MIT proves consistent enhancement of its collateral management system for commodity banks
Jonathan Bell talks with Paul Cohen Dumani, general manager of MIT, about the company’s highly successful commodity finance collateral management software system for banks – TRAC.
29 April 2014
This year, Swiss-headquartered trade and commodity finance specialist MIT celebrates its 30th anniversary in business. It is a thriving business which has not only set new standards in trade finance banking software, but also through software for collateral management in commodity finance. In an ever-more regulated world, the services and products it provides are increasingly being called for by banks, and potentially funds and traders alike. As MIT continues to develop additional functionalities in a demanding sector, it also works in harmony with its clients finding new structures, and thus providing bespoke solutions to meet a broader range of requirements.
In particular ~MIT^ has made considerable headway in the market with its state-of-the-art product TRAC (Trade Risk Active Control). The product is a trade commodity finance and structured trade finance collateral management software system for banks. One of the early clients for the system was the Swiss bank UBS.
Paul Cohen Dumani, general manager of MIT, states: “We recently signed UBSas a user of our TRAC product. This was a landmark development.”
He explains: “The route to this contract is particularly interesting as it spans a period of two years or more. Initially, UBS had issued a request for proposal (RFP) back in 2012 for a commodity finance collateral management software system, where we made it to the final, only for this to fall through when the bank decided to do their own development. However, by the end of 2012 the progress on this had been very slow, and the bank came back to us with a request to look at our systems again.
"During this time at the bank, some of the personnel had changed – with new bankers coming in from ~BNP Paribas^, where they were used to a collateral management system. In reviewing our system, they knew that we understood commodity finance and that we were not just software specialists. This made a big difference and allowed us all to work from the same page towards the desired objectives.”
Dumani adds: “So in March 2013, we did ‘proof of concept’ which involved five people from MIT and 20 from UBS. This period of testing lasted for one and a half months, and was successful. The contract was eventually signed in July 2013.
“Now we are due to go live with the first version this coming May. As part of the deal we developed a staged approach with UBS, whereby the standard version is launched first. So we have added many things into the standard system through this testing process, and these are enhancements which will be available to all future purchasers and users of TRAC. The second version, one more bespoke to specific UBS requirements, will go live in September.
“This product development with UBS has been an extremely successful one, and one which we and the client are immensely proud of.”
Strong TRAC record
The fact that TRAC has been in existence for well over three years now provides good proof of the product’s robustness – with developmental enhancement taking place throughout this period of time. Dumani points out that the first version of TRAC was developed by MIT back in 2010. At that time, the first user of TRAC was ~Banque Cantonale de Geneve^ (BCG), which was already a user of MIT’s trade finance software CREDOC.
“Banque Cantonale de Geneve backed us in the initial development of the TRAC product, with the project starting in 2009. But it needs to be stated that 100% of the intellectual property is owned by MIT, and we are entirely free to commercialise the TRAC product,” says Dumani.
BCG eventually went live with TRAC, as the first customer of the system, in 2011.
Further success developed shortly after this, with ~Natixis^ issuing an RFP in late 2011. There were four vendors vying for the contract, and MIT came out the winner.
Dumani points out that a lot of functionalities were developed to meet the requirements of Natixis with the system. And in addition to this, the system had to be set up in the major centres of operation – Paris, New York and Asian branches.
“With Natixis, we are due to go live in their Asian branches this month, and shortly after that in New York – linking up with the product which is already in Paris,” notes Dumani.
He adds: “Working with tier one banks is a distinct advantage, and proves to be a two-way street with good flows of feedback and information from both sides. Consequently, we have improved the product a lot, and are seen as a leader in the field.
“The introduction of the system to a new bank is a big project, which requires our support engineers working with bank specialists through to the testing by the customer. To some extent we have to go on site, but with other branches we can work remotely.”
In 2012 MIT signed ~National Bank of Abu Dhabi^ (NBAD) in Geneva to TRAC. Comments Dumani: “This was timely for the bank as they were developing commodity finance in Geneva for the bank group at large. TRAC was in addition to our CREDOC system which we had implemented at the bank in 2008. At the bank the systems are integrated, similar to BCG. But these are independent products of course, and we can sell one without the other.
“We have implemented TRAC for Geneva, and there is the possibility this will take place in Abu Dhabi also for NBAD.”
Dumani points out that throughout the Middle East CREDOC has a particularly good footprint, and the company is presently talking to several other banks in the region about the use of TRAC.
Similarly, in Asia MIT is making some good inroads without having to indulge in heavy marketing campaigns. “We are talking to a number of banks in Singapore,” says Dumani. “We already have Natixis Singapore with TRAC, and hopefully we can materialise other contracts there in the near future.”
Best of both worlds – understanding the issues
CREDOC and TRAC provide unique functions to banks, and Dumani stresses: “I’m amazed that we are still the only player today that can provide both types of system, ie: a back office system for letters of credit, guarantees and collections, along with a collateral middle management system. Both can interact together.
“We are currently bidding with one bank which is particularly interested in an integrated solution. This has been a strong message from us for the last five years, and this continues to be the case today.Noneofourmajorcompetitors in the back office systems have done anything even remotely like TRAC.”
TRAC can also provide information to a back office system vital in the overall monitoring of a trade. As Dumani explains: “In any given commodity transaction you have the potential for many sales legs. Sometimes these are hedged, and other times not. So you need to follow the exposure of the commodity, country and counterparty. TRAC can do this.
“You need to monitor the evolution of price.You need to have a flexible system, and you need to upload information from your core banking system. The idea is to implement TRAC with CREDOC, but if the bank is using a different back office system then fine. We can talk with the other vendor and see how we can upload this information. We can integrate their system to TRAC without any problem. The advantage we have is that we are back office vendors, so we know what to ask. We are familiar with the issues linked to the automation of the documentary business. This is a major advantage. We understand the issues.”
Looking ahead, Dumani points out: “TRAC was designed at the right time. Most commodity banks have been using excel spreadsheets and you need a proper system to replace that so you have reliable data. So they need to change. Deals are much bigger these days, and as such they need a sound, exact and reliable product to monitor their customers and the money they lend. A lot of banks are spending on supply chain, even though their own business models are not even there yet. But with commodities, the business models are there now. Risk management needs investment.”
*MIT (Micro Informatique & Technologies SA) is an independent Swiss company specialised in the development of trade finance software solutions for bankers, such as the well-known CREDOC back office system used by more than 50 banks in Switzerland, the Europeanmarket,andtheMiddle East. MIT’s other landmark product is called TRAC (Trade Risk Active Control), a trade commodity finance & structured trade finance collateral management software for banks (more information on: www.mitsa.ch)