To recap Part 1, our discussion focused on the importance of the underlying risk data and specifically, managing obligations, since positions are the main driver for risk reporting. If you missed the Part 1 discussion, you can find it here.
It can be confusing and complex to understand how risk data is presented in RightAngle’s exposure and mark-to-market reports. There are record types, processes, and terminology that are important to learn so you have the ability to constructively examine the risk data. Some key items on this list are:
- How to properly retrieve reports
- When you can and cannot compare snapshots
- Adding external columns for more detailed information on each risk line item (and how this can work against you when certain added columns create duplicate rows in the data set)
- Knowing the difference in risk types and source records and how they are presented in the exposure report vs. the mark-to-market report
- Understanding the difference in product/locations for deals vs. curves vs. quotational vs. child products
- Delivery periods vs. market curve periods
- How RightAngle calculates inventory positions
- How RightAngle “realizes” trades and transactions when accounting periods are closed
- The impact of rolls in RightAngle and what happens when trade periods expire
- Prior period adjustments
- And so on…
While this list is not all-inclusive, it does present the main challenges in being capable of analyzing and reconciling risk data. To be qualified as a risk expert within RightAngle, you should be able to know where each data point in the risk record originates and why the record is qualified with that data point.
RightAngle Record Types
Record types within RightAngle help the user determine the state of that transaction and its categorization. Understanding the Risk Types and Source Records are crucial to analyzing and reconciling risk data. There are some slight variances between how these record types are presented in the exposure report vs. the mark-to-market report.
Risk types are only defined in the exposure report and are meant to be a high-level categorization but are only useful for viewing your exposure to price quotes.
|Inventory||Not inclusive of all inventory related records. Only shows Actual Balance (beginning inventory per the current accounting period)|
|Market||Cash settled derivatives (i.e. Swaps)|
|Physical||All physical and financial deals (excl. Inventory and Market records above)|
|Quotational||Exposure to a deal price quote. Will show the position that has not priced in. This quotational position will decay until zero at which point this line item will no longer appear in exposure|
Source records are used for categorizing transaction types and understanding the state of a transaction. There are some variances as to how transactions appear in risk exposure vs. the mark-to-market report.
|Actual Balance||Ending inventory balance rolled from prior accounting period|
|Inventory Change||Any Receipts or Deliveries scheduled in/out of inventory trade types (could be estimates or actuals). This will show the balance configuration location.|
|Time Based Estimated Transaction||(1) Swaps or (2) futures leg of EFP if floating price
In the MTM report, all futures and swaps that are not realized (i.e. have not reached expiration or have not been P&Sed) will be categorized as this record type
|Obligation||(1) Futures leg of EFP if not floating or (2) Any other futures trade
*This record type will not exist in the MTM report
|Planned Transfer||Unmoved volume that could be scheduled or unscheduled|
|Movement Transaction||In the MTM report, this is a moved transaction that has incomplete pricing. In the exposure report, it just signifies it’s a moved transaction.|
|Accounting Transaction||(1) Moved volume or (2) outright costs
* In the MTM report, this is a moved transaction that has completed pricing. This category does not exist in the exposure report except for certain inhouse transactions.
The Dread of Accounting Close
The struggle intensifies for a risk analyst when closing the accounting period within RightAngle. There are a few major transitions in positions and transactions that are usually occurring at the time of close such as: the ending inventory position roll, transactions being realized and therefore expiring from risk reports, and potentially trade period rolls as the curve period expires (depending on the timing of when you close the accounting period). These shifts in data presentation can cause immense frustration in trying to reconcile positions and PnL for that day.
Actual inventory is stored in a subledger within RightAngle only for that current open accounting period. Through risk reporting, RightAngle does have the ability to show implied inventory positions based on scheduling changes. You can capture this position by looking at the Actual Balance + Inventory Change records which will return the estimated ending inventory per the snapshot retrieved. If you want to see your book inventory based only off actual movements, then you would retrieve source records for Actual Balance + Inventory Change + Planned Transfers (for inventory deal types only).
All transactions against inventory deal types will have an Inventory Change record which equates to the exact additions or subtractions to that inventory deal. Those Inventory Change records should always have an offsetting Planned Transfer or Movement Transaction record or both. These additional records usually create confusion for users as to why these records exist.
The Inventory Change record will show the location as the balance configuration location whereas the Planned Transfer and Movement Transaction will show the actual scheduled location. When the accounting period is closed, any accounting transactions in the MTM report that have an accounting period equal to the accounting period being close will be realized and expired from the report when retrieving with a snapshot in the next accounting period. In the exposure report, these “realized” transactions would be categorized as movement transactions. Confused yet? Let’s look at an example.
Suppose we have a beginning inventory on a pipeline that we have balanced to the location of Houston, TX and sometime during the month we sell some of that inventory to a 3rd party. Let’s examine the transactions that risk would show:
|Inventory Balance at Houston, TX||Actual Sale at Linden NJ|
Note that these inventory transaction records offset each other. This is to be able to see the inventory balance and its applied market values and the offsetting movement transaction exist to offset the other side of the scheduled order. In this example, the offset is a trade, but it could be another inventory deal.
At accounting close, RightAngle will take the 10,000 of ending inventory and add back all Planned Transfer positions on inventory deals (since they were not actualized) to calculate the new Actual Balance for the new accounting period.
Then RightAngle will realize and expire (1) any Accounting Transaction records as long as they have an accounting period equal to the accounting period being closed and (2) any Movement Transaction records for inventory deals. Considering how many orders are created at your company you can see how the level of transactions in risk reporting can become very complicated and overwhelming pretty rapidly.
How Can We Help?
We can help you untangle your risk data in RightAngle and provide necessary training on analyzing and reconciling this data. Reach out to us today!