– Deloitte Trade Surveillance Academy Discussion October 2014

John Doran
Director, Global Trade Monitoring & Surveillance
John.L.Doran@conocophillips.com
Trade Surveillance – Deloitte
Academy Discussion October 2014
Disclaimer
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
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2
Agenda Topics
Motivation for Program
Trade Monitoring / Surveillance Environment (Challenges)
Trade Monitoring & Surveillance – Core Capabilities
Trade Surveillance Process Flow & Output
Proven Method for seeing the “Big Picture”
Additional Program Considerations
Conclusion
3
Today’s Regulatory / Enforcement Environment
Commodity Futures
Trading Commission
Increased Funding
Proactive Nature
Improved Technology
Federal Energy
Regulatory Commission
Increased Penalties
Expanded Access to Data
“We have no tolerance for infractions”
Matthew Hunter, Deputy Directory Surveillance Branch, Division of Market Oversight at CFTC
4
Trade Monitoring Environment (Challenges)
Review / Report
Trade Monitoring &
Analysis
Region 1
Exchanges
ICE (US,EUR,CAD)
CME/NYMEX
Nodal Exchange
Trayport Platform
Region 2
Deal Capture
System of Record
Trades Systems
Region 3
External Market
LIM (curves)
ICE EOD NG/Power
Ad-Hoc
Structured for
Analysis
Other / Misc
Global PnL
EIA – Fundamentals
BENTEK - Fundamentals
Data Acquisition
5
Trade Monitoring Environment (Challenges)
• Multiple Source Systems / Various Formats
• Multiple geographies and commodities
• Alignment for Analysis – External + Internal
• Determine the right mix of Scans
 Pricing, Volumetric, etc.
 Mitigate False Positives.
 Subscribe to the “Big Picture” POV
• Communications / Interaction with the Trade Floor
 Trusted Advisor
 New Sherriff in Town
• Three Key factors associated with Success
 Flexibility
 Flexibility
 Flexibility
6
Capabilities vs. Effectiveness Matrix
Respond to External
Catalysts
Program Capabilities
Historical Event Review
Layering in Fundamentals
Comparative Market
Analysis
Review
System of Record
Transactions
Program Effectiveness
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Understanding the output produced from Trade Surveillance
Report
Objective
A process that is
designed to look
through multiple trade
transactions for
particular
characteristics / trade
behaviors.
Generally has multiple
parameters that can be
modified to filter
results.
Trade
Information
Discrete Event
An individual item
surfaced from a
report.
Avoid labeling these
events as anomalies.
Recommended
Label: Discrete Event
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Characteristics of a Discrete Event
Discrete Event
Know when it occurred – Date/Time
Know the name of Product
Know the deal Terms
Know the deal Location
Know the deal Trader
Know the deal Geo-Code
Other calculated detail
9
Capabilities vs. Effectiveness Matrix
Respond to External
Catalysts
Program Capabilities
Historical Event Review
Layering in Fundamentals
Comparative Market
Analysis
Review
System of Record
Transactions
Program Effectiveness
10
Successful Trade Monitoring & Surveillance – Core Capabilities
I. Identify Events within System of Record Transactions
 BS Review
 Block Transactions Validation (min size, documentation)
 Exchange Limit Review
 Authority Limits (Internal Control)
Example
GRP
DATE
PRODUCT
HUBS STRIP
Price Char Bs Rev Tier Trader - BS Rev
Recs TOTAL_VOLUME Daily
Total Daily Vol Buy Total Daily Vol Sell Daily Duration Btw n BS Rev Ratio
A
4-Feb-14 NG LD1 Futures Henry 14-Mar
4.915 Tier 3
Trader 1
6
17,500
2,500
15,000
135
0.17
B
25-Feb-14 NG LD1 Futures Henry 14-Mar
4.846 Tier 3
Trader 1 / Trader 2
2
10,000
5,000
5,000
205
1
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Successful Trade Monitoring & Surveillance – Core Capabilities
II.
Identify Events within System of Rec Txns + Market Proxy

Understand how your trade behavior compares to the market

Gain understanding of trade execution sequence.

Compare volumetric footprint to the market (Percent of Market)

Compare price action to the market
Example
Grp DATE
PRODUCT
HUBS
A
15-Mar-14 NG Firm Phys, FP HUB100
STRIP
Next Day Gas
Vol
QTY_Daily Mkt Conc Recs TOTAL_VOLUME
72,000
72,000
0.4826
27
149,200
ACME Trading
Market
Ref: ICE EOD Trade Info
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Successful Trade Monitoring & Surveillance – Core Capabilities
III. Respond to External Catalysts

Trade Behavior Analysis – driven by external events / news

Polar Vortex

Price Spike / Pipeline Issue

Show Cause Order
What is our Profile?
What was the weather?
Where there any Supply Constraints?
Key Capabilities
Comparative Market Analysis
Fundamental Data Availability
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Historic Discrete Event Review Capability – “big picture”
Time
BS Review
Percent Mkt
Price Diff
Price Range
Day1
1
2
1
4
Day2
1
2
Day3
Day4
1
4
1
3
5
Day5
5
7
2
Day6
3
9
3
Day7
1
Day8
Day9
2
Day10
1
2
1
2
Day11
Day13
2
3
4
Day14
2
4
2
6
3
Day15
1
Day16
2
2
Day17
2
6
Day18
6
10
3
Day19
1
1
Day20
3
1
51
39
Total
3
2
Day12
21
Know when it occurred – Date
2
3
1
Discrete Event
2
Know the name of Product
Know the deal Terms
Know the deal Location
2
2
Know the Event Name
33
14
Historic Discrete Event Review Capability – “big picture”
Concentration of events within a given region and timeframe
may be good candidate for additional review
15
Historic Discrete Event Review Capability – “big picture”
Understand what is behind elevated events on specific days
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Additional Considerations for Trade Monitoring Program
Leverage Strong Analysts that understand the business

Strong Communication Skills

Curious

Open-Minded
Build vs. Buy Software
 Does one-size fit all model exist ?
 Focus on Core Risks and Flexibility
 Be careful about introducing unnecessary procedures - workflow
Stay tuned into what is happening within the market
 Stay abreast of current cases in the news
 Watch out for the small stuff
 Block Size minimums
 Broker Classification Confirms
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