The Venezuelan PARADOXS of the so called “Socialism of the 21st century”.

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Newsletter Sept 2016. N°1
Richard Watts
Alexandre Gaillard
Sophie Langlois
Xavier Perea
In brief
Erik Norland

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GENCOM Geneva 2016
Newsletter N°1. 09/2016
Publisher, Advertisement,
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Gencom Geneva
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GENCOM Geneva.
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Table of contents
Editor: Xavier Perea.
Oil & Geopolitical Risk: Erik Norland.
Opinion: Richard Watts.
XaviPerea
CTRM in 2016: Ludwig Clement.
Interview: Alexandre Gaillard.
Settlement cycle: Charles Moore.
Trade reporting: Sophie Langlois.
Venezuela: Luis Colasante.
Symbology: Richard Robinson
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6-7-8
4-5
9
10
21
11
12-13
14
15-18
.
Sustainability: Jose Balmon
15
19&20
Gencom in brief

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Xavier Perea spent over 25 years in the financial industry. Specialised in Stock Exchange
trades, post execution processes, settlements, process optimisations, negotiations with
Custodians and IT providers, he is also strongly focussing in process re-organisations,
technology and regulatory changes with significant impacts on day to day operations.
Xavier Perea worked previously at Meeschaert Rousselle and Baring Securities France, two
brokers specialised in Bonds and Equities in Paris. He then joined Instinet, the first
electronic Broker, based in Paris and London. He also worked at Deutsche Bank Geneva
PWM as head of Settlements and Franco department. He is now President of GENCOM.
Dear Colleagues,
This newsletter, published in September 2016 and our first, is an opportunity for us to proudly announce the creation of GENCOM in
September, an International not-for-profit Association focused on the fields of Commodity Trading, Banking and Finance. It is the
product of much labour by professionals with a passion for these sectors, which are fundamental not only to the Swiss economy but
also to the European economy as a whole owing to both the highly international nature of the businesses whose everyday work
contributes to the development of the sector and the economic clout of the trade and finance sectors.
Geographically, Geneva is located at the heart of Europe and is home to over 100 local and international banks, 35% of global
commerce, over 500 trading companies, an incredible synergy between the two worlds, high levels of FinTech activity, high-end
operational expertise combined with an extremely talented workforce and stunning entrepreneurial vitality. For these reasons,
Geneva is the only location for GENCOM to be established.
For those who experienced the prosperous period between 1990 and the mid-2000s with the market flush with cash, easy (extremely
competitive but easy to come by) business, global information technology projects (Euro, Y2K) and extreme price variations for
agricultural and energy commodities, since 2008 the context has been one of crisis and has forced the aforementioned sectors to
undergo dramatic and fundamental changes while facing a number of challenges: rising levels of digitalisation, the rebuilding of entire
sections of the commodities sector, the increasing impact of regulation (which is also becoming internationalised, including at a local
level with FACTA and MiFID), volatile and unpredictable markets, mergers of stock exchanges (which are becoming globalised and
fewer in number), players being merged or lost (leading to only a few, enormous international players being left), the rarefaction of
the upper-middle classes and the resulting reduction in sources of income. The list is long and would cause a terrible headache for
anyone looking for an analysis of the short-term catastrophe without taking into consideration the full scale of the issue.
The world is changing,
So, should we give up? Should we stop drilling? Should we put an end to trading, financial products and insurance? Should we drop
anchor in the harbour and wait for someone to come up with an idea to take us forward while we remain motionless? Fortunately,
the answer is no. The world is changing, and that's for the best.
Every new development allows new standards to be introduced, new jobs to be created, shoddy practices to be improved, new
products to be proposed to clients and new business models to emerge. All-round awareness is on the rise. People are more
specialised and better-trained. Environmental awareness is gaining prevalence, including in the context of potential investment
products and the manner in which trade is conducted. (Sustainability?)
The problem, then, is how to survive a crisis in its adolescence which is fitful yet continuous, how to overcome the creaking joints of
society and the economy and how to get to grips with a changing world without mourning what it was before. This is the GENCOM
way: we assist our members by offering them space for reflection, discussions, networking and events so that they understand and
are able to better manage the crucial changes to come. We harness the technological and regulatory evolution which will influence
the processes and tasks of tomorrow. We anticipate so that they don't suffer.
With an editorial, op-ed pieces, world news and interviews, in this first newsletter we discuss trade reporting, technology, shipping,
market lifespans, CTRM, new products, symbology and durability. In short, it's about what we do on a daily basis.
So, it is with great pleasure that the whole Gencom team ( Francois-Philippe Pic, Richard Watts, Jean-Yves Tilin) wishes you a warm
welcome and happy reading.
Xavier.perea@gencom-geneva.com
Editor: Xavier Perea

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Identity Crisis for Trading Companies?
The world of International Trade has changed enormously over the last decade, from a fast paced sexy industry to a carefully controlled logistics
operation. Given this change, it is a good time to understand the point of a trading company and if they are still needed in this ever changing
environment. While this article focuses on companies in Geneva, the arguments are just as valid for any trading hub worldwide.
Past situation (leading up to 2010ish) -
The traditional view of International Commodity Trading is to have a shipper exporting the goods on FOB basis, a receiver importing the goods on
CIF basis and an International Trading Company in the middle. The origins of the modern trading company can be seen in the developments of
trade in the 1600s and in particular with the East India Company. However, the concept of a middle man facilitating the flow of goods has been
present for a lot longer. This is changing rapidly and we will explore the reasons why.
Trading has a wide range of benefits, if we focus purely on those for the exporters and importers. Trading companies are providing an export
market for goods to be exported, by nature the price obtained by exporters when selling to trading companies will be higher than the local market
price. Therefore exporters (and local producers) are benefiting from higher prices for their goods. Trading Companies are also supplying goods for
import at lower prices than those available on the destination market. Therefore importers and (local consumers) are benefiting from lower prices
at which they purchase goods. In terms of importing and exporting countries, it is difficult to dispute the benefits created. However, it is clear that
this model does not require an independent trading company to function as the exporters or importers can go to the origin or destination
themselves.
For the sake of this article, we will focus on the rice trade with an exporter in Thailand and an importer in Ghana. The reasoning applies to the
majority of other commodities and trading patterns. There are several good reasons for the need to have an International Trading Company which
can be outlined as follows:
First of all, Communication. It was traditionally difficult for exporters in Thailand to market their goods to the importers in Ghana due to problems
with communications. Furthermore, it was always difficult for the Ghanaian importer to know when there were fluctuations in the international
market for Rice.
Second, Contacts. Due to the lack of easy communication and travel, it was always rather difficult for either the Thai or Ghanaian rice
importers/exporters to establish and maintain close contacts with each other.
Third, Reputation. A founding principle of International Trade is the level of trust between counterparties. This is a trust that the other will perform
their contract and also in case of dispute it will be worth taking the claim to arbitration. It previously seemed very daunting for a Ghanaian importer
to try to take a Thai exporter to arbitration in one of the global centres such as London.
Fourth, Financing. It is rather difficult to put together the financing for a full cargo of rice. This problem is only compounded when the value of the
commodity in question increases. On the Thai side, it would have been difficult to obtain bank financing to carry the cargo to Ghana and possibly
offer a month’s credit to the buyer. On the Ghanaian side, it would have been difficult to obtain financing enabling them to purchase the cargo on
FOB basis and transport it to Ghana for sale in their market.
Fifth, Technical knowledge. International Trade and the corresponding shipping element are extremely technical and to avoid risking large amounts
of money it is necessary to fully understand the terms involved and to be properly protected against any risks
Sixth, Insurance. As the majority of cargo traded is covered in the main insurance centres in London and Europe, it was more difficult for the Thai
or Ghanaian companies to obtain competitive insurance as required for this type of trade.
Finally, Chartering, it is very difficult for a first time Ghanaian charterer to charter their first ever ship. There are numerous barriers from
understanding the Charterparty terms to ensuring a shipowner is willing to transact with you.
Change – Before looking at the current relevance of these changes, it is important to consider how the Trading environment is changing: We are
presently seeing 3 fundamental shifts in the world of International Trade.
Firstly, the size and function of traditional trading companies are changing. Large trading companies are becoming larger and larger to benefit
from increased efficiencies and protect against losses in specific commodities while more and more small trading companies are finding and
exploiting niche markets to their profit.
Richard is experienced in all areas of shipping, trading, insurance, finance and legal
matters. Richard started his career working in rice, and spent 7 years handling a wide
range of work from cargo operations, to shipping operations, to chartering to laytime to
Letters of Credit, insurance and legal files. In 2008 Richard created HR Maritime, based in
Geneva, offering a range of technical consulting and outsourcing services to Trading
Companies, Shipowners, Banks, Insurance Companies and the industry in general.
Richard also gives a broad range of training courses from participating in established
programs to specific bespoke training on request. He is one of the GENCOM’s founders
and a board member of GENCOM.
Opinion: Richard Watts

