Critical insights on blockchain use cases and obstacles in the commodities and energy trading markets are explored in an interview with the former CIO of EDF Trading Ltd, Jeremy Lock.
Adjoint: Please tell us about yourself and your background?
Jeremy: So until very recently, I was the CIO of a global energy trading business - EDF Trading Ltd. My team were responsible for all aspects of technology from identification of needs by the business, to running the infrastructure and the data centers that supported our business. I had that responsibility covering the global business, but primarily my teams were based in London and in Houston. I have been CIO at EDF Trading for seven years: Four years as CIO of Europe and Asia, and three years as the global CIO. Prior to my experience at EDF Trading, I was the Head of IT at British Energy’s energy trading and retail supply business for a similar period of time.
I have stepped down now to pursue other interests, particularly consulting around the use of technology in smaller businesses and startups. I’m currently a non-executive director for a start-up business looking at installation optimization of batteries with B2C customers and end consumers.
Adjoint: Can you tell me about your experiences with Blockchain thus far?
Jeremy: My experience in blockchain goes back probably about 18 months now when I was invited by Ernst and Young to take part as a client mentor in a start-up challenge. For this innovation startup challenge, EY had preselected a number of new entities, of which Adjoint was one, to experiment in the use and application of blockchain technology into energy trading in particular. So I was brought to provide energy trading expertise to help build out use cases during a six-week rapid start-up and demonstration process. This went very well. It was very interesting and very educational.
During that period, I built some relationships with three or four of the startup companies and some of the startup companies chose to bring forward their propositions to try and get you know more support - perhaps more funding from the industry to deliver working prototypes. And so I continued to support those processes as much as I could by advising and guiding the use cases. You know, stimulating debate about operational models for example and trying to bring those companies to a wider community. And at the time I was chair of the European Energy Trading CIO forum which is a kind of peer group of CIOs and chief architects that meet regularly. We were able to bring to that forum of 14 energy trading companies these propositions for them to consider. I’m pleased to say they want to have yielded further interest and further small investment - albeit in developing blockchain solutions.
Adjoint: So what is the nature or outcomes of some of these blockchain trials in the commodities space?
Jeremy: One, in particular, was looking at how back-office processing of transactions could be simplified. At the moment, there is a non-blockchain established process around electronic confirmation of trades. But beyond that, there are highly manual processes like portfolio reconciliation and settlement.
So a number of the propositions that are being considered are seeking to use blockchain to automate these checks and balances. This happens by effectively creating one version of the dataset which both sides would effectively agree to. Most of the use cases revolved around business efficiency and reduction of back-office costs.
There is another prototype that I’m aware of which has gone more to the core of the transactional activity, rather than post-trade. It uses the blockchain to create the initial trade record behind a screen-based trading platform. This is beneficial because once the record is commuted to a chain, then other blockchain processes can be added to manage downstream, middle, and back-office. I think more of such efforts is what energy trading companies should be striving for.
Adjoint: We often talk about the possibilities of blockchain but do you see any kind of limitations that you noticed, that have to be overcome before blockchain could become more ubiquitous?
Jeremy: What you’re seeing is a relatively simple execution of the process on blockchain technology in industries like energy trading. The devil is always in the details. The detail tends to be in the definition of the products that are being traded and how the product life cycle behaves over time. These details get complicated quickly with complex settlement rules and so forth. Another challenge that I have not yet seen effectively addressed is: how do counterparties build out the understanding that is needed between them in order to create or encode these processes on a chain?
A clear exposition of the kind of operational models that would apply to industries like ours in using blockchain is still needed. People may say: “Well it’s very easy. You and I as two counterparts can just agree what our process is going to be. We could automate and put it on a chain and we will reduce our end-to-end cost and our overheads at both ends.” But, traders often trade with many counterparts and would want to do it all trades in the same way. They would not want to have, say 200 different blockchain processes or 200 different variations of a smart contract for one particular trade type.