avery putter spectron marex softs and agricultural commodity markets

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avery putter spectron marex softs and agricultural commodity markets

  1. 1. Softs & agriculturalcommoditiesPremier brokering for global softs& agricultural commodities
  2. 2. The markets: past, present and futureCommodity futures markets have New liquidity pools Hybrid execution - the best of both worldsgone through a huge transformation As a result of the increased volatility and The exchanges had the best intentionsin recent years, with one of the major reduced liquidity there has been some when they introduced electronic tradingchanges being that traditional open pushback from traders. Although exchanges in the futures markets. Reduced costs ofoutcry systems have been replaced by are unlikely to bring back the pits, we have transaction, greater liquidity, and increasedelectronic marketplaces. The electronic seen the establishment of exchange- transparency are among the things theymarket venue was embraced because cleared swaps and options and offexchange believed the screen would offer. Howeverit appeared to offer a more transparent, futures and options trading in these markets floor brokers and traders also addedfaster, efficient and orderly way to execute. through brokers. Moving forward we believe liquidity, price discovery, relative order, andIt also promised better liquidity and less that there will be increasing volumes being transparency. They also had a key role inmarket manipulation. But there is now executed in these emerging liquidity pools providing market “noise” and sentiment,growing debate in the trading community as as market participants realize that these are something which electronic platforms justto whether these new marketplaces have one of the best ways of accessing greater cannot do.been successful in meeting these objectives liquidity and price transparency. The abilityand delivering the promised benefits. It is of brokers to negotiate price and volume There is no doubt that electroniccertainly true that electronic screens do benefits hedgers and traders because they marketplaces have served the tradingnot provide commodity markets with all the can work their orders without the fear of community well and many participants useanswers; option floors still remain active unduly moving the markets. these electronic marketplaces. However asand liquidity outside of the front months for more participants realize that the exchange-futures and options remains erratic. The establishment of the hybrid execution cleared market offered by brokers gives model that has developed in the off- the best of both worlds there will beSoft and agricultural commodity futures are exchange marketplace, where participants increased liquidity, increased transparencynow predominantly traded electronically. are able to execute directly on the screen and potentially lower volatility ... the exactBut in some markets liquidity is dramatically or with the assistance of a broker on the benefits that the electronic marketplacesdown from where it was during the open end of a telephone, should be the solution believed they would bring.outcry days. In the soft markets, for example, that meets all the objectives of the tradingorange juice and cotton see larger intra-day community. Furthermore with the adventprice swings than ever before. This volatility of clearing, participants are now able to On March 3rd, 2008 when softwould seem to be, in part, due to the lack of mitigate counterparty risk whether they are commodity markets went fullyliquidity available on the screen. In addition executing on or offexchange. electronic, the exchange held a recordto the lack of liquidity, thetrading and open interest of approximately 1.8hedging community has noticed the bid/ask million contracts. As of June 30th,spread has widened in these markets since 2010 total exchange open interestthe open outcry futures pits disappeared. It had decreased to approximately 1.0is even debatable whether the screen has million contracts – a 45% drop. Inbrought increased transparency to these fact, the sugar market saw the largestmarkets. Price discovery becomes more decline of 50%. While it is unlikelydifficult to establish the further away you that this drop is entirely due to movingdeal from the front month - it can only be away from the traditional open outcrydetermined by the spread markets’ “carry marketplace to the screen it appearscost” from month to month. These spread that it is a contributing factor andmarkets have also seen liquidity dry up possibly a key contributing factor.further out on the curve, which makeshedging and trading much more difficult.