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This has left medium size trading companies in an uncomfortable position. Their markets are becoming less lucrative and due to the recent squeeze
on credit, their bankers are becoming less willing to finance their trades. In many commodities, we have seen a reduction in the number of Medium
Size Trading Companies.
Secondly, as an extension of the changes in size of company, we are seeing large Trading Companies becoming increasingly vertically integrated.
They are no longer buying FOB and selling CIF but are entering into the territory of their suppliers and receivers. While on one side this can increase
their control of the value chain and make them less reliant on counterparties, it can also create a greater exposure in the event of a price drop for
a specific commodity. Not only would the Trading Company be hit in their trading business but also in their production and distribution.
Thirdly, we are seeing traditional exporters and importers moving into the space previously reserved for Trading Companies. If we go back to our
example of our Thai exporter and Ghanaian importer, if they were able to overcome the obstacles which have created the present situation, they
could be in an ideal situation to exploit their own markets themselves.
Present Situation:
Therefore, looking at trade from the point of view of the Thai exporter and Ghanaian importer, we can see the development regarding the
previously mentioned obstacles. A number of the problems have vanished overnight and a few will correct themselves naturally over the next few
years:
Communication and Contacts; With the advent of mobile phones, it is now possible for the Ghanaian importer to pick up his phone and call the
Thai exporter or to check what level the Baltic Exchange is currently at. This allows quick and easy communication between the parties and reduces
considerably the reason for needing a go-between.
Reputation; This may be the hardest to solve in the short run but the easiest to manage in the long run. It is notoriously difficult for a first time
charterer to charter his very first vessel. There are often calls for bank guarantees, advance payment and other attempts to secure payment of
freight. However, it must be noted that all charterers were at one point “first time charterers” and have since managed to charter future ships.
Furthermore, the idea of taking a case of arbitration in London is no longer a deterrent for Thai or Ghanaian companies as we can see from many
recent arbitrations.
Financing and Insurance; with the current state of European banks, some of the Asian and African banks are becoming more attractive and possibly
more secure for International Trade. However, this remains an issue and one of the strengths of Geneva based Trading Companies. Insurance has
long ceased to be a problem with International Insurance Brokers actively seeking clients in importing and exporting countries.
This leaves us with Technical Knowledge; as we have seen in many areas of business, where this is the only issue missing, it is usually very quickly
located and imported. There are a large number of skilled consultants and lawyers willing to assist clients in drafting their standard contract terms,
standard chartering terms and preparing the required procedures. There will be a gradual transfer of knowledge from the consultants and lawyers
towards the local people who will learn very quickly.
Future situation
We already have a number of multinationals coming from less-developed countries and given these arguments, it is quite likely that we will be
seeing more and more developing world companies emerging onto the international scene. Leaving the world of Rice Trading, we can see some
excellent examples in the Oil Trade. One of the most obvious and inspiring examples is SOCAR (State Oil Company of the Azerbaijan Republic).
SOCAR was for many years involved in the exportation of Azerbaijan oil on FOB basis and developing oil fields. In 2007, SOCAR established an office
in Geneva in order to enter into the International Trade and promote the CIF sales of their product. This swiftly progressed to trading third party
oil on the open market. In 2012, SOCAR took over the network of Esso petrol stations in Switzerland effectively moving from FOB exporter, to CIF
seller, to Independent Trader to local distributer.
We should expect to see more and more similar examples from Asia to Africa to South America.
Future role of traders
This leaves the obvious question for anyone from the trading world. “Is this the end of trading companies?” The simple answer is no. The more
complicated answer is that trading companies will continue to be in a position for a long time to come to facilitate trades that would not be possible
directly. It should also be recognised that trading companies will have to alter their business model in order to adapt to this new environment and
a large part of this will be vertical integration and developing services. A number of trading companies are using their expertise in finance and their
relatively low cost of borrowing to provide credit for counterparties, this remains a very attractive area where Swiss-Based Trading Companies
can still contribute a lot to markets.
It is impossible to know for the moment where these trends will lead but the arguments certainly leads one to believe that we should expect to
see more Thai exporters selling CIF and more Ghanaian importers buying FOB. There are very few that would object to these countries profiting
more from the value chain, they are after all the very reason for the trade in the first place. Trading Companies will continue to do what they do
best. Evolve and supply the specific services that specific markets require at specific points in time. Those that do not evolve will have to move
aside. The future will certainly be interesting.

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Erik Norland is Executive Director and Senior Economist of CME Group. He is responsible for
generating economic analysis on global financial markets by identifying emerging trends,
evaluating economic factors and forecasting their impact on CME Group and the company’s
business strategy, and upon those who trade in its various markets. He is also one of CME
Group’s spokespeople on global economic, financial and geopolitical conditions.
Erik Norland holds a bachelor’s degree in economics and political science from St. Mary’s
College of Maryland and an M.A.in statistics from Columbia University. He is also a CFA
Charterholder. He gained more than 15 years of experience in the financial services industry
working both in the United States and in France where he served prior to CCME BEAM
Bayesian Efficient Asset Management LLC, EQA Partners and IXIS Corporate & Investment
Bank in Paris (now called Natixis).
Oil: Assessing Global Geopolitical Risks.
Erik Norland, Senior Economist & Executive Director. CME Group
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the authors and not necessarily
those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
Oil prices rebounded strongly in early August after OPEC announced that it would hold a meeting in September 2016 to discuss
the possibility of capping production. However, the rally came to a halt on August 19th, and prices have since begun dropping
again against a backdrop of still rising inventories and skepticism over OPEC’s ability and willingness to limit production.
The doubts are well founded. OPEC has rarely been effective in controlling its output, especially after 1986 when prices
collapsed. Currently, OPEC’s two biggest members, Saudi Arabia and Iran, don’t have diplomatic relations, and Saudi Arabia
probably doesn’t trust Iran (or Iraq and most other OPEC members) to cap production. If Saudi Arabia cuts production, it would
likely benefit Iran, Russia and frackers in the United States, which is not in Saudi interest. While the upcoming OPEC meeting
might not prove supportive for oil prices, what could impact prices and send them on a wild ride is: political risk. In the past,
even small disruptions in supply have created outsized moves in oil prices. Although high levels of inventories may buffer upside
risks, the greatest risks lie in producer-nations that have the smallest financial reserves relative to GDP (Figure 1).
For the most part, these are the smaller producers.
Figure 1:
Oil & Geopolitical Risk: Erik Norland

