business
  • Governance framework
  • Fraud risk assessment and response
  • Gap assessment and benchmarking exercise of current policies and procedures against market good practice
  • Co-sourcing model with management to support internal controls review with Subject Matter Expert knowledge

Accounting and regulatory compliance

  • Accounting standards
  • Strategic and operational response to ensure compliance with local regulatory changes
  • Internal and external reporting (e.g. new OTC reporting requirements under the Securities and Futures Act)

Technology transformation

  • Commodity/Energy Trading and Risk Management (C/ETRM) system implementation and integration
  • Business process blueprint and gap analysis
  • Support in building business case
  • Requirements articulation and system selection
  • Request for Information/Request for Proposal (RFI/RFP) preparation
  • Technology strategy and solution design
  • Improve and integrate control framework within the system
  • Quality assurance
  • Change management and benefits tracking

How we can help

Our global practice comprises of more than 200 dedicated specialists with a wide range of commodity trading and risk management experience. We work with our network of specialists to serve our clients across the world, bringing global expertise whilst providing local partnership on the following areas.

With our extensive commodity market and trading technology experience, through working, with leading commodity risk management and trading companies and C/ETRM system vendors, we can help with your business ideas from strategy development and operating model design through to successful implementation of processes and technology.
 

Contact us

Voon Hoe Chen

Partner, Risk Services, PwC Singapore

Tel: +65 9817 0978

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