TRADINGTECHNOLOGY
players. This strategy has natural application for the needs of a transmission capabilities will also be a
transfer-pricing regime while offering a proving ground for the algo- limiting factor. Internal risk manage-
rithmic system. ment and compliance requirements
Once an algorithmic trading solution has become established, sev- may dictate further restrictions on any
eral other uses become possible. Position-management strategies technology use, while the continuing
can offer improved control over a 24 hour market during off-peak improvements to automation in the
business hours. They reduce the manual effort needed to manage middle and back office will be placed
positions and respond to price movements and outages. More under further pressure to manage any
increase in the volume of trades.
As with any technology implementation, the As with any technology implementa-
challenges involved are significant
tion, the challenges involved are signifi-
cant,butthepotentialrewardsareeven
advanced analytics can support identification of complex arbitrage greater – and the risk of being left
opportunities and trending analysis. A more developed automated behind is becoming too dangerous to
solution can integrate with other internal tools and further drive ignore. Successful roll outs take time
downlatencytimes,allowingtraderstohitmarketpricesmorequick- and careful consideration, and need to
ly than their competitors – particularly for early adopters, as they be started early if competitive advan-
take the lead in the adoption of automated trading systems. tage is to be had. Energy markets are
However,solutionsalsoneedtoaddresstheparticularrestraintsand changing, and changing fast. Far better
limitations of energy markets and the physical commodities they to leading that change than to be left
trade. Controls on automated solutions will need to be thoroughly behind, fighting for survival •
tested when deal execution is included in their functions – either to
avoid sudden position changes or to reflect physical constraints. This
BenThacker,TheStructureGroup.
might take the form of more developed stop-loss logic, or even a flex-
The Structure Group is a management
ible‘down-time’toreviewforwardpositionsandscheduletomarkets.
consultancy specialising in the energy
In the case of arbitrage opportunities, such as between neighbour-
and finance sectors
www.thestructuregroup.co.uk
ing power or gas networks, the need to be aware of capacity and
a3
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