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Softs&Ags Brochure Spectron Commodity Futures

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  • 1. Softs & agriculturalcommoditiesPremier brokering for global softs& agricultural commodities
  • 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 The exchanges had the best intentionsin recent years, with one of the major and reduced liquidity there has been when they introduced electronic tradingchanges being that traditional open some pushback from traders. Although in the futures markets. Reduced costs ofoutcry systems have been replaced by exchanges are unlikely to bring back the transaction, greater liquidity, and increasedelectronic marketplaces. The electronic pits, we have seen the establishment of transparency are among the benefits theymarket venue was embraced because exchange-cleared swaps and options believed the screen would offer. Howeverit appeared to offer a more transparent, and off-exchange futures and options floor brokers and traders also addedfaster, efficient and orderly way to execute. trading in these markets through brokers. liquidity, price discovery, relative order, andIt also promised better liquidity and less Moving forward we believe that there will transparency. They also had a key role inmarket manipulation. But there is now be increasing volumes being executed in providing market “noise” and sentiment,growing debate in the trading community as these emerging liquidity pools as market something which electronic platforms justto whether these new marketplaces have participants realize that these are one of the cannot do.been successful in meeting these objectives best ways of accessing greater liquidity andand delivering the promised benefits. It is price transparency. The ability of brokers There is no doubt that electroniccertainly true that electronic screens do to negotiate price and volume benefits marketplaces have served the tradingnot provide commodity markets with all the hedgers and traders because they can community well and many participants useanswers; option floors still remain active work their orders without the fear of unduly these electronic marketplaces. However asand liquidity outside of the front months for moving the markets. more participants realize that the exchange-futures and options remains erratic. cleared market offered by brokers gives The establishment of the hybrid execution the best of both worlds there will beSoft and agricultural commodity futures are model that has developed in the off- increased liquidity, increased transparencynow predominantly traded electronically. exchange marketplace, where participants and potentially lower volatility ... the exactBut in some markets liquidity is dramatically are able to execute directly on the screen benefits that the electronic marketplacesdown from where it was during the open or with the assistance of a broker on the believed they would bring.outcry days. In the soft markets, for example, end of a telephone, should be the solutionorange juice and cotton see larger intra-day that meets all the objectives of the tradingprice swings than ever before. This volatility community. Furthermore with the advent On March 3rd, 2008 when softwould seem to be, in part, due to the lack of of clearing, participants are now able to commodity markets went fullyliquidity available on the screen. In addition mitigate counterparty risk whether they are electronic, the exchange held a recordto the lack of liquidity, the trading and executing on or off-exchange. 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. 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. Deal execution: blurring the boundariesThe execution of commodity products has historically been split into two broad categories;on-exchange and over-the-counter (“OTC”) markets. In the last decade the boundaries betweenthese two main categories have become increasingly blurred primarily through the introductionof centrally cleared contracts by exchanges and clearing houses. Spectron offers services acrossexecution venues and brings 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. eration and OTC desk work in synergy to offer our clients exceptional priceet sentiment that electronic platforms do not offer. Through our global network ecialize in the execution of: on-exchange-traded futures and options, “blocks” Spectron’s hybrid solutionsptions, as well as bilateral and exchange cleared swap contracts. Spectron Inc 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 futures and options, “blocks” in all futures Spectron Energy Inc’s global softs & and options, as well as bilateral and exchange cleared swap contracts. Spectron Commodity Futures agricultural brokerage service operates Inc and Spectron Energy Inc can assure our clients that every deal we broker we are on their 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 commoditiesI n d e p e n d e n t approved as an being traded in every Introducing Broker by the National Futures Association and operates a full service floor brokerage operation on ICE Futures US. We provide is based in New York marketplace. The desk execution services in all exchange traded futures and options. Spectron floor y Futures Inc not take positions in any markets they headedour strong belief Corrado, the former brokers do is approved and broker. It