2. The markets: past, present and future
Commodity futures markets have New liquidity pools Hybrid execution - the best of both worlds
gone through a huge transformation As a result of the increased volatility The exchanges had the best intentions
in recent years, with one of the major and reduced liquidity there has been when they introduced electronic trading
changes being that traditional open some pushback from traders. Although in the futures markets. Reduced costs of
outcry systems have been replaced by exchanges are unlikely to bring back the transaction, greater liquidity, and increased
electronic marketplaces. The electronic pits, we have seen the establishment of transparency are among the benefits they
market venue was embraced because exchange-cleared swaps and options believed the screen would offer. However
it appeared to offer a more transparent, and off-exchange futures and options floor brokers and traders also added
faster, efficient and orderly way to execute. trading in these markets through brokers. liquidity, price discovery, relative order, and
It also promised better liquidity and less Moving forward we believe that there will transparency. They also had a key role in
market 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 just
to 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 and
and delivering the promised benefits. It is price transparency. The ability of brokers There is no doubt that electronic
certainly true that electronic screens do to negotiate price and volume benefits marketplaces have served the trading
not provide commodity markets with all the hedgers and traders because they can community well and many participants use
answers; option floors still remain active work their orders without the fear of unduly these electronic marketplaces. However as
and 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 be
Soft and agricultural commodity futures are model that has developed in the off- increased liquidity, increased transparency
now predominantly traded electronically. exchange marketplace, where participants and potentially lower volatility ... the exact
But in some markets liquidity is dramatically are able to execute directly on the screen benefits that the electronic marketplaces
down 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 solution
orange juice and cotton see larger intra-day that meets all the objectives of the trading
price swings than ever before. This volatility community. Furthermore with the advent On March 3rd, 2008 when soft
would seem to be, in part, due to the lack of of clearing, participants are now able to commodity markets went fully
liquidity available on the screen. In addition mitigate counterparty risk whether they are electronic, the exchange held a record
to the lack of liquidity, the trading and executing on or off-exchange. open interest of approximately 1.8
hedging community has noticed the bid/ask million contracts. As of June 30th,
spread has widened in these markets since 2010 total exchange open interest
the open outcry futures pits disappeared. It had decreased to approximately 1.0
is even debatable whether the screen has million contracts – a 45% drop. In
brought increased transparency to these fact, the sugar market saw the largest
markets. Price discovery becomes more decline of 50%. While it is unlikely
difficult to establish the further away you that this drop is entirely due to moving
deal from the front month - it can only be away from the traditional open outcry
determined by the spread markets’