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Angola: 1.9% of world production. In power since 1979, 74-year-old President Jose Eduardo dos Santos has indicated that he
will run for another term in 2018 but may not serve out a full term. While he has made such statements in the past only to go
on serving as president, this potential leadership transition comes at a tumultuous time. Angola’s economy has contracted by
nearly 25% in the past two years. The government has slashed its budget by 20%, inflation has soared to over 30%, and the
Angolan currency has fallen by over a third against the dollar. Amid the turmoil, Angola’s currency reserve has fallen from nearly
$37 billion in 2013 to $23 billion as of May 2016. The country fought a 27-year-long civil war (1975-2002), and has the potential
for serious political instability in coming years that could impair oil production.
Iraq: 3.7% of world production. While Iraq never fully stabilized in the aftermath of the U.S. led invasion in 2003, its energy
production has grown substantially from 1.3 million barrels per day in 2003 to 4.1 million per day in 2015. Even so, Iraq is
negatively impacted by the collapse in oil prices since oil is the country’s only major source of revenue. The decline in oil prices
has meant severe budget cuts, compound the government’s difficulties. Prime Minister Haider al-Abadi not only faces
challenges from Islamic State but also has difficulties with elements of his own Shiite majority. In short, the world cannot count
on surging Iraqi oil production to keep prices low in the future.
Nigeria: 2.7% of world production. Since 1999, Nigeria has alternated the presidency between candidates from the largely
Muslim North and the Christian-majority South. While Nigeria did an excellent job with the presidential transition from
Goodluck Jonathan, a Christian, to Muhammadu Buhari, a Muslim, the new president’s administration is beset by problems,
many of them exacerbated by the collapse in oil revenues. Steep budget cuts threaten Buhari’s ability to deal with a range of
problems, including the Niger Delta Avengers militant group whose attacks have already impaired Nigeria’s oil production. The
potential for supply disruptions is elevated, especially given Nigeria’s long history of instability.
Venezuela: 3.0% of world production. Bolivarian socialism has been a disaster. Venezuela’s economy is imploding. President
Nicolas Maduro is rapidly losing support. Although Venezuela has enormous oil reserves, mismanagement of state oil company
PdVSA has left the country’s energy production stagnant. The collapse in oil prices has led to a sharp contraction in GDP, and
Venezuela has responded by printing money, rather than cut budgets, creating hyperinflation. The Maduro regime is unlikely to
last past 2019 when its term ends, but the question is what happens next? Venezuela has the potential for political instability
that could disrupt oil production. In contrast, the world’s biggest oil producers look more stable.
United States: 13% of world production. Lower prices in the U.S. are impacting supply, which has contracted by 12% from its
April 2015 peak. The main risk to supply stability could have to do with the financial health of oil and gas firms.
Saudi Arabia: 12.8% of world production. The country, which will probably become the world’s largest producer again in 2016,
has sizeable financial reserves valued at 178% of GDP, although slightly down from over 200% at the end of 2014.
While the country can’t continue burning through reserves at its current pace, it can raise additional funds through selling a
stake in state-run oil firm Aramco. The problem with this strategy is that Aramco’s valuation is very difficult to determine. Some
value the firm at up to $2.5 trillion (over 300% of Saudi Arabia’s GDP), but raising capital at other state-run oil firms have often
attracted low valuations from investors. In response to the lower price of oil, Saudi Arabia is cutting budgets and has introduced
an ambitious plan to transform the country’s economy, making it less oil dependent between now and 2030. Pulling this off
could be a challenge. The risks of near-term (pre-2020) instability seem fairly remote, although they cannot be ruled out
entirely. After 2020, the country risks running into more severe political and social difficulties if the price of oil doesn’t rebound.
As such, instability in the other oil-producing nations might actually benefit Saudi Arabia, if such instability leads to a sustained
rise in prices.

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Russia: 12% of world production. The world’s third largest producer also looks reasonably stable. Russia’s stability in the face of
lower oil prices, budget cuts and a recession may surprise observers but there are good reasons for it. First, Russians have a high
pain threshold having lived through numerous catastrophes: two world wars, mind-boggling communist inefficiency, the chaos
following the collapse of the Soviet Union, and the 1998 Russian debt default. A 4% decline in GDP isn’t likely to send people
into the streets. Second, Russia has a fairly elderly population. Revolutions tend to happen in countries with a high proportion
of young people, not in a country dominated by the middle-aged and elderly. Third, Russia’s state security apparatus appears to
be in firm control.
This isn’t to say that Russia is without risks. Russia’s currency reserves are small compared to the size of its economy. On August
12th, President Vladimir Putin replaced a top aide, Sergei Ivanov, capping off a round of raids, arrests and resignations of
Kremlin officials. Despite these events, Russia appears to be busy with its military involvement in Syria, taking its focus off
Ukraine. As such, for the moment Russia appears to be a fairly low-risk candidate for political events that would disrupt oil
supplies.
China 5% of world production: China’s disputes with neighbors in the South China Sea could lead to unpredictable (and not
necessarily bullish) impacts on oil prices if tensions were to mount. China’s other stability risk stems from its rapidly rising debt
levels and slowing economic growth. China’s debt, public plus private, totaled 255% of GDP at the end of 2015, up from 235% a
year earlier. This puts it where the United States and much of Western Europe have been since 2007. If China suffers a financial
crisis and recession, it could send oil prices plunging.
Iran: 3.7% of world production. The country has been negatively impacted by lower oil prices but much of the effects have been
offset by rising production and the lifting of United Nations’ sanctions. Additionally, Iran’s economy is more diverse and less oil
dependent than many outsiders might expect.
Like Saudi Arabia, other Gulf States, including the United Arab Emirates (U.A.E.), have substantial financial reserves and can
probably wait out a few more years of low prices.
Bottom line:
 The world’s seven largest producers (United States, Saudi Arabia, Russia, China, Canada, U.A.E. and Iran) for various
reasons represent fairly modest risk of supply disruptions.
 A number of smaller producers (Algeria, Angola, Iraq, Nigeria and Venezuela) represent substantial risks of
instability and supply disruption. Taken together, these nations produce 13% of the world’s supply of oil, more than
either Saudi Arabia or the United States.
 As the chaos in Libya in 2011 taught us, a supply disruption even in a modest size market can create large moves in
oil prices and in spreads between different oil benchmarks.

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Gencom: Thank you for meeting us this summer, Alexandre. How did InvestGlass begin?
AG/: It all started with the shock of 2008. Bear Stearns collapsed, my colleagues' pension plans vanished overnight and CNBC's famous
"POWA" journalist was encouraging investors to hold on to their Bear Stearns stocks at all costs. I was in pure shock. For the first time, I felt the
power of the media and customer-centric needs. I studied behavioural finance at the Sorbonne Graduate Business School (Sorbonne HEC IAE)
and put together my first organisation, but I also developed a thorough understanding of the banking business during the years I spent gaining
experience at the Bank of China and the Union Bancaire Privée. Those years opened my eyes to the need to create a tool which combined a
CMS, a content engine and an information platform.
Gencom: How do you see the current market?
AG/: There is going to be a split in the market between those who are willing to adopt new financial technology and those who are not.
We live in an age when information technology capacities are evolving. In a few years' time, we may be calling it a revolution. Artificial
intelligence is revolutionising the way that we work. Take InvestGlass as an example. We estimate that our machine can currently optimise the
work of 5 people and that, in the future, that figure will be ten times greater. We want humans to remain central to decision-making and
information-sharing processes. The machine is there to automate tasks (ethics, segmentation, filtering, classification) that humans cannot, or no
longer wish to, do. Our robot deals with two elements: risk and content, or storytelling. Risk is an automated adaptation of VaR parameters,
duration, volatility and dispersion in comparison with a given model. In terms of the qualitative element of the storytelling, our machine will
help to create a "hyper-targeted" investment scenario for every investor. By tailoring each proposal to the individual concerned, we make our
clients feel appreciated and they will be willing to pay more.
Gencom: Precisely. What is the position in Switzerland on that?
AG/: Geneva has some incredible value-adding assets including high levels of FinTech activity and an ideal, central location within three
hours of London, Frankfurt and Paris. To that you can add a very good computing structure, a wonderful lifestyle, entrepreneurs bursting with
vitality and political support for the digitalisation process. Geneva has also recently launched the Smart City 2030 project. The concentration of
banks and expertise is also advantageous, but the competition is going to get tough.
Whenever I speak at conferences to audiences of entrepreneurs or professionals, the first question I ask is whether they have their bank's
mobile app on their phone. Generally, not many people answer that they do. Then, on the other hand, everyone has a messaging app like
WhatsApp, Facebook or Google on their phone. That is where the competition is coming from, not from our robot-advisers. Those global players
are sometimes known collectively as GAFA, and they are everywhere, including Switzerland. PayPal, Braintree and Apple Pay are already
established in Switzerland and are going to seriously challenge Paymit and the other SIX applications. Might we be able to make payments from
our Facebook accounts in the future? I meet with all kinds of financial firms, including family offices, on a very regular basis who tell me that
they are doing the same thing as 150 years ago and that they don't see why that would change. When I raise the prospect of the end of banking
secrecy, the end of 'exotic' tax optimisation, disguised deflation, falling rates and rising ethical banking costs, they begin to consider their
powerlessness against the new digitalisation giants.
That is why we need to quickly pre-empt the problem and focus our efforts in Switzerland to ensure that it remains a stronghold for local digital
players. The United States has become an open-air laboratory and they are testing new models such as Robin Hood, a free broker. That's right.
Free! But be careful. When a product in the digital world is free, that means that you are the product. The personal information that you give
them is valuable enough for them to justify "offering" you a "free" service. How will politicians react to these models considering that they have
heavy protection from immense legal provisions and generally make a mockery of local regulations? That's the next challenge. Hopefully the
Swiss government will react along the lines of e pluribus unum!
Gencom: It really sounds like a wide site. Few words as conclusion?
AG: I would bet a lovely case of Geneva Pinot Noir that, in 5 years' time, artificial intelligence will be performing 80% of the jobs currently
performed by humans (ethics, trading, investment proposals, insurance). 60% of all accounts will have been standardised by a single API. The
KYC (know your customer) process will be based on the quality of the client's digital identity (LinkedIn, Facebook, Twitter, etc.). I would also
bet that banks' future profits will undoubtedly come predominantly from non-financial undertakings.
Gencom: A revolution is apparently underway. We'll be following it closely. Thank you for the interview, Alexandre.
Alexandre is CEO and founder of InvestGlass SA – the first Swiss robot-advisor for
wealth managers. He co-founded and is acting as Vice President of the Swissfintech
National Association, gathering around 2000 members.
He previously worked as head of equity sales at Union Bancaire Privée, as an Advisor
/ senior private banker at Bank of China and as a Portfolio manager at Levitt Capital
Management.
Alexandre is a board member of the Swiss Chinese Chamber of Commerce and speaks
fluently French, English and Chinese mandarin.
Interview: Alexandre Gaillard

