John Doran Director, Global Trade Monitoring & Surveillance [email protected] Trade Surveillance – Deloitte Academy Discussion October 2014 Disclaimer  This information is being presented to you for informational purposes only. You agree to assume any and all responsibility, liability, and loss for the acceptance, use or misuse of the information set forth in this presentation or on the program’s website, as applicable.  ConocoPhillips Company and its affiliates: • make no representations or warranties of any kind concerning the information set forth in this presentation or on the program’s website, as applicable, and • disclaim any implied warranties.  By using the information set forth in this presentation or on the program’s website, as applicable, you agree to these terms and conditions. 2 Agenda Topics Motivation for Program Trade Monitoring / Surveillance Environment (Challenges) Trade Monitoring & Surveillance – Core Capabilities Trade Surveillance Process Flow & Output Proven Method for seeing the “Big Picture” Additional Program Considerations Conclusion 3 Today’s Regulatory / Enforcement Environment Commodity Futures Trading Commission Increased Funding Proactive Nature Improved Technology Federal Energy Regulatory Commission Increased Penalties Expanded Access to Data “We have no tolerance for infractions” Matthew Hunter, Deputy Directory Surveillance Branch, Division of Market Oversight at CFTC 4 Trade Monitoring Environment (Challenges) Review / Report Trade Monitoring & Analysis Region 1 Exchanges ICE (US,EUR,CAD) CME/NYMEX Nodal Exchange Trayport Platform Region 2 Deal Capture System of Record Trades Systems Region 3 External Market LIM (curves) ICE EOD NG/Power Ad-Hoc Structured for Analysis Other / Misc Global PnL EIA – Fundamentals BENTEK - Fundamentals Data Acquisition 5 Trade Monitoring Environment (Challenges) • Multiple Source Systems / Various Formats • Multiple geographies and commodities • Alignment for Analysis – External + Internal • Determine the right mix of Scans  Pricing, Volumetric, etc.  Mitigate False Positives.  Subscribe to the “Big Picture” POV • Communications / Interaction with the Trade Floor  Trusted Advisor  New Sherriff in Town • Three Key factors associated with Success  Flexibility  Flexibility  Flexibility 6 Capabilities vs. Effectiveness Matrix Respond to External Catalysts Program Capabilities Historical Event Review Layering in Fundamentals Comparative Market Analysis Review System of Record Transactions Program Effectiveness 7 Understanding the output produced from Trade Surveillance Report Objective A process that is designed to look through multiple trade transactions for particular characteristics / trade behaviors. Generally has multiple parameters that can be modified to filter results. Trade Information Discrete Event An individual item surfaced from a report. Avoid labeling these events as anomalies. Recommended Label: Discrete Event 8 Characteristics of a Discrete Event Discrete Event Know when it occurred – Date/Time Know the name of Product Know the deal Terms Know the deal Location Know the deal Trader Know the deal Geo-Code Other calculated detail 9 Capabilities vs. Effectiveness Matrix Respond to External Catalysts Program Capabilities Historical Event Review Layering in Fundamentals Comparative Market Analysis Review System of Record Transactions Program Effectiveness 10 Successful Trade Monitoring & Surveillance – Core Capabilities I. Identify Events within System of Record Transactions  BS Review  Block Transactions Validation (min size, documentation)  Exchange Limit Review  Authority Limits (Internal Control) Example GRP DATE PRODUCT HUBS STRIP Price Char Bs Rev Tier Trader - BS Rev Recs TOTAL_VOLUME Daily Total Daily Vol Buy Total Daily Vol Sell Daily Duration Btw n BS Rev Ratio A 4-Feb-14 NG LD1 Futures Henry 14-Mar 4.915 Tier 3 Trader 1 6 17,500 2,500 15,000 135 0.17 B 25-Feb-14 NG LD1 Futures Henry 14-Mar 4.846 Tier 3 Trader 1 / Trader 2 2 10,000 5,000 5,000 205 1 11 Successful Trade Monitoring & Surveillance – Core Capabilities II. Identify Events within System of Rec Txns + Market Proxy  Understand how your trade behavior compares to the market  Gain understanding of trade execution sequence.  Compare volumetric footprint to the market (Percent of Market)  Compare price action to the market Example Grp DATE PRODUCT HUBS A 15-Mar-14 NG Firm Phys, FP HUB100 STRIP Next Day Gas Vol QTY_Daily Mkt Conc Recs TOTAL_VOLUME 72,000 72,000 0.4826 27 149,200 ACME Trading Market Ref: ICE EOD Trade Info 12 Successful Trade Monitoring & Surveillance – Core Capabilities III. Respond to External Catalysts  Trade Behavior Analysis – driven by external events / news  Polar Vortex  Price Spike / Pipeline Issue  Show Cause Order What is our Profile? What was the weather? Where there any Supply Constraints? Key Capabilities Comparative Market Analysis Fundamental Data Availability 13 Historic Discrete Event Review Capability – “big picture” Time BS Review Percent Mkt Price Diff Price Range Day1 1 2 1 4 Day2 1 2 Day3 Day4 1 4 1 3 5 Day5 5 7 2 Day6 3 9 3 Day7 1 Day8 Day9 2 Day10 1 2 1 2 Day11 Day13 2 3 4 Day14 2 4 2 6 3 Day15 1 Day16 2 2 Day17 2 6 Day18 6 10 3 Day19 1 1 Day20 3 1 51 39 Total 3 2 Day12 21 Know when it occurred – Date 2 3 1 Discrete Event 2 Know the name of Product Know the deal Terms Know the deal Location 2 2 Know the Event Name 33 14 Historic Discrete Event Review Capability – “big picture” Concentration of events within a given region and timeframe may be good candidate for additional review 15 Historic Discrete Event Review Capability – “big picture” Understand what is behind elevated events on specific days 16 Additional Considerations for Trade Monitoring Program Leverage Strong Analysts that understand the business  Strong Communication Skills  Curious  Open-Minded Build vs. Buy Software  Does one-size fit all model exist ?  Focus on Core Risks and Flexibility  Be careful about introducing unnecessary procedures - workflow Stay tuned into what is happening within the market  Stay abreast of current cases in the news  Watch out for the small stuff  Block Size minimums  Broker Classification Confirms 17