  3. 3. Spectron’s advantages: your edgeSpectron’s global softs & agricultural brokerage service operates discretely between buyers and sellersto help each side achieve the best possible price for commodities being traded in every marketplace. Anonymity Independent, agency only Spectron is able to provide customers Spectron is a neutral intermediary with complete anonymity through its and as such never takes a proprietary provision of on and off-exchange, as position in the markets we cover. We well as exchange cleared execution work for buyers and sellers with no services. conflict of interest. Commercials Growers, Shippers, Mills, Commercial Brokers, Consumer Companies and RefinersLiquiditySpectron has access to a wide Financial institutionsvariety of liquidity pools and Banks, Index Funds, Hedgecan bring the customer market Funds and Pension Fundscolor to assist their executionrequirements. Liquidity providers High Frequency Traders, Algorithmic Traders and Market Makers Customization & flexibility Bilateral On-exchange Spectron is able to bring the customer swaps & futures physical a wide variety of execution services in & options commodities terms of products, term and execution venue. Spectron is a “one-stop” shop for your execution requirements, ranging Exchange from the execution of a standard Off-exchange exchange traded future or option to a cleared futures & long term strip in the exchange-cleared swaps & options physical “blocks” or bilateral markets. commodities
  4. 4. Deal execution: blurring the boundariesThe execution of commodity products has historically been split into two broad categories; onexchangeand over-the-counter (“OTC”) markets. In the last decade the boundaries between these two maincategories have become increasingly blurred primarily through the introduction of centrally clearedcontracts by exchanges and clearing houses. Spectron offers services across execution venues andbrings a full service offering to its customers. • Privately negotiated direct or through a broker • Exchange traded either on-screen or • Predominantly voice-brokered in brokered in pit market, although can also be traded on-screen • Credit exposure is to clearing house • Direct credit exposure to swaps/physical • Not flexible with respect to structure or counterparty term • Complete flexibility in deal structure • Liquid front months • Swaps trade under ISDA master agreement • Less liquidity further out the curve • Counterparties limited to whom swap user has • Significant levels of price slippage ISDA in place with Bilateral swaps and On-exchange futures physical commodities and options Trader A Trader B Trader A Broker Trader B Broker Floor Broker Clearing house Off-exchange futures and options (“Blocks”), cleared swaps and options, EFSs, EFPs, EFRPs and EOOs Trader A Broker Trader B Clearing house • Privately negotiated through a broker • Credit exposure is to clearing house • Fully margined rather than collateralized credit lines • Limited flexibility but greater than exchange traded • No ISDA required to trade as long as registered with clearing house/exchange • Access to all counterparties registered with clearing house/exchange
  5. 5. ion and OTC desk work in synergy to offer our clients exceptional pricesentiment that electronic platforms do not offer. Through our global network alize in the execution of: on-exchange-traded futures and options, “blocks” Spectron’s hybrid solutionsons, as well as bilateral and exchange cleared swap contracts. Spectronc and Spectron Energy Inc can assure our clients that every deal we broker Spectron’s floor operation and OTC desk work in synergy to offer our clients exceptional price discovery and market sentiment that electronic platforms do not offer. Through our global network of customers, we specialize in the execution of: on-exchange-traded futures and options, “blocks” in all futures and Spectron Energy Inc’s global softs & options, as well as bilateral and exchange cleared swap contracts. Spectron Commodity Futures Inc and Spectron Energy Inc can assure our clients that every deal we broker we are on their operates agricultural brokerage service side. discretely between buyers and sellers to help Spectron Commodity Futures Inc each side achieve the best possible price for Spectron Commodity Futures Inc i s commodities i n d ebeingt approved as an penden traded in every Introducing Broker by the National Futures Association and operates a full marketplace. The desk is based in New York service floor brokerage operation on ICE Futures US. We provide execution services in all exchange traded futures and options. Spectron’s trading floor operation is headed byFutures Putter. Averytrading floor. In 