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Charles Moore is a senior IT executive with extensive experience and a leader in the field
of secure enteprise, financial and broker solutions.
A true thought leader able to take a product or service from vision to reality. Specialties:
Entrepreneur for Leading Edge Technology Companies. Enterprise Architectures,
Strategic Analysis, Financial and Broker back office systems and Information Security.
.
Trade originated with human communication in prehistoric times. Trading was the main facility of prehistoric people, who
bartered goods and services from each other before the innovation of modern-day currency, this well-known process happens in the time it
takes for a handshake.
One wonders just how we got to the situation, some 150,000 years later, where the unconditional settlement has been
separated from the trade by 3 days. When we developed the alternative Financial Market Infrastructure, it became obvious that the
decades of artificial processes and resulting archaic systems have in fact caused this increase from a few seconds, to 3 days. This situation must
cease. One obvious architectural issue is the existing trade and settlement process; within the industry they are commonly known as "front"
and "back" office systems, how bizarre is this? With the development of the continuous BIS DVP Model 1, Settlement that is irrevocable and
unconditional or final settlement system, which operates at ~ 50 ms today, it became apparent that maintaining this artificial separation
between the trading systems which typically execute a match in ~ 250 ns and the settlement systems was the source of systemic risk. As the
alternative Financial Market Infrastructure, operates on a modern P2P digital platform, it is now possible for the first time, to go back 150,000
years, and implement a simple trade with unconditional settlement in less time than a handshake. The Trade is the Settlement once again.
This approach while appearing radical, when compared to the complex array of stove piped systems in existence today, simply represents the
lowest possible systemic risk, for any global Financial Market for the last 150,000 years.
How is this possible? The solution has actually been existing for all time, just unable to be implemented due to antiquated systems, after all
it worked with just two people, and a hand full of goods and gold.
The state of the art today? A sophisticated infrastructure and process has been developed to make the trade the settlement a reality,
implements the above objective solution. The solution consist of a Block Chain Order Book, integrated with the Block Chain Ledger, Payment
and Asset Rails, together they provide a digital market place, available today. These technologies are not new or radical, the settlement system,
is simply making use of existing order matching technologies which have been in usage for at least 5 years across the world. Very stable, very
simple.
What about the "Pro" post trade, settlement crowd? Typically these systems come from the existing archaic settlement system world,
which simply cannot get close to the latency of the order matching systems today, and hence are forced into a post execution environment, as
this aligns to the existing T+3 delay-pool world. A global Financial Market Infrastructure MUST reject such approaches which serve to maintain
these existing high levels of systemic risk, solely driven by inappropriate technology choices. You will typically see these same groups focus on
transactions per second (tps) which of course is meaningless, within such a framework, as these approach infinity for all practical purpose. It is all
about latency and removal of delay pools which represent risk. It is also noted that many existing groups and organisations have a vested interest
in maintaining, these old world barriers of high capital requirements, associated with such high risk systems. If these systems, had the technical
capability to match the trade latency, then as recommended by the BIS, they would also adopt the trade is the settlement. It must also be
recognized that only a BIS DVP or PVP Model 1, gross unconditional settlement is possible within a P2P and continuous market.
Only Gross trade by trade settlements are possible. One of the many reasons, I have been pushing Australia to move off the high risk DVP
Model 3 settlement as used by ASX today, is that it simply cannot be migrated without significant risk, to achieve this objective. One needs to
have a clear understanding of the effect of technology on the global market. The RBA report in May 2008 some 8 years ago, recommended
adopting DVP Model 1, was spot on, just no-one listened; ASIC was and is today asleep at the wheel yet again. The concept of post trade
settlement, within a modern digital world, is truly bizarre, even for the cave men 150,000 years ago. In 2016, the motives for any post trade
settlement systems, needs to be fully understood, one needs to look carefully under the hood. The Trade is the Settlement.
Quotes "Let's just look at the settlement of securities. This involves eight, maybe 10 different databases; you have a database if you are a broker;
you would definitely have a database at the exchange. The CCP would need a database – the reconciliation problem becomes quite big. Then of
course you get another database, that this time is at the custodian; then you have sub-custodians, they have got to have a database.”
Peter Randall (chi-x founder).
The existing high level of systemic risk, caused solely by the separation of trade and settlement cannot be maintained
within a digital world.
FAQ: What about the existing netting or Model 3 settlement systems? These systems all need a "delay pool" to allow any netting to happen, and
with the "trade is the settlement" happening in typically less than 1 ms, there is simple no "pool" to "net" within; it’s really this basic.
It’s a grand time to be a Technologist…..
Trade is settlement: Charles Moore

11
Since the 2008 financial crisis, every country has introduced, or is in the process of introducing, regulations making transaction
reporting a requirement. Such requirements are the result, at least in the case of OTC derivatives, of commitments made by the
G20 at its Pittsburgh summit in September 2009.
It is worth remembering that, during the subprime crisis and the collapse of Lehman Brothers, one of the first lines of inquiry
focused on the scale of dependency on open transactions, on the exposure of both the banking sector and the non-banking sector,
and on the portion of transactions corresponding to hedging operations as opposed to speculative operations.
Given the uncertainty surrounding the fact that the only inventory concerned initiated transactions and open positions, it is easy
to understand the requirement that completed transactions also be declared. Having established the principle of transaction
reporting, it was then necessary to define the modalities of it. It should be noted that while transaction reporting requirements
were neatly introduced by all of the regulators, there was disparity in terms of their choices as regards the modalities.
There was disparity in terms of the operations to be covered and, firstly, the definition of 'derivative financial instrument'.
Whether or not a report is required in the case of a foreign exchange forward transaction depends on the side of the Channel on
which it takes place. There was also disparity with regard to which parties are subject to the regulations. EMIR (European Union
regulations) requires any counterparty in a derivative financial instrument transaction to provide a report, given the requirement
for double-sided reporting which makes reporting necessary on both sides of the transaction. The Dodd Frank Act (U.S. equivalent
of EMIR) and FinfraG (Swiss regulations on derivative financial instrument transactions), however, require single reporting,
resulting in the reporting requirement being imposed only on banks and swap dealers.
How can these differences be explained? With EMIR, European regulators placed an emphasis on the quality of reported data
(the reconciliation of reported data by each of the counterparties being, in effect, a guarantee of quality) and on the need for
reports on all transactions, including intra-group transactions, to be exhaustive. Conversely, the Dodd Frank Act and FinfraG
sought to minimise the transaction reporting costs which are, exclusively according to the Frank Dodd Act and primarily under
FinfraG, incumbent upon the financial parties involved in the transaction. With the reporting being done in a unilateral manner,
though, the financial parties are free from the burden of reported data reconciliation.
The cost of transaction reporting and the poor quality of reported data are the primary complaints levelled at the regulations
imposing the requirements. However, the need for regulators to understand the exposure of financial market players involved in
derivatives has not been called into question. So, given that transaction reports are a requirement, how can the costs be
minimised? More interestingly, how can the negative aspects be turned into positives?
Firstly, the amount of data required (the report fields) force organisations to study their information systems. That will allow
them to identify gaps in their stored data, as well as any redundancies between different systems, the integration of which is only
partial and could be improved.
Secondly, there should be integration of transaction reporting, particularly when it is double-sided as required by EMIR, into the
internal control framework of the entities required to provide it. This would contribute to significant improvements.
This may appear to be an overly-positive analysis considering that the requirements imposed by these regulations allow the
regulators to collect a considerable amount of data. The regulations are not, though, set in stone. The third version of the EMIR
reporting requirements will soon come into force, increasing the amount of data to be reported and modifying the current fields
and formats.
Is this data useful? Can it be used? We can only hope so, but we must be aware of the fact that the answer to these vital questions
depends on the quality of the information provided, and therefore on MISEY, the role of which is to ensure the reliability of
reports on derivative financial instruments.
Member of the Board at AMF (Autorité des Marchés Financiers), Board member of
enternext (Euronext) co Founder of GRC (Global Reporting Company) and co founder of
Codièse, Sophie previously worked at BIL Finance as deputy CEO, was Head of European
Operations for Instinet in London, and CEO of Instinet France. She also worked for Aurel
BGC, SBS France, Credit Suisse First Boston, BMA and Ernest and Young.
With a strong regulatory, accounting and audit background, Sophie is also showing an
extensive knowledge and understanding of operational processes combined to a strong
knowledge of regulatory constraints in Europe. She recently gave a presentation about
Finfrag and trade reporting consequences in Geneva, in coordination with GENCOM.
Trade Reporting: Sophie Langlois

