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The Business Case of Legacy CTRM System Replacement



Business Summary

One of the major costs commodity trading businesses face are IT costs associated with CTRM (commodity trading and risk management) systems. The high costs of ownership of these systems might have been acceptable when commodity trading margins were high. However now that commodity trading as entered a period of low commodity prices and lower trading margins trading businesses are re-evaluating the cost of ownership of CTRM solutions.

The conclusion that many trading businesses are reaching is that there is a strong business case to justify replacing legacy CTRM systems with a new a new generation of CTRM systems that deliver improved functionality and a lower cost.

High Cost of Ownership of Legacy CTRM Systems

During the commodity boom years trading businesses purchased CTRM systems with little consideration of license and support costs. Traditional CTRM vendors like OpenLink, Triple Point, Allegro, and others were able to charge license fees and on-going annual support & maintenance fees that now look out of proportion to the profitability of their customers.

For many trading businesses there is a compelling business case to replace existing high cost legacy CTRM systems with a new generation of low cost Web enabled CTRM solutions.

A New Generation of Low Cost CTRM Systems

A new generation of CTRM systems vendors have emerged over the past few years. These vendors offer modern CTRM solution that take advantage of Web technologies to drive down the cost of CTRM software licenses, deployment, and support & maintenance costs.

Although these new CTRM systems cost less to purchase and operate, they still provide rich CTRM functionality for front, middle and back office. They also offer advanced functionality such as; market data management, integration to exchanges, VaR, stress scenario management, credit risk management, etc. They also another significant advantage as they have modern software architectures that offer much better standards of system performance and reliability.

Vendors like Fendahl Technology are delivering full function CTRM solutions with a significantly lower cost of ownership than traditional CTRM systems. They also offer customers of existing legacy vendors a range of pre-packaged CTRM data migration tools that significantly reduce the disruption and costs of a CTRM system replacement project.

Replacement Business Case

A typical trading business with 30 end users could have expected to pay up to $1 million for a perpetual software license from a legacy CTRM software provider, and up to 24% in on-going annual maintenance. The on-going operating expenses, including upgrade costs, can be over $750,000 every 3 years.

Trading organizations are discovering that their Opex spend on existing CTRM systems over 2 or 3 years will pay for the replacement of their legacy CTRM system. They also find that on-going support and maintenance savings can be 50% or more per year.

Conclusion

The bottom line is that for many trading businesses it is time to look at their CTRM systems and consider if their existing CTRM system is really delivering value to their business.


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