www.ccro.org
8
No elaboration
Organizations have limited resources (time, money, people, attention, etc.). It's better to focus organizational resources (assembling a specialized group with commodity business
knowledge) toward front and middle office roles.
It depends on the set up of the organization. i.e. the specialized knowledge could sit within middle office. If thats the case than BO can just be processing the invoices.
Typically, the dispute resolution is done within the confirmations team. So it depends on what functions that the "back office" is performing. Some of the descriptors, such as CTRM
knowledge, dispute resolution are done in collaboration with the middle or front office. If you are talking about the settlement function, then I do not believe that this is a general skill that
can be learned by an enterprise group. If you are speaking to disputing invoices, I would hope the "back office" is collaborating with the front/middle office to resolve any issues.
A highly functional back office with specialized skills tailored to trading is a great value for a commodity trading organization. Likewise, a dysfunctional Backoffice can be an extreme drag
on the organization.
Always has been specialized, and should continue to be so.
Back Office function is part of my risk organization and plays a role of last line of defense for the trading activity as well as the bridge to the corporate finance area. Function is essential in
mitigation of liquidity, transactional and operational risks and therefore requires an understanding of respective commodity markets, lifecycle of a trade, ability to build relationships with
their internal and external counterparts at the minimum.
Back Office is too generic a title. I look forward to the day we eliminate this throw away catch all. The back office consists of commodity settlements, AR/AP, and financial statement or
account settlement.
Each, in itself should have a check and balance from the other within back office so that funds are not diverted, errors are caught, and there is SoX integrity to financial reporting.
It is good practice to have a commodity settlements team that implements shadow settlements for flash reporting, engages in dispute resolution by identifying discrepancies, and
reconciles invoices to both the ETRM system and accounting system if not integrated.
If this is done with specialists, than the AR/AP and Financial Reporting team can be more generic. Maybe should be since the settlements accountants are not experts in these areas.
However, over the past decade and more so in past five years, a lot of these activities are getting automated through robotics and straight through processing.
CTRM systemes allow for les automation and efficiencies while processing invoices, billings and documentation, therefore requiring more people around manual processing.
For certain cases, industry knowledge is required while settling positions.
Energy/commodities trading requires knowledge and expertise on the specific commodity that is being traded. The back office function in an energy trading back office entity needs to have
that specialized knowledge so that it can perform its duties (monitor, oversight etc) fully.
I have seen Back Office structured under both options as a former Head of Back Office and Accounting of a trading organization I definitely see the Back Office as a department which
required different skills ,its own KPIs and metrics and, most of all, being able to operate in a proactive manner rather than just processing invoices. The role of the Back office team I was
leading included (i) contract and confirmations, (ii) invoicing process, and (iii) settlement this can be effectively managed if such team is close to operations and risk departments.
In our organization (trading) Back Office has always been part of the Risk Control organization next to Middle Office. They are viewed as a control function as much as settlement one. With
growing complexity of activities the commodity contracts expertise and ability to talk to front office are key in successfully managing trading operations.
In our Trading Business Unit, Back Office operations are distinct from the Finance function. This differentiation stems from evolving market dynamics and the transition towards renewable
energy, which have fundamentally reshaped our industry landscape in recent years. The skill set and expertise demanded for roles within Back Office functions in trading organizations
now necessitate specialized knowledge in commodity trading, specific technical proficiencies, and adeptness in navigating complex settlement cycles.
No elaboration
P&L validation, trade entry validation, margin management, and cash settlements sit in different Groups by company (mid vs back office, typically). Margin management and cash
settlements (actually moving the cash) can be centralized. The rest requires specific contract, product, and market knowledge to do correctly.
Risk Back Office team need to understand Mark to Market Accounting, Settlement of complex derivative instruments, credit exposures on bilateral trades, understanding of ETRM systems
and settlement systems and the information flow from risk systems to finance/accounting teams
Shadow settlements are an area of increasing focus. Many firms are looking at vendor software solutions to provide this service. This has multiple issues: 1.) shadow settlements are
partially a regulatory issue as ISO/RTOs can frequently change their accounting codes and definitions in their protocols, making this a standard accounting function can miss changes and
2.) software vendors may not have the staff, knowledge, or update schedule to manage these changes and 3.) if vendor does make changes, is accounting the appropriate organizational
group to manage rapid changes. Most accounting changes are long lead time from GAAP or IFRS standards groups that can be managed with long lead times. Shadow settlements are a
much different issue.