12
Ludwig has an extensive knowledge of Physical & Derivatives Trading (Ags, soft, metals),
Risk Management and Front-to-back processes as he combines experience as physical
cotton trader and consultant for a CTRM vendor. He worked during the last 5 years with
commodity trading companies and participated to several CTRM implementations.
He launched CTRM Force to assist Trading Companies in their digital transformation.
Previously, he worked in London in financial services as Quant Analyst at Merrill Lynch
& FX & Commodity specialist at Bloomberg. He holds an engineering degree in computer
sciences and an advanced master in finance from ESSEC.
Thriving for the best IT solution in Commodity Trading?
With the increasing volatility of prices, volumes exchanged around the world, Commodity Trading companies need the
appropriate tools to make data-driven decisions, optimise costs and increase revenues. If Excel spreadsheets are convenient
for specific tasks, they bring limitations like data accuracy, integration with other systems, and access among users to name a
few. Some companies having activities in industrial assets also are tempted to use their ERP to manage the trading activity.
What would be the best solution? ERP versus E/CTRM? Buy versus build?
CTRM or ERP? : Ludwig Clement
CTRM are ERP designed for the Commodity Trading
business
E/CTRM stands for Energy/Commodity Trading and Risk
Management system. It is a Front-to-Back software
integrating the whole chain of a commodity trading
company: Physical trade capture, Hedges (Commodities,
FX), Logistics, Risks (Market, Credit, Operational, and
Liquidity), Financing, Accounting and Treasury.
Sometimes all these activities are in a single IT system,
sometimes this is the combination of several systems
(See diagram below).
ERP solutions come with promises of cost and
operational efficiencies. Plenty of business functions can
be performed by a single system, minimizing the costs of
licensing, upgrade, management and maintenance. Thus,
it’s tempting to think that it can be adapted to manage
commodities.
CTRM complexity
A CTRM system is designed from the outset to meet the
specific and complex needs of the commodities industry.
It features better functionality, better risk management
and, consequently, better ROI than a customized ERP
system would provide. CTRM software solutions have
been built with the functionality and adaptability to
support changing commodities markets. Consider the way
that commodities are bought, sold, shipped, stored,
invoiced, accounted for, priced and valued throughout the
supply chain.
Commodity Trading businesses are working with prices
and valuations that can change at a number of stages in
the supply chain. For example, a physical contract could
have several quotas with different shipping periods
, qualities and pricing rules. An ERP system designed to
handle fixed-price input costs provides little support to
commodities buyers who are dealing with un-priced,
index-based and other more complex pricing types and
cost models.
Fundamental differences like this extend into almost
every aspect of the commodities business. ETRM for
the Energy sector have their own functionalities related
to the commodity in question: electricity does not trade
like oil or gas. CTRM in general need to manage
complex pricing and associated hedges that give
exposure reports mixing fixed and un-fixed contracts.
P&L is also an important monitoring tool computed on
a daily basis with associated mark-to-market valuations
that take into account time, location and quality
adjustments.
If the pricing and hedging of physical contract represent
a specific characteristic of a CTRM versus an ERP, the
invoicing part is also complex: some businesses have
provisional invoices with specific payment terms,
advance payments, price and weight adjustments.
Perfectly suited to fixed-price procurement situations,
ERP software requires the most serious modification to
deliver to commodity trading businesses global
exposures and rapid decision-making tools from
contract to payment and all associated risks.

13
Risk Management
The commodities business is one of daily variations and
constant volatility, of complex supply chains across
hundreds of counterparties. Therefore, a CTRM provide
extensive risk and compliance functionalities: market risk
for commodities, Value-at-Risk, FX exposure, operational
risks and insurance, liquidity risk with cash flow forecast
and margin calls, credit exposure are examples.
Additionally, regulators have started to look at financial
and energy markets; reporting needs have increased
drastically and the other commodities will be also
impacted. For agriculture, traceability is key – this means
having the right tools to track from origin to destination
the whole history of the goods.
CTRM software solutions have been built with the
architecture and adaptability to support changing
commodities markets.
Build versus buy
ERP systems were not designed to meet the unique and
complicated needs of the commodities business. The
level of customization needed to create a system that
can handle all the variables, risks, interdependencies of
the commodities business is extensive. A system with
this level of customization rapidly becomes expensive to
maintain, difficult to enhance — and almost impossible
to upgrade. That is why some companies are tempted to
build their own in-house system. Few companies can
afford the cost of this strategy, but ultimately they need
the right skills to manage the evolution of such systems
and the maintenance – this is a specific job.
An ERP is perfectly adapted to your business if you are
simply purchasing or procuring raw materials at a fixed
price, in a fixed place, at a fixed time. But if you’re dealing
with commodities and the associated risk and volatility,
logistics and supply chains, then you would need to invest
a lot of time and money on the most sophisticated
customizations if you want to have a chance to make ERP
solution operational.
Diagram of a CTRM software
The following diagram represents the different functions
the CTRM can handle across the departments of the
Trading House. We can see the complexity but also the
power of having an integrated system:
Physical
Contracts
FX
Trading
Matching
Purchases/
Sales
Futures &
Options
Contract
Management
Letter of
Credit
Logistics &
Operations
Invoicing
Shipping
Documents
Credit Lines
End of
Period
Closing
Finance &
Accounting
BS / PnL
Payments
CTRM
Operational
Risks
-
Claims, delays,
maritime
Market
Risk
-
VaR, MtM
Liquidity
Risks
-
Margin calls,
Credit linesCredit Risk
Risk Management CTRM Force ©
The benefits of a CTRM
 Manage trading positions in real time and optimize
hedging
 Improve logistics and execution of physical delivery,
reduce costs, delays, claims
 Speed up the payments reconciliation and end-of-
month closing
 Manage risks (credit, market, operational, liquidity)
and reporting
And much more…