is by Roger that acting as a neutral intermediary in the markets we broker, we can assure our Introducing the best possible price available with no conflict of interest. of NYBOT. Together with his clients Broker by the Vice Chairmansociation and operates a full team, Spectron has over 65 years experienceerage operation on ICE in the softs & agricultural industry, hasovide execution services in connections in several soft & agricultural ed futures and options. producing countries, commercial soft & oor operation is headed by agricultural participants and the investmenty has been an exchange community of banks, hedge funds and and has over 18 years of liquidity providers. Spectron’s soft & Spectron Energy Inc trading floor. In 2001 he agricultural desk provides brokerage services Spectron Energy Inc’s global softs & agricultural brokerage serviceor operation and acquired in bilateral, OTC cleared and futures & 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, has connections in several soft & placed options blocks. We are also uniquely agricultural producing countries, commercial soft & agricultural participants and the investment community closely with one of providers. Spectron’s by working of banks, hedge funds and liquidity the leadingers do not take positions in soft & agricultural desk provides brokerage services in bilateral, OTC cleared and futures & options blocks. We are also industry. by working closely with one biofuels desks in the uniquely placedroker. It is our strong belief of the leading biofuels desks in the industry. eutral intermediary in the we can assure our clients ce available with no conflict     
  • 6. FAQ’S How can I do business with Spectron? ant Spectron offers agency services in softs and agricultural commodites. In the softs space we have a full service offering, whether you want do to trade on-exchange or off-exchange. In the agricultural space we currently only offer off-exchange execution services, although we do plan on providing floor services in the future. What is the difference between on-exchange and off-exchange?CE On-exchange contracts (whether futures or options) are traded either via open outcry or electronically through an exchange such as ICEaps Futures, CBOT & LIFFE. Off-exchange contracts fall in to several different categories, such as; Blocks, EFS, EFP, EOO, cleared swaps and bilateral physical & swap contracts. How do on-exchange futures and options trade in these markets? viap In the futures market all of the volume is currently traded electronically. The volume in the option markets is predominantly done via open outcry in the trading ring however they are also executed electronically on the exchange. We can execute options live or laid-up. Spectron offers an alternative venue for options via cross trades (CO’s) matching buyer and seller on the electronic platform. This type of execution is 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 pm allyeetsICE Can you give me more information on the off-exchange products? Blocks Blocks are privately negotiated exchange traded futures and options. Block trading facilities allow Members of an exchange to bilaterally negotiate futures and options contracts without the normal requirements to first reveal the order to the market as long as the order meetslish or exceeds a minimum volume threshold. Block trades are permitted in specified products and are subject to minimum transaction size ere requirements which vary according to the product. These transactions give the customer the ability to execute a large transaction at a fairime and reasonable single price. Block trading is not consistent across all exchanges e.g. block trading is available at ICE Futures US, CME trading 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.pdf http://tinyurl.com/66qku84 hat Exchangering Exchange for Risk (“EFR”), also known as EFS, EFP, EOO is an ex-pit transaction that provides market participants a way to establish ted or unwind an over-the-counter (OTC) swap or option. EFR transactions can be done for both cleared and bilateral OTC contracts where the underlying commodity reference asset is an exchange based soft or agricultural futures contract. EFRs can be transacted at any time from 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 http://tinyurl.com/6zyjwf9 t to
  • 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.pdfhttp://tinyurl.com/48brp3mBilateralBilateral 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 futures and options to qualify as a block andwhen 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 thesofts 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 agricultural commodities 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, pre-negotiation is allowed in blocks, EFR’s, cleared swaps and bilateral transactions. We can also pre-negotiate options on theElectronic Futures ICE US system or “ETS” This is a new rule and allows Spectron to obtain two sides of a customer order. Spectron putsthe 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.pdfhttp://tinyurl.com/643eb7n
  • 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.Contact Spectron floor servicessofts&ags@spectrongroup.com Sugar +1 212 742 5352 Coffee +1 212 742 5353Telephone +1 201 610 1082 Cocoa +1 212 742 5354 Cotton +1 212 748 3320Fax +1 201 420 7136 Orange Juice +1 212 748 3321 www.spect rongroup.com