Digitise post-trade paperwork in physical crude oil trading
Sector: Tertiary sector · Industry: Wholesale · Organisation: VAKT Global Ltd. · Maturity level: Production
VAKT Global Ltd. runs a shared platform on which BP, Shell, Equinor, Gunvor and Mercuria handle the post-trade processing of physical crude oil deals digitally. Instead of reconciling deal recap, confirmation, contract, logistics documents and invoicing across separate systems, both counterparties work on the same record. The platform went live for Brent crude on 29 November 2018 and covered around two thirds of North Sea crude trades after opening to the wider market.
Documentation status
- Project status: Production (as of 29 November 2018) — Live launch on 29 November 2018 with Brent crude oil; market opening in January 2019 and expansion to US crude oil pipelines and North European product barges over the course of the year.
- Evidence: Evidence medium
- Editorial review: pending
Description
VAKT Global Ltd. operates a platform on which the largest players in the physical crude oil trade jointly map their post-trade processing. After a deal is concluded, a paper-intensive process usually follows, including deal recap, confirmation, contract, logistics documents and invoice, where each counterparty maintains its own systems and discrepancies are resolved via email and phone. On the shared platform, both sides instead work on the same data set, eliminating reconciliation loops.
VAKT went live on 29 November 2018 for the Brent crude oil market, initially with shareholders BP, Shell, Equinor, Gunvor and Mercuria, who operated the system alongside their internal processes at first. In January 2019, the platform opened to the wider market, and after onboarding further customers, it covered around two-thirds of North Sea crude oil trades. Technically, the platform runs on Quorum, the enterprise-ready Ethereum variant developed by JPMorgan, which allows confidential transactions between selected participants. The covered process scope ranges from deal recap through confirmation, contract and logistics to invoicing, thus mapping the entire commercial chain after trade conclusion. Saudi Aramco invested five million US dollars in the platform, and the operators expanded the application area in 2019 to US crude oil pipelines and North European product barges. The case shows that competing market participants can support a shared processing infrastructure as long as the confidentiality of individual trades is maintained.
Perspectives
B2B — organisations perspective
For trading houses in physically traded commodity markets, VAKT demonstrates how the manual document reconciliation between counterparties can be completely replaced without compromising the confidentiality of individual trades. Companies in adjacent markets such as metals, agricultural commodities or chemicals can transfer the model to their own post-trade chain.
Employees perspective
In trade processing, the activity shifts from repeated data entry and reconciliation via email to handling exceptions and quality assurance of the shared data set. Employees need to understand the network rules and the interfaces to their own trading and ERP systems.
Benefits
General
- Both counterparties work on the same processing data set, so discrepancies do not arise in the first place.
- The entire commercial chain from deal recap to invoice is contained within one system.
- After market opening, the platform covered around two-thirds of North Sea crude oil trades.
- The confidentiality of individual trades is preserved vis-à-vis other participants.
B2B — organisations
- Significantly less manual reconciliation effort in post-trade processing.
- A transferable model for other physically traded commodity markets.
Employees
- Less repeated data entry, more focus on exceptions.
- A shared, reliable data basis for processing.
Challenges
General
- The benefit only arises when the dominant trading houses actually participate.
- Connecting each participant’s existing trading and ERP systems is complex.
- Competing companies must agree on common governance rules.
B2B — organisations
- In the initial phase, participants ran the system alongside their internal systems, causing double effort.
Employees
- Employees must master the network rules and the new interfaces to core systems.
Technology foundation
VAKT runs on Quorum, the enterprise-ready Ethereum variant developed by JPMorgan that allows confidential transactions between selected participants. This is crucial for crude oil trading because competing trading houses must share the same settlement chain without disclosing their trades to third parties.
Implementation examples
VAKT post-trade platform for physical crude oil trading
After the conclusion of a physical crude oil deal, a paper-intensive process follows, in which each counterparty maintains its own systems and discrepancies are slowly, error-prone and expensively reconciled by email and telephone.
VAKT operates a shared platform on which BP, Shell, Equinor, Gunvor and Mercuria digitally handle the post-trade settlement of physical crude oil deals. The process scope ranges from deal recap to invoicing.
The live launch took place on 29 November 2018 for Brent crude oil with the shareholders as first users, who initially operated the system in parallel to their internal processes. After the market opening in January 2019, the platform covered around two thirds of North Sea crude oil trades and was extended to US crude oil pipelines and Northern European product barges. Technically, VAKT runs on Quorum, the enterprise-ready Ethereum variant from JPMorgan; Saudi Aramco invested five million US dollars in the platform.
Coverage of around two thirds of North Sea crude oil trades after market opening; investment of five million US dollars by Saudi Aramco.
Manual document reconciliation between competing trading houses, media discontinuities along the post-trade chain, and the requirement to maintain confidentiality of individual trades despite shared infrastructure.
Tags
Commodity Trading, Post-Trade Processing, Quorum, Document Chain, Consortium