The Back Office function for a commodity trading organization has to have an understanding of how specialized transactions, such as swaps, options, EFRPs, and index related
transactions operate and settle or if a margin call is appropriate. You do not want the finance function to blindly pay whatever amount is suggested to them by the Front Office. Accounting
for commodity related inventory is also a specialty that can involve both quality and quantity adjustments, as well as frequent price adjustments. any accountants and can operate within
commodity organizations, but they need to be trained to do so. It is not a role that you desire to have subject to heavy turnover or quick rotations.
The complex and diverse nature of the physical contracts are a key dimension that call for a specialized group with commodity knowledge. The name back office is probably unsuited as it
leads uninformed people to believe the function can be performed by generic accounting type groups.
The complexity of commodity settlements demands different skill sets and staffing level than run of the mill AP/AR processing.
There are a number of market-specific accounting, billing, and operational-related rules that require subject matter expertise not typically found with an accounting generalist. Without
experience in market /trading front /middle offices it would be easy to miss /misunderstand this specialized control environment.
There is no control on the losses incurred due to poor knowledge of business and payment of invoices. Often times, back office is unaware of the negotiations and all the costs associated
against it. In addition to creating shadow invoices, common ETRM's should be linked to avoid between companies to create transparency (e. Netting agreements)
Trading "back office" is a very heterogeneous term. It is critical to understand where each member places settlements, gas scheduling, accounting, etc. to get true cost clarity
Verifying counterparty invoice against shadow invoice is one of the most important controls allowing to assess the health of CTRM system in terms of deal entry accuracy, actual volumes,
prices, tariff rates and settlement process. It is difficult to imagine that generic accounting function can perform this task efficiently and follow up with the disputes, which might require
providing alternative calculations.
With more structured and complex commodity products, a generic accounting function usually has trouble understanding and analyzing the components of how market/ISO settlements
work.
Generic
It Depends
Specialized
How should we think about the best practice Back Office function in terms of staffing and performance?
All Responses
8
No elaboration
Organizations have limited resources (time, money, people, attention, etc.). It's better to focus organizational resources (assembling a specialized group with commodity business
knowledge) toward front and middle office roles.
It depends on the set up of the organization. i.e. the specialized knowledge could sit within middle office. If thats the case than BO can just be processing the invoices.
Typically, the dispute resolution is done within the confirmations team. So it depends on what functions that the "back office" is performing. Some of the descriptors, such as CTRM
knowledge, dispute resolution are done in collaboration with the middle or front office. If you are talking about the settlement function, then I do not believe that this is a general skill that
can be learned by an enterprise group. If you are speaking to disputing invoices, I would hope the "back office" is collaborating with the front/middle office to resolve any issues.
A highly functional back office with specialized skills tailored to trading is a great value for a commodity trading organization. Likewise, a dysfunctional Backoffice can be an extreme drag
on the organization.
Always has been specialized, and should continue to be so.
Back Office function is part of my risk organization and plays a role of last line of defense for the trading activity as well as the bridge to the corporate finance area. Function is essential in
mitigation of liquidity, transactional and operational risks and therefore requires an understanding of respective commodity markets, lifecycle of a trade, ability to build relationships with
their internal and external counterparts at the minimum.
Back Office is too generic a title. I look forward to the day we eliminate this throw away catch all. The back office consists of commodity settlements, AR/AP, and financial statement or
account settlement.
Each, in itself should have a check and balance from the other within back office so that funds are not diverted, errors are caught, and there is SoX integrity to financial reporting.
It is good practice to have a commodity settlements team that implements shadow settlements for flash reporting, engages in dispute resolution by identifying discrepancies, and
reconciles invoices to both the ETRM system and accounting system if not integrated.
If this is done with specialists, than the AR/AP and Financial Reporting team can be more generic. Maybe should be since the settlements accountants are not experts in these areas.
However, over the past decade and more so in past five years, a lot of these activities are getting automated through robotics and straight through processing.
CTRM systemes allow for les automation and efficiencies while processing invoices, billings and documentation, therefore requiring more people around manual processing.
For certain cases, industry knowledge is required while settling positions.