14
The Venezuelan PARADOXS of the so called “Socialism of the 21st century”.
Several oil service companies suspended or slowed operations in Venezuela this year due to difficulties in obtaining payment
from PDVSA, which is struggling because of low oil prices, as well as a decrease in oil production, and a decaying socialist
economy.
Contractors have cut back the drilling of oil in Venezuela amid a rising unpaid debt owed to suppliers by the Latin American
country’s government and state-owned producer PDVSA. On June 28th 2016, Baker Hughes reported that the number of oil
rigs in Venezuela dropped from 69 to 59 in May of this year. The CEO of the Italian oil and gas contractor Saipem SpA, said
that in April the company had suspended 89 percent of his operation rigs in Venezuela (25 of its 28 rigs). Other companies as
Schlumberger or Halliburton Co are reducing their activities in Venezuela also by the unpaid services bills.
Since 1998, oil production in Venezuela has been reduced by 750,000 barrels per day, with output falling by 250,000 barrels
per day in the first half of 2016 alone, according to Dr. Francisco Monaldi, a fellow in Latin American Energy Policy at the Baker
Institute at Rice University in Houston. Luisa Palacios, a senior managing director at Medley Global Advisors LLC, said that
exports in Venezuelan crude has fallen by more than 300,000 barrels per day in June 2016, compared with 2015 average,
while the rest of OPEC is ramping up production.
PDVSA is in talks with oil services companies to turn unpaid services into financial instruments, a process known as
securitization. Del Pino last month said that PDVSA had signed financing agreements with Weatherford International Plc and
Halliburton Co and was close to a deal that would allow Schlumberger to boost its presence in the OPEC nation. “This
mechanism enables to trade commercial debt for financial debt, improving cash flow holding instruments with financial
return, in order to manage the low oil price environment” said Del Pino. These mechanisms allow the contractors to continue
local operations. The statement describes these operations as a “plan in development” that was supported by “important
drilling and services companies,” without naming which ones were involved in the discussions.
PDVSA is trying to negotiate a debt of $2.5 billion in securities to settle outstanding invoices to contractors. The 2015 financial
PDVSA’s report mentioned that $831 million had been issued in such securities that year. The weak oil markets, the economic
and humanitarian crisis have fanned concerns PDVSA will be unable to make billions of dollars in bond payments by the end
of the year. PDVSA and Venezuelan President Nicolas Maduro insist they will meet all debt obligations and dismiss default
rumors as a right-wing conspiracy. Venezuelans are facing a very complicated situation with rising crime and corruption rates,
daily electricity cut, medicines and food shortage (more than 80 percent). Venezuelans can’t get even the most basic lifesaving
medical supplies as antibiotics. This is a main contradiction, for a country with the largest proven oil reserves on the planet.
The Venezuelan Central Bank has just $12.1 billion left in reserves, about half of which would be required just to pay PDVSA’s
short term debt. In 2008, when oil was over $120 per barrel, the country’s reserves were around $44 billion. Venezuela’s debt
is the most expensive in the world to insure. The International Monetary Fund predicts its economy will shrink 8% in 2016,
while inflation will reach about 700% (others analysts say that inflation reach 1000 percent). The World Bank is more bearish;
they expect a 10.1 percent decline in GDP.
Writing this article, raises a main question: is the Venezuelan government more concerned to pay the PDVSA’s bondholders
rather than to use the cash to feed and heal his people? This would be one of the many PARADOXS of the so called “Socialism
of the 21st century”.
Luis Colasante is the Group Energy Manager and Head of Economic Research at Sogefi Group. He is in
charge of developing the Group energy strategies and policies; as well as macroeconomic research for
the Purchasing Commodity Department of the Group. He provides analysis in forex, interest rates,
commodities as well as energy trading strategies and hedging.
Luis was previously the Lead International Energy Trader of Sogefi Group (2012-2014). From 2009- 2012
Luis was Energy Manager at Exelcia, developing “Energy Certificates” and he worked at EDF, Engie (GDF-
Suez), Petroplus and other listed energy companies. Luis has published works including paper concerning
energy saving (Ecole des Mines de Paris), and has also been invited as speaker in different energy related
meetings. Luis as a Master Degree in Quantative Finance from the University Paris Dauphine, a Certificate
in Quantative Finance I & II Ecole Nationale de la Statistique et de l’Administration Economique “ENSAE”
and a Masters Degree in Energy Systems and Policies from the Ecole Nationale Supérieure des Mines de
Paris and Luis holds a Bachelor’s Degree in Mechanical Engineering from University de Los Andes
(Mérida-Venezuela).
Venezuela. Situation update: Luis Colasante

15
Richard C Robinson is a senior executive with over 25 years of experience in the financial
industry, holding leadership roles in operations and technology at global banks, brokers,
investment managers and industry utilities.
He is head of Strategy and Industry Relations for Open Symbology at Bloomberg LLP. He
holds an MBA in Organizational Behaviour and IT from Stern and a B.S. in Industrial
Management from Carnegie Mellon University.
20 years of active involvement with standards organizations and industry efforts in data
and message standards including MDDL, ISO15022, LEI and the precursors to LEI, through
active membership in ISITC, ISO, FISD, EDMCouncil, X9, SIFMA, and ISDA
The Hidden Work of Financial Services: Reconciling Identification Systems
The financial services industry is deceptively complicated for a variety of reasons. While technology has bridged many gaps, differences in
perspective and context remain.
For example, when you think about the front office, what typically comes to mind are the traders and other moneymakers? This can be contrasted
with back-office operations responsible for controlling risks and making sure technology works, often with little investment in tools, processes
and infrastructure.
But these front and back offices differ by asset type, from fixed income to foreign exchange. Flows, technology, language and jargon are varied
— influencing behavior and the types of issues each desk faces. Throw in a dedicated foreign exchange desk or various derivatives traders, and
complexity grows.
This is further split by domestic and international; whether the domestic viewpoint is of a Swiss-based firm dealing primarily in the Swiss market,
or an international focused, London-based bank with trading operations across Europe, Asia, North and South America.
Regulators globally are also split by many of the same divisions, such as type of trading activity or asset class. They can be jurisdictionally
constrained by political borders, enforcing legislative requirements sometimes written by legislators who don’t appreciate the complexity that
exists and why it’s valid.
The financial services industry remains fragmented by silos, cultures and processes. Many do not recognize this fragmentation and the underlying
challenges because it is not readily visible even to experienced practitioners. Regulations and standards being implemented similarly miss the
mark because they are often based on false assumptions.
Where this complexity reveals itself is in the data and the framework — or more precisely the lack thereof — that is needed to support the end-
to-end cycle of trading, settlement and asset servicing across markets. The industry as a whole needs to adopt common frameworks — not
individual bits of shared data or identifiers — to see any benefits of standards and to satisfy increasingly complex regulatory requirements.
Examining how financial instruments are identified can provide a proxy for understanding much of this complexity. First, we’ll look at how
identification has been approached traditionally. Second, we’ll examine how rethinking the approach to symbology may help to better navigate
the complexity we face today.
The Instrument Life Cycle
The first question is: Why does instrument symbology vary so much across asset classes and functions? Examining plain equity illustrates an
answer. When a company decides to list stock on an exchange, listing documents are created and various registrations take place, following the
regulations for the jurisdiction and the primary listing exchange.
The organizations assisting in the listing typically need to track the activities and create a dummy identifier to do so. Meanwhile, as the exchange
goes to listing, it will create a ticker that will be the exchange’s base identifier for all interactions. The agency responsible for creating a national
number, the National Numbering Agency, will create an identifier corresponding with the jurisdiction’s national standard, typically based on the
listing documents. The agency may actually be the exchange in some cases (such as the London Stock Exchange (LSE), but many times it is either
part of the jurisdiction’s local clearing and settlement system or the predominant data vendor in the market. At this point, we have at least two,
but likely three, identifiers to represent the same equity instrument that is pending listing. Each firm involved in the listing also has its own internal
identifying scheme, which is mapped against the exchange ticker and the national number when it becomes available.
The Business As Part of Data Management
This is where data management begins to intersect with our approach. There are various perspectives on the theory of data management to
consider, but regardless, there is the technical task of creating and storing an object so that it is related to its underlying information and function.
In the financial services industry, we have transaction IDs, customer IDs, client IDs (which are different from customer IDs in some cases),
counterparty IDs (which sometimes are the same as client IDs) and many others. Typically, each firm creates its own unique primary key and
cross-references the industry-created tickers and national numbers using a basic and unintelligent mapping table.
Symbology. Richard Robinson

