By Stanislav Ermilov, founder & CEO, Tallarium

The Q1 Financial Stability Board’s (FSB) deep dive into the commodities markets unearthed some stark findings. According to the report, it is becoming increasingly difficult to obtain data surrounding cross-border exposures in over the counter (OTC) markets – making it even harder to assess the build-up of concentrated trading positions. Information on the trading behaviour and funding needs of commodities traders is also limited according to the findings.

The question is, three months on from the report, has the industry done enough to address these longstanding data challenges? The answer is unequivocally no – there is still a huge amount of work for the industry to do if the FSB’s concerns are to be fully addressed. The issue is twofold. Firstly, opportunities for traders in one market may well be affected by what could be going on in adjacent markets. In order to get a view of the entire market, firms need to have long-term relationships with their brokers. Then there is the unpredictability of markets that has forced companies to manage commodity derivatives in completely new ways, with different processes across front office, risk, as well as operations. Consequently, this has created significant challenges in terms of how available information is effectively shared across the business.

One of the reasons as it why it is so hard for firms is partly because it takes so much time to gather all the relevant data. A typical commodities derivatives trader, for example, has to capture quotes from various brokers asking for bid/offer prices on a specific contract, and then manually enter this information into an excel spreadsheet. But how can a trader possibly hope to get an accurate view of the market by adopting such a manual approach? Given the fast-paced nature of commodities trading, by the time all the bid/offer prices are gathered, and a view of the market is obtained, the wider market is likely to have moved.

As a case in point, towards the end of Q4 last year, Russia’s deputy prime minister Alexander Novak caused oil prices to jump unexpectedly after he warned that Moscow could cut production by up to 7%, or 700,000 barrels per day. Now imagine trying to key in new numbers into over 240 different excel cells off the back of this unforeseen event?  According to our data aggregation platform, it can take traders up to two hours to gather and keep up to date all the bid/offer prices from their commodity brokers.

Firms need to consider ways of to get this time back while ensuring they have an aggregate view of objective data points from across the commodities market. This involves getting a full view of where all of the different market participants think the market is in real-time, as opposed to the view of a few select brokers. The FSB study has put a greater emphasis on the ability to manage data much more efficiently through accurately assessing where the market is at. But with market uncertainty unlikely to disappear any time soon, it is paramount that firms evolve their data approach in the weeks and months ahead to drive much needed efficiencies.