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Jigsaw Puzzle Model for a CTRM Solution
This page introduces a model of a CTRM based on a jigsaw puzzle metaphor.
This model, in this case meaning a visual representation for the way things work, has some benefits in terms of facilitating communication. We’ll use the language of this metaphor to make some important points below.
One key point to make right now, which we’ll repeat and elaborate on below:
To succeed, a CTRM solution just needs to cover the ‘core’ areas that a firm needs as part of their overall technology solution. It doesn’t need to do ‘everything’. Why is that? Because that is the current model for existing vendor-supplied CTRM solutions, at least at the larger firms using CTRM.
Have a look at each diagram and then read the text that follows for commentary.
Typical CTRM System Coverage for One Firm – Legacy World
1.1) The idea here is that the entirety of the diagram, the full length and width, is what a firm needs for a software/technology solution to go live, i.e., to have a working commodities trading solution at their firm. We’ll call this the ‘overall solution landscape’.
1.2) With the overall solution landscape, we have different bits of functionality. You could call these ‘components’ in a non-technical sense of the word. We have modeled these as pieces in a jigsaw puzzle.
1.3) It should be understood that the modeling is somewhat conceptual. The above diagram suggest that each piece of the puzzle in the overall system landscape is something you can swap in and out for another similar piece. i.e., ‘plug and play’.
1.4) While it can be tempting to read the labels of each of the pieces and start to form conclusions, we’ll note that the labels, e.g., ‘PnL Explained’ are just examples. The specific features will vary from one firm to another. So we called this a ‘Typical’ example of system coverage for one firm.
1.5) A key point that this diagram makes is with the center pieces. Labeled ‘Type 1’ above. These are the things, or meant to represent the things, that CTRM systems do well. These are also the most common functionality and also that means the most commoditized, ‘least value add’ functionality. For example, this could be modeling a financial commodity swap. Pretty much every system is going to model these in a similar way, since all of the firms are trading the same thing with one another.
1.6) The ‘Type 2’ items are features that are nominally supported by the vendor CTRM system, but that it does not do them well. The ‘PnL Explained’ piece above is shown as an example of this. This is intended to be a typical example that covers an average firm (system user) and average vendor. For another firm, they might find that the PnL Explained offering from the CTRM system works great for them.
As an example, Microsoft Windows comes with a program called ‘Paint’ (or ‘MSPaint’). It works fine for light graphical editing and it’s free (included). However, it is no match for a paid professional graphics software package.
With the current typical landscape, firms can’t easy swap out, for example, the CTRM vendor’s ‘ok’ PnL Explained for an alternate. Though for most big CTRM systems, firms can invest in extensive customization of the out-of-the-box version or even build their own tightly integrated version. The problem here is, that if you have 10 firms, they all might build out their own PnL Explained (or data warehouse, etc.) solution so it gets somewhat inefficient.
With the new model/paradigm for NewCTRM, we not only want to make it easy to ‘plug and play’… we want to support an encourage an ecosystem around the core NewCTRM solution where firms can build out new ‘pieces’ and sell/license them. If we build out the core parts, i.e., the common parts, the ‘least value add’ parts… we think the market (i.e., entrepreneurial firms) will offer competitive solutions to fill out the rest of the pieces. That is something that is actively discouraged now by legacy CTRM vendors.
1.7) The ‘Type 3’ puzzle pieces in the diagram above represent features that a legacy CTRM vendor doesn’t support, doesn’t have. Remember though, we agreed a firm would need the entirety of the puzzle to go live on commodities trading. So if a CTRM vendor doesn’t have it, then in the current world, firms would need to build it out from scratch. E.g., a data warehouse (or ‘datamart’) is a good example of that. We can assume that it is either firms themselves or a system integrator (consultants) that build out the missing pieces.
Typical CTRM System Coverage for One Firm – Legacy World – High Level/Summarized
2.1) This is meant to show the same concept as from ‘Diagram 1’. The difference here is that the pieces are grouped together based on whether they are being met by:
2.1.1) The legacy CTRM vendor. These are the pieces in the middle, noted as ‘Type 1’. This is the core functionality that pretty much works the same for all vendors and clients.
2.1.2) Being built out by either a firm using the CTRM or the System Integrator working for that client.
CTRM System Coverage for One Firm – Future State – With NewCTRM Replacing Core
3.1) This is meant to show the future state with the new ‘NewCTRM’ replacing the core pieces. This is a good idea, since we already established that this part if the most common, meaning most commoditized functionality and the least value add. This can’t be a source of competitive advantage, since firms are already sharing the same solution for this in the current world, i.e., from a common CTRM Vendor.
3.2) This shows that a CTRM solution doesn’t need to do ‘everything’. It can succeed and excel just by doing the core/common features and it can be an improvement by being more open and standardized.
3.3) You might call the above diagram ‘Phase 1’ for NewCTRM. This diagram is assuming that it basically still the same amount of work to implement a NewCTRM as a traditional vendor-supplied CTRM, meaning just as much custom buildout. However, it won’t need to be that hard. The market will be open for enterprising firms to build instantly compatible ‘pieces’ of the puzzle. E.g., a best of breed interface from ICE (for futures trades into the CTRM system) or a super-functional PnL Explained reporting solution. With the ‘Phase 2’ model, the core CTRM could be thought of like ‘the App Store’ or a platform like Windows, where there can be an ecosystem of competing products and services that supplement the core NewCTRM. This ‘Phase 2’ approach and benefits will be discussed in a future blog post.
CTRM System Coverage for One Firm – Legacy and Future State Side by Side
4.1) This is just one more diagram, intended to summarize things for you.
Introduction to CTRM
Click on this link for a great introduction to CTRM software: Introduction to CTRM Software