16
Creating a primary key based on a ticker can be problematic as
tickers change and are reused, which violates the data practices
of primary keys and could cause multiple cascading data quality
issues. Insulating the data structures by cross-referencing based
on shared data layers is technically safer for the data structures
and the business.
From a technical perspective, each firm has its own data-
management approach, data structures and methodology for
storing and subsequently identifying any one particular object,
including a simple new equity share. Even in the new world,
where there is a Chief Data Officer, businesses do not yet care
about the complexities of data organization, definition and
referencing. They just want data when they need it and in the way
they expect it.
Start With Different Data Approaches, End Up With
Different Results
With the data stored and the identifier chosen (or potentially two
or more selected), let’s look at what the front office needs to
store and perform its primary functions.
Staying with a simplistic example, assume Julius Baer stock is
listed on the SIX Exchange and nowhere else. Traders may use the
ticker BAER in communications while quoting prices. But if there
is confusion or disagreement, the traders may try to confirm they
are talking about the “same” Julius Baer shares by quoting SEDOL
B4R2R50 or Valoren 010248496 or even the ISIN CH0102484968.
The purpose is to ensure that the counterparty is speaking about
the same instrument as opposed to a class B share or some other
Julius Baer-related instrument. Meanwhile, internally, all of these
identifiers are linked in an associated cross-reference table
against the firm-specific primary key. The front office system
being used also influences the identification scheme, taking into
account the age of the system and if it was developed internally
or purchased from a vendor.
Even a newer front office customized trading platform may use
legacy codes simply because the traders involved in any new
system design insisted and fought back against any change.
Meanwhile, executions sent to the exchange will usually require
use of that exchange’s primary code methodology, which is a
ticker in most cases. While there may be some level of acceptance
of alternative codes for trade matching, the exchange’s real-time
prices are most likely fed referencing the ticker (which in cases
such as the LSE may have a relationship with the national
number).
This becomes further complicated because Julius Baer is actually
traded in more places than just SIX. There are “admitted for
trading” relationships, where the LSE ticker for the Swiss franc
(CHF)-based stock of Julius Baer is quoted under ticker 0QO6, as
well as a primary listing in Frankfurt under SEDOL B4VHDP3,
trading in EUR. Overall, there are 50 unique tickers for the “same”
Julius Baer common stock, trading in at least five currencies and
officially registered in at least three markets. (See: FIGI
BBG001T5NN62 on OpenFIGI.com for full list)
The official registration further complicates processes and
identification. Depending on the individual systems and data
methodologies in place, the EMS/OMS may communicate a
particular identifier and data to the post-trade process internally.
Post-trade performs matching, settlement and clearing processes
externally. While there is more of a direct tie to the exchange on
symbology, the client side of the trade introduces additional layers
of complexity, as the client has its own data standards and
methodologies.
Back on the EMS, multiple fills may have been executed on SIX in
CHF. The client, meanwhile, is expecting settlement in EUR in
Frankfurt. The purchased shares by the broker settle in Switzerland
and are registered there. Delivery locally set up in Frankfurt will
show a shortage of shares to deliver- as no registered EUR-based
shares exist in a Frankfurt depository account for the broker.
The Birth of the Reconciliation Industry
Multiple processes exist to uncover these conditions post-trade
from currency/exchange/settlement location cross checks to short
share conditions on an inventory-management basis. This depends
on a number of things happening, as well as the technical data
professionals involved having an understanding of the nuances of
operational issues. The front office system will need to pass ticker,
exchange and currency information to the middle office. This still
doesn’t necessarily guarantee the right instrument will be resolved,
however. One exchange, especially in the case of multilateral
trading facilities, may actually allow trading multiple listings of the
same instrument — so a stock like Royal Dutch Shell may have
multiple quotes sit side by side in EUR, along with prices in USD and
GBP.
More commonly, the front office system operates in a limited
context, where assumptions are built into the system. Again, we
cross the divide between business function and technology built to
support it. Where a system supports a specific task, it is normal to
build around assumptions that unnecessary data (for that task)
isn’t captured or modeled.
But the multiple EUR quotes could, in fact, represent different
registrations from different European Union marketplaces. Or a
trader may make arrangements for a foreign client to pay in a
currency different from the underlying shares. More commonly,
the front office system operates in a limited context, where
assumptions are built into the system. Again, we cross the divide
between business function and technology built to support it.
Where a system supports a specific task, it is normal to build
around assumptions that unnecessary data (for that task) isn’t
captured or modeled.
A simple example would be equity versus fixed income system.
Why even introduce concepts of coupons or interest rates into an
equity-trading tracking system? It is unnecessary overhead and
introduces complexity and risk into the build. (Perhaps in the
future, you may decide to merge your equity and fixed income
trading desks, but the merits of preplanning for that — or actually
merging the desks — is a whole different topic.) However, this has
implications two or three steps down the chain when the direct
context has been lost and more descriptive data is needed for a
downstream process.
Suffice to say, a front-office system built around a primary ticker
now must interface with middle office and/or back-office support
systems that need to perform a variety of functions — most of
which are interfacing with multiple different external parties in
comparing and agreeing the trade data. Depositories, central
counterparties (CCPs) and clearing agencies, clients,
correspondents and service providers, such as third-party lenders,

17
are just a few of these types of firms.
Most depositories operate off the national number versus the
ticker, while some may actually have their own internal scheme
for identification. CCPs may use tickers for clearing, but where
CCPs clear across multiple exchanges, it is more likely they use
the local numbering system or even an identification system of
their own creation.
Counterparties and clients will have their own preferred methods
for identifying a single equity — influenced by data vendors and
the scope of their operations — global or local, cross-asset class
or narrowly focused.
Where a ticker comes in from a front office system, the middle
office must now translate that into the common language of the
onward destination(s). When this is simply a local market firm,
these users will surely not see any complexity. A US broker will
simply state it uses the CUSIP. And the middle office uses the
CUSIP. And the Depository Trust & Clearing Corporation (DTCC)
takes the CUSIP. And counterparties match using the CUSIP.
In reality, the front office is most likely still using ticker, especially
to access secondary exchanges, such as the Boston Stock
Exchange. Because there are no major differences for post-trade
operations across US exchanges, this translation is fairly
transparent.
But it includes multiple assumptions; from DTCC being both the
central clearing agency on the exchange side as well as the
default depository, to the currency being in US dollars, to
ingrained assumptions about secondary exchanges in comparison
with the NYSE or NASDAQ exchange listings. Not so long ago, this
wasn’t always the case.
Before the merger of the National Securities Clearing Corporation
and DTC in the late 1990s, as well as when “northbound” and
“southbound” flips between Canadian and US dual-eligible
instruments occur, there was a great deal of friction in US market
settlement, from low post-trade matching rates to a high
percentage of failed trades and ‘DK’s (“don’t know” rejects).
Further, in the cross-border global world, European firms do not
necessarily use or even database the CUSIP. Therefore, for
foreign clients/counterparties investing in the US, the preference
may be to match on a local code (for the European-based client)
or a SEDOL.
When providers defer to a client’s needs, this necessitates
translating to what the client prefers as far as symbology and
resolving the differences in how those identifiers are assigned
against the internal model.
But when just a ticker and price may have been passed from the
front office system, assumptions must be made to fill in missing
data required to resolve to a different symbology. Tickers not
being unique may give multiple results that need to be resolved
on the fly.
Messaging standards used to communicate between parties have
instituted best practices such that multiple identifiers for the
same instrument are sent on the same FIX or SWIFT message,
with ISIN, RIC, Bloomberg ticker, SEDOL, FIGI, and CINS all sent
together to try to counter the need to tailor per counterparty or
even future proof for when a counterparty changes data
providers.
Further complicating things is that some (all but FIGI) of these
assigned numbers may change because of a corporate action,
whether that action is substantive (merger or acquisition) or not
(simple name change).
When symbology changes, outstanding trades must be canceled
and rebooked, settled positions must be “realigned” to the new
symbology — all in timed coordination with the actual corporate
action occurring.
Further complicating this is stock on loan, collateral held on
margin and split positions across custodians and marketplaces in
multi-listed scenarios.
The industry has been dealing with this for more than 30 years,
so most firms have built a solution or mix of processes (multiple
reconciliations) to traverse the identification landscape. But
there is no shared framework, and there are inevitable
differences in how one firm resolves a mapping versus how
another does so, introducing the possibility that they
independently resolve to different results.
This may be because they classify the instrument differently (is a
convertible equity, an equity or a fixed income product?), they
use a different data vendor or simply have hard coded a mapping
incorrectly.
The overhead the industry takes on just for reconciliation of basic
core data is so large, entire businesses have been built on
providing such services.
Frameworks, Metadata and Ontologies Versus Simple
Identifiers
There is no standard framework — at least not before the
Financial Instrument Global Identifier (FIGI) — that could be
shared across the industry no matter the asset class that could
point to how one identifier within a structure relates to another.
All identifiers were created before the concept of metadata and
therefore are just individual pieces of metadata without a
governing framework.
Any framework should be able to understand not just the
relationship between identifiers and data, but also the business
processes that data supports.
They also need to be extensible, without revision to the core
standard, to meet the continuously evolving needs of the
industry as well as specific use cases a small community or even
a single firm may require.
Further, any solution meant to bring the industry together must
be free of friction itself.
It should be freely available and redistributable, as well as easy to
access. Advanced tools, such as API access and file extracts, have
traditionally been limited only to paying users of providers.
And the ability to use data has always been closely monitored —
either directly or through third-party mandates — so that use
could be measured and charged for by a firm or organization
claiming intellectual property rights.

18
To be fair, the infrastructure required to create, maintain and distribute such solutions is massive.
Benchmarks for comparable infrastructures for a single firm creating a new data infrastructure typically start at a minimum of 150 million USD.
That’s why institutions such as the Object Management Group, ISO, SWIFT and Bloomberg have created public, free dedications of key industry
enablers — essentially free utilities that otherwise would cost the industry hundreds of millions of francs to build and continue to operate. ISO,
through SWIFT, has created a vast treasure of tools under iso20022.org. The Object Management Group’s standards, FIBO and FIGI, are both
offered free, and Bloomberg operates OpenFIGI.com as a free portal supporting the FIGI standard.
These should all be viewed in contrast to ‘cost recovery’ and pay-to-play utilities that purport to be free, but have fees. Many times, ‘premium’
access (such as for API vs manual access) costs more, or having a say in governance requires some sort of monetary payment.
In any situation, the biggest challenge is being able to standardize while preserving the differences that matter. There is commonality that can
bring efficiency and savings to the industry, but the variability and nuances are what continue to drive innovation, reduce risk through
diversification and encourage growth.
When the basis of the financial services industry is the products we trade, being able to understand, use and properly identify those
instruments throughout their life cycle is critical to the market overall. Data-management practices have just begun to catch up to the diversity
of the financial services industry, especially as we try to align across all the vastly different silos and processes. Use of ontology-based frameworks,
such as ISO20022, FIBO and FIGI, starts us on the right path to solving long-standing challenges and providing better transparency and better
management.