Energy/commodities trading requires knowledge and expertise on the specific commodity that is being traded. The back office function in an energy trading back office entity needs to have
that specialized knowledge so that it can perform its duties (monitor, oversight etc) fully.
I have seen Back Office structured under both options as a former Head of Back Office and Accounting of a trading organization I definitely see the Back Office as a department which
required different skills ,its own KPIs and metrics and, most of all, being able to operate in a proactive manner rather than just processing invoices. The role of the Back office team I was
leading included (i) contract and confirmations, (ii) invoicing process, and (iii) settlement this can be effectively managed if such team is close to operations and risk departments.
In our organization (trading) Back Office has always been part of the Risk Control organization next to Middle Office. They are viewed as a control function as much as settlement one. With
growing complexity of activities the commodity contracts expertise and ability to talk to front office are key in successfully managing trading operations.
In our Trading Business Unit, Back Office operations are distinct from the Finance function. This differentiation stems from evolving market dynamics and the transition towards renewable
energy, which have fundamentally reshaped our industry landscape in recent years. The skill set and expertise demanded for roles within Back Office functions in trading organizations
now necessitate specialized knowledge in commodity trading, specific technical proficiencies, and adeptness in navigating complex settlement cycles.
No elaboration
P&L validation, trade entry validation, margin management, and cash settlements sit in different Groups by company (mid vs back office, typically). Margin management and cash
settlements (actually moving the cash) can be centralized. The rest requires specific contract, product, and market knowledge to do correctly.
Risk Back Office team need to understand Mark to Market Accounting, Settlement of complex derivative instruments, credit exposures on bilateral trades, understanding of ETRM systems
and settlement systems and the information flow from risk systems to finance/accounting teams
Shadow settlements are an area of increasing focus. Many firms are looking at vendor software solutions to provide this service. This has multiple issues: 1.) shadow settlements are
partially a regulatory issue as ISO/RTOs can frequently change their accounting codes and definitions in their protocols, making this a standard accounting function can miss changes and
2.) software vendors may not have the staff, knowledge, or update schedule to manage these changes and 3.) if vendor does make changes, is accounting the appropriate organizational
group to manage rapid changes. Most accounting changes are long lead time from GAAP or IFRS standards groups that can be managed with long lead times. Shadow settlements are a
much different issue.
The Back Office function for a commodity trading organization has to have an understanding of how specialized transactions, such as swaps, options, EFRPs, and index related
transactions operate and settle or if a margin call is appropriate. You do not want the finance function to blindly pay whatever amount is suggested to them by the Front Office. Accounting
for commodity related inventory is also a specialty that can involve both quality and quantity adjustments, as well as frequent price adjustments. any accountants and can operate within
commodity organizations, but they need to be trained to do so. It is not a role that you desire to have subject to heavy turnover or quick rotations.
The complex and diverse nature of the physical contracts are a key dimension that call for a specialized group with commodity knowledge. The name back office is probably unsuited as it
leads uninformed people to believe the function can be performed by generic accounting type groups.
The complexity of commodity settlements demands different skill sets and staffing level than run of the mill AP/AR processing.
There are a number of market-specific accounting, billing, and operational-related rules that require subject matter expertise not typically found with an accounting generalist. Without
experience in market /trading front /middle offices it would be easy to miss /misunderstand this specialized control environment.
There is no control on the losses incurred due to poor knowledge of business and payment of invoices. Often times, back office is unaware of the negotiations and all the costs associated
against it. In addition to creating shadow invoices, common ETRM's should be linked to avoid between companies to create transparency (e. Netting agreements)
Trading "back office" is a very heterogeneous term. It is critical to understand where each member places settlements, gas scheduling, accounting, etc. to get true cost clarity
Verifying counterparty invoice against shadow invoice is one of the most important controls allowing to assess the health of CTRM system in terms of deal entry accuracy, actual volumes,
prices, tariff rates and settlement process. It is difficult to imagine that generic accounting function can perform this task efficiently and follow up with the disputes, which might require
providing alternative calculations.
With more structured and complex commodity products, a generic accounting function usually has trouble understanding and analyzing the components of how market/ISO settlements
work.
Generic
It Depends
Specialized
How should we think about the best practice Back Office function in terms of staffing and performance?
All Responses
