WHOLESALE COMMODITY BROKERS
brokers in one venue. “CME Direct is a big step forward for markets to comply with current and anticipated market regulations [Dodd-Frank,MiFID etc.] that call for more transparency, automated trading, data reporting and clearing in OTC markets,” says Michel Everaert, MD of OTC Solutions with CME Group. CME has licensed the technology to leading IDBs (Marex Spectron, Tradition and Tullett Prebon) to offer trading of global OTC oil markets, with more products and participants likely to follow. Even so, automated trading, data
reporting and clearing have been available in this market for some time, with the IDBs at the forefront of their development.
... for real success in this sector companies need to be more than just an IDB
Transparency has been a key issue on
regulators’ minds. Here too, commodity markets have been developing systems for some time, with IDBs ahead of the curve. For example, Spectron Live launched over 10 years ago with published indices for gas and power in Europe. A more recent development have been ‘matching sessions’ whereby IDBs provide functionality allowing market participants to anonymously trade large volumes for a pre-defined period of time (at prevailing market prices without the risk of distorting the market). GFI Group’s Join-the-Trade runs sessions for power options, natural gas basis, and fixed price power among others, implementing technology that is key in the new regulatory world.
Expanding & Evolving Landscape While many IDBs have many years of
expertise in certain commodities, it is in the last three years that the push into new commodity products has become more aggressive, with commodities have growing appeal to IDBs, providing potentially lucrative new revenue streams. This growth is being driven by market liberalisation leading to the development and expansion of commodity products, transitioning from a pure physical market to one that includes financial instruments. The overriding message we received from
18 June 2012
the wholesale brokerage community was one of technological advance and expanding geographies. For a number of diversified IDBs commodity products now account for up to a third of total revenues. And the appeal of commodities continues to entice incumbents to expand into new products and markets as well as attracting new entrants. Organic growth is also occasionally complemented by acquisition, as evidenced by ICAP’s purchase of New York-based cotton specialists VIP Commodities, adding to its strong position in sugar, coffee and cocoa. At GFI (including wholly-owned subsidiaries Amerex and
StarSupply) commodities were its largest product group representing 28% of total brokerage revenues in Q4 2011, with commodity product revenues continuing to demonstrate solid growth year-over-year (rising 15% in energy and commodity products globally, as well as contributions from new desks in the Americas and Europe). Returns elsewhere have also been impressive. At ICAP revenues from commodities grew rapidly last year [$338m in the year ended 31st
March 2011]. Product expansion continues, particularly in the energy sector.
Marex Spectron are looking to make a further push into coal, crude and oil product markets, as well as expanding their reach in the US and Asian agriculture sectors. So too are Tradition. OTCGH are also looking at organic growth across commodities and in the transport sector. Although theIDB world has become known for its bitter rivalries
and courtroom battles over recent years, those in the commodity space have exhibited a healthy concord, often working in collaboration for the good of the markets. Nevertheless, in order to remain competitive in this arena, volumes remain critical in the face of competition from alternative products (ETPs and the like), as well as from new entrants. The investment in, and deployment of, new technologies will remain as critical here as in other sectors as IDBs focus resources on higher growth areas – especially in emerging markets and new ways of engaging with participants. To illustrate this, Michael Spencer, ICAP’s Chief Executive recently told shareholders that, “... we will continue to strengthen the group’s infrastructure and focus our resources on higher growth markets, particularly emerging markets and commodities”. There is also little doubt that current circumstances again
underline the importance of understanding the macro world and other financial factors, and the impact these have on traded commodity markets. What we have discovered is that for real success in this sector
companies need to be more than just an IDB. As Marex Spectron, one of the world’s largest commodity brokers (and a leader in brokering physical energy products and post-trade services) explains; “The boundaries between OTC and exchange-traded products are blurring and our objective is to provide our clients with a complete and seamless global product interface for the natural resource sector – with access to deep pools of liquidity across multiple markets, enhanced by the very best technology, market data and client service. •
Guy Isherwood is Publisher and Editor of Commodities Now.
www.Commodities-Now.com
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