19
José Balmon is an expert in commodity trade finance and operations. He
started his professional career in 1987 by joining the trade finance
department of a renowned and prestigious global commodity finance bank
at their Geneva subsidiary. In 1996 he had the opportunity to join a local
trading house for setting up and overseeing the execution and financing of
the crude oil and petroleum products operations in the markets the
company operated and has since then put his expertise, whether as
independent consultant or an employee, at the service of several
commodity houses, whether based in Switzerland or abroad.
Sustainable commodities trading: why sustainability matters for the commodities world
The background:
We have been hearing for some time now about sustainability in the context of sustainable development goals promoted by the Department of
Economic and Social Affairs of the United Nations.
While this is not a new concept, it looks surprising however that until very recently, only a few commodities organisations really started to voluntarily
introduce into their business model and corporate vision some or all of the guiding principles and values underlying the sustainable development. But
what do we really mean with sustainability?
Few years ago, when I had the opportunity to follow an academic course about sustainable management at the HEG – High School of Management
of Geneva in Switzerland, I had a very limited idea of what sustainability was about and almost none of the peers I used to confront with during my
daily activity seemed to have a clearer view of what it was either.
Put in simple words, sustainability is about the social and environmental responsibility any organisation has (or should have) when conducting a
business, irrespective of the domain it operates. But sustainability is more than that and a little history is needed for understanding its origin.
The sustainability principles have been first introduced by the Brundtland Commission also known as the World Commission on Environment and
Development (WCED) in the first volume of the organisations’ main report called “Our Common Future” published in 1987.
The background of this Commission dates back to December 1983 when the Secretary General of the United Nations, Javier Pérez de Cuéllar, asked
the Prime Minister of Norway, Gro Harlem Brundtland, to create an organization independent of the United Nations to specifically focus on
environmental and developmental problems and the possible solutions. The organization aimed at creating a united international community with
shared sustainability goals by identifying sustainability problems worldwide, raising awareness about them, and suggesting the implementation of
solutions.
One amongst the most commonly accepted and cited definitions of sustainable development is given by the Commission and described as follows:
« Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their
own needs. It contains within it two key concepts:
 the concept of 'needs', in particular the essential needs of the world's poor, to which overriding priority should be given; and
 the idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future
needs. »
This is no doubt a fundamental change which has been introduced towards the general development approach which was until then prominently
focusing on economic growth factors and indicators and did not so much regard the environmental and social aspects as being an integral part of the
development. For the first time, the Commission introduced the guiding principle that a sustainable development was based on the three fundamental
and indivisible pillars which are:
The economy - The environment - The society
Sustainability at a glance: The sustainable development as defined by the United Nations is centred on the following goals (SDGs):
1. No poverty - 2. Zero Hunger - 3. Good Health & Well Being - 4. Quality Education - 5. Gender Equality
6. Clean Water & Sanitation - 7. Affordable & Clean Energy - 8. Decent Work & Economic Growth –
9. Industry Innovation & Infrastructure - 10. Reduced Inequalities - 11. Sustainable Cities & Communities
12. Responsible Consumption & Production - 13. Climate Action - 14. Life Below Water - 15. Life on Land
16. Peace, Justice & Strong Institutions -17. Partnerships for the Goals
Trading & Sustainability: Jose Balmon

20
While at first glance number of the goals could be perceived as not relevant for a commodity house, they are nevertheless worth being kept in
mind when conducting the daily activities as each of them involves an underlying set of objectives and guidance on which the political leaders of
the ratifying nations rely for conducting their parliamentary and legislatory actions. Besides, it is to be noted that since the very first United Nations
Conference on Environment and Development took place in 1992 in Rio de Janeiro – also known as the Earth Summit, it was recognized that
« achieving a sustainable development would require the active participation of all sectors of society and all types of people ».
In this context, the Agenda 21 which was adopted at the Earth Summit and ratified by 195 nations together with the European Union, identified
nine sectors of society as the main channels through which broad participation would be facilitated in UN activities related to sustainable
development. These are officially called "Major Groups" and include the following sectors:
 Women
 Children & Youth
 Indigenous Peoples
 Non-Governmental Organizations
 Local Authorities
 Workers & Trade Unions
 Business & Industry
 Scientific & Technological Community
 Farmers
Major groups in collaboration with other stakeholders invited (including local communities, volunteer groups and foundations, migrants and
families, as well as older persons and persons with disabilities) have played a significant role in the process to formulate the universal and
transformative 2030 Agenda for Sustainable Development and the 17 SDGs that are at its core. Achieving the 2030 Agenda and the SDGs in each
country will depend on collaborative partnerships between governments and non-State actors at all levels, and at all stages of the programmatic
cycle-planning, consultations, implementation, monitoring and reviews.
In this context, the commodities trading community, as part of the business & industry sector, has an important role to play and will no doubt have
to engage more actively in the transformation of the sector for the years to come.
Sustainability in the market place
While the above is no doubt important and provides to the political leaders of the ratifying nations the general guiding principles and tools aiming
at fostering more sustainably their economies, it no doubt also matters for the actors of those economies too as number of the underlying principles
and objectives are generally translated into national regulations and legislation.
Surprisingly however, it is no secret that the participants to the commodity world have so far not very actively nor sufficiently incorporated
sustainability in their business models. Some of the factors which may explain (at least in part) the lack of interest or motivation for incorporating
sustainability principles in their mission statement and corporate vision are the following:
- By nature, trading involves taking an opportunistic approach in particular by trying to identify and take advantage of some inefficiencies
or imbalances between different market places across the globe
- Trading houses do not deal directly with the final consumer of the finished product
What these organisations however tend to ignore is that any of their trades intrinsically involves an environmental footprint which is so far either
not taken into consideration at all or not adequately assessed when determining the « real » price of the raw commodity throughout the logistics
chain. Besides, depending on the country where the goods are originating or are destined for and throughout the supply chain, the same goods may
have significant social impacts which have so far not been regarded as an important constituent of the trade.
Conclusion
What commodities houses have to realise, especially in the turbulent and disrupting times we are living today in all sectors of our economies, is that
in the same way their clients are being increasingly scrutinized by the final consumer and thus become more and more accountable for the final
product they sell to them (in particular in terms of traceability, quality and other considerations about their industrial processes, environmental
footprint, business ethics and other social impacts the finished product may cause throughout its processing and manufacturing), they also have
themselves to prepare and adapt to this new reality imposed by our modern societies.
Besides, with today’s market transparency and broader dissemination of information about commodities supply and demand which used to be in
the past much more confidential and has become nowadays almost accessible real-time to any individual, the rules of the game are drastically
changing and as a result markets are becoming even more competitive than they used to be.
It is therefore becoming critical for commodity trading houses to differentiate themselves from their competitors. One of the ways they may do this
is by voluntarily aligning with the relevant SDGs they may have an influence on. It looks indeed more than likely that in the years to come, the
reputational risk will be an increasingly important risk that commodities houses will confront with. When such time will come, there is little doubt
that alignment with the SDGs and active engagement with its stakeholders by any organisation will be regarded as a competitive advantage
irrespective of the industry the company operates.

21
Milestones:
 Creation in September 2016.
 Official Launch in September 2016.
Workgroups:
 Permanent workgroups starting in September 2016 :
- Shipping . Commodities . Trading . Richard Watts.
- Banking-Finance. Xavier Perea.
- Sustainability. Jose Balmont.
 1st workshop to be communicated soon.
Newsletter:
- 1st Newsletter released 4th week of September 2016.
- 2nd Newsletter to be released 3rd week of October 2016
- 3rd newsletter to be released 3rd week of November 2016.
Subscription at www.gencom-geneva.com newsletter section.
Upcoming working sessions in 2016:
- Finfrag and trade reporting effects. Sophie Langlois from GRC. 26/09/2016.
- CTRM. Process management in commodities trading. 24/10/2016
- November and December sessions to be announced.
Registrations to our events via our website www.gencom-geneva.com.
Connection to other associations.
- To be communicated soon
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