2001 hemember his own floor operation and Roger Corrado, the former Avery Inc is has been an exchange started since 1996 and has over 18acquired experience on the approved and headed by years of troducingIt firm status. Spectron floor brokersneutral intermediary in the marketsof broker, broker. is our strong belief thatthe as a member Broker by acting Vice Chairman we NYBOT. Together with his do not take positions in any markets they iation and operates a full we can assure our clients the best possible price available with no conflict of interest. team, Spectron has over 65 years experienceage operation on ICE in the softs & agricultural industry, hasde execution services in connections in several soft & agricultural futures and options. producing countries, commercial soft & r operation is headed by agricultural participants and the investmenthas been an exchange community of banks, hedge funds andnd has over 18 years of liquidity providers. Spectron’s soft &ading floor. In 2001 he Spectron Energy Inc agricultural desk provides brokerage services operation and acquired in bilateral, OTC cleared and futures & Spectron Energy Inc’s global softs & agricultural brokerage service operates discretely between buyers and sellers to help each side achieve the best possible price for commodities being traded in every marketplace. The desk is based in New York and headed by Roger Corrado, theare also uniquely Together with options blocks. We former Vice Chairman of NYBOT. placed his team, Spectron has over 65 years experience in the softs & agricultural industry, has by working closely with one of the leading connections in several soft & agricultural producing countries, commercial soft & agricultural do not take positions in participants and the investment community of banks, hedge funds and liquidity providers. Spectron’s soft &desks in the industry. biofuels agricultural desk provides brokerage services in bilateral, OTC cleared er. It is our strong belief and futures & options blocks. We are also uniquely placed by working closely with one of the leading biofuels desks in the industry. tral intermediary in thee can assure our clients available with no conflict  
  6. 6. FAQ’SHow can I do business with Spectron?Spectron offers agency services in softs and agricultural commodites. In the softs space we have a full service offering, whether you wantto trade on-exchange or off-exchange. In the agricultural space we currently only offer off-exchange execution services, although we doplan on providing floor services in the future.What is the difference between on-exchange and off-exchange?On-exchange contracts (whether futures or options) are traded either via open outcry or electronically through an exchange such as ICEFutures, CBOT & LIFFE. Off-exchange contracts fall in to several different categories, such as; Blocks, EFS, EFP, EOO, cleared swapsand bilateral physical & swap contracts.How do on-exchange futures and options trade in these markets?In the futures market all of the volume is currently traded electronically. The volume in the option markets is predominantly done via openoutcry in the trading ring however they are also executed electronically on the exchange. We can execute options live or laid-up. Spectronoffers an alternative venue for options via cross trades (CO’s) matching buyer and seller on the electronic platform. This type of executionis innovative and was recently approved by the exchange.What are the trading hours for open outcry?The exchange floor hours are as follows on ICE Futures US: Sugar Options: 8:10 am – 1:30 pm closing period begins at 1:28 pm Coffee Options: 8:00 am – 1:30 pm closing period begins at 1:28 pm Cocoa Options: 8:00 am – 1:00 pm closing period begins at 12:58 pm Cotton Options: 10:30 am – 2:15 pm closing period begins at 2:14 pm FCOJ Options: 10:00 am – 1:30 pm closing period begins at 1:29 pmCan you give me more information on the off-exchange products?BlocksBlocks are privately negotiated exchange traded futures and options. Block trading facilities allow Members of an exchange to bilaterallynegotiate futures and options contracts without the normal requirements to first reveal the order to the market as long as the order meetsor exceeds a minimum volume threshold. Block trades are permitted in specified products and are subject to minimum transaction sizerequirements which vary according to the product. These transactions give the customer the ability to execute a large transaction at a fairand reasonable single price. Block trading is not consistent across all exchanges e.g. block trading is available at ICE Futures US, CMEtrading venues but not CBOT. For more details on block trades on ICE Futures US please see the link below:https://www.theice.com/publicdocs/circulars/07007%20G01%20attach%201%20-%20Guidance%20Blocks.pdfExchangeExchange for Risk (“EFR”), also known as EFS, EFP, EOO is an ex-pit transaction that provides market participants a way to establishor unwind an over-the-counter (OTC) swap or option. EFR transactions can be done for both cleared and bilateral OTC contracts wherethe underlying commodity reference asset is an exchange based soft or agricultural futures contract. EFRs can be transacted at any timefrom the swap inception to the settlement of the OTC position. For more information on EOO’s please see the link below:https://www.theice.com/publicdocs/futures_us/EOO_FAQ.pdf
  7. 7. FAQ’SCleared swapsCleared swaps are OTC agreements that are eligible to be cleared at an exchange’s clearing house but are not executed on thatexchange either electronically or on the floor. A cleared swap contract provides the same efficiencies and benefits that centralized clearingoffers traders of contracts listed for trading on an exchange – including credit risk intermediation and the ability to offset positions initiatedwith different counterparties. For more details on cleared swaps on ICE Clear US please see the link below:https://www.theice.com/publicdocs/futures_us/Cleared_Swaps_FAQ.pdfBilateralBilateral physical and swap contracts are executed OTC under standard ISDA agreements or bespoke agreements and are subject tolines of credit between the two counterparties.What are the minimum thresholds on exchange traded futuresand options to qualify as a block and when can I trade them? Sugar: 3:30am – 2:00pm Block Minimum 250 lots futures and options Coffee: 3:30am – 2:00pm Block Minimum 500 lots futures – 250 lots options Cocoa: 4:00am – 2:00pm Block Minimum 350 lots options only Cotton: 9:00am – 2:30pm Block Minimum 500 lots futures – 250 lots options FCOJ: 8:00am – 2:00pm Block Minimum 100 lots options onlyCleared contracts are in every day use in the energy markets,what about cleared contracts in the softs and agricultural markets?Option contracts in softs and agricultural commodities can not be brokered like NYMEX cleared and ICE OTC energy products. There areno brokers off the floor brokering softs and agriculturalcommodities in options like they do in the energy markets. You must be a memberof the exchange to execute business on the floor.There are however cleared swaps available to market participants through both ICE (sugar, coffee & cocoa) and CME(corn, soybeans & wheat).Are pre-negotiated trades allowed?Yes, as discussed in question 4 pre-negotiation is allowed in blocks, EFR’s, cleared swaps and bilateral transactions. We can also pre-negotiate options on the Electronic Futures ICE US or “ETS” This is a new rule and allows Spectron to obtain two sides of a customerorder. Spectron puts the order on the “ETS” and crosses it. It’s called a CO. Sugar: 3:30am – 2:00pm Coffee: 3:30am – 2:00pm Cocoa: 4:00am – 2:00pm Cotton: 9:00pm – 2:30pm FCOJ: 8:00am – 2:00pmThe link below explains this process in more detail.https://www.theice.com/publicdocs/futures_us/Pre_execution_Communication_FAQ.pdf
  8. 8. About SpectronSpectron operates a global marketplace for commodities, energy, environmental productsand freight: more than $500 billion of products trade through the company annually.With an award-winning reputation facilitates the trading of financial derivatives com, our electronic trading platform andfor exceptional client service and as well as physical transactions and is able the hybrid voice/screen model this createdinnovation, Spectron acts as a neutral to guarantee clients’ neutrality because has since become the industry benchmarkintermediary broker in the softs & we do not trade or take market positions. in Europe.agricultural commodities, natural gas, Spectron is also a leading provider ofelectricity, crude oil and petroleum market prices, report and analysis. Spectron was founded in 1988 and has aproducts, freight, coal, base metals, track record spanning over 2 decades. Inweather, biofuels, and emissions & Spectron revolutionized energy trading March 2008.environmental products markets. Spectron in 2000 with the launch of SpectronLive.Spectron is regulated and authorized by the Financial Services Authority inthe UK and Europe and the National Futures Association in the USA.Contacts Spectron floor servicesroger.corrado@spectrongroup.com Sugar +1 212 742 5352brett.muney@spectrongroup.com Coffee +1 212 742 5353avery.putter@spectrongroup.com Cocoa +1 212 742 5354 Cotton +1 212 748 3320Telephone +1 201 610 1082 Orange Juice +1 212 748 3321Fax +1 201 420 7136 www.spect rongroup.com

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