Vendors take the bite out of trading tasks

April C. Murelio

Associate Editor

As electricity trading desks start looking less like the dash of a `57 Chevy and more like the console of the Millennium Falcon, software integration and user friendly hardware become top priorities.

In 1996, wholesale electricity sales by American power marketers certified by the Federal Energy Regulatory Commission (FERC) totaled about 234 million MWh. In 1997, that number hit more than 1.2 billion MWh, over a five-fold increase.

To handle this volume, traders need a complex set of tools, including software for everything from developing pricing models to scheduling power delivery.

Even a trading floor`s phone system must provide instant access to market data, with the amount of that data growing at a staggering rate. For example, the Chicago Mercantile Exchange`s trading floor uses about 15,000 phone lines.

Two companies-IPC Information Systems and Enterprise Automation Advisors-represent both ends of the hardware-software spectrum, with each banking on turning these complicated tools into seamless, touch-of-a- button systems.

“Whether you have five to 500 traders, they might not be in one city. They might be around the world,” said Ted Pearson, IPC`s director of sales in the Americas. “Small players need to com- pete with the big players so speed, the integration of data, voice recordings-it`s all important.”

IPC launched its business about 25 years ago, offering the financial markets its high-speed (more than two calls per second) telephones or turrets.

With more than 80,000 traders using IPC systems worldwide, Pearson said IPC entered the energy trading market about six years ago. That market now accounts for about half of the company`s revenues in the Americas.

With the advent of electronic trading and the rapid development of new and improved software systems, it`s easy to forget that much of a trader`s business still occurs over the phone. But as Pearson said, “You can lose your software and data, but if you still have speakers and voice, you`re still in the market.”

IPC`s phone systems, which enable floors to record all transactions, also give risk managers another trail to follow as they take a historical look at trades and verify information for asset management and counter party credit verification.

Pearson said about 90 percent of IPC`s clients use this option, which became increasingly important after last year`s price spikes and defaults.

IPC also offers its clients “discovery studies,” which track a floor`s trading volume and break it down by trader or area.

Through it all, Pearson said, IPC`s main concern remains making its phone system user friendly.

“Traders have a lot of information issues to deal with-risk management, scheduling-phones are ringing, speakers are blaring,” he said. “We want the system to be as clear and automatic as possible. We don`t want the trader to have to think about which button to push.”

Enterprise Automation Advisors (EAA), a California-based software integration firm, too holds a similar vision for its product-Electric Works Integration.

“Different (software) vendors are addressing all needs including trading, marketing and distribution,” said Dilip Daswani, the company`s founder. “We want to bring all those together.”

By integrating front-, mid- and back-office functions, EAA hopes to take the pain out of a trading floor`s operations. For example, monthly deal reconciliation for a floor conducting 6,000 or so transactions a month can be a nightmare as paper shuffles from the floor, to accounting, scheduling, contracting, etc.

Founded in 1997, Daswani said EAA`s Elec-tric Works Inte- gration offers energy service providers (ESPs) and other power marketers a way to deploy new capabilities and functions while still operating those systems as an integrated whole.

The system and its components integrate applications and business functions across the company, including demand forecasting, supply management, metering, risk and credit management, ISO and control area scheduling, retail billing, service provisioning, and settlement with power exchanges, ISOs and bilateral parties.

Although capable of standalone use, the software integrates with commercial, packaged applications or already installed customized systems, Daswani said.

Recently, Daswani said, EAA started working with more of California`s municipal utilities, who often come reluctantly to the trading game.

“They don`t necessarily want to be in the trading game, but like it or not, they are,” Daswani said. “They don`t have to worry about their market being taken-at least for now. Primarily, these municipals are interested in minimizing costs.”

By integrating their systems, municipals and others achieve economies of scale, making their software components easier to use, more efficient, and cheaper to run.

Because EAA plays the integration market and leaves the application arena to other vendors, Daswani said its trainers and technicians are challenged to learn a variety of programs.

Although most data models remain similar, he expects the situation to worsen once the retail markets fully develop and data management needs increase even more.

“As far as the number of systems needing integration, it`s only going to get worse,” Daswani said. “Although the retail market remains small, those who need these systems integrated really need them.”

Click here to enlarge image

The MX Slimline turret and Slimline Clear Deal speaker offered by IPC Information Systems. Photo courtesy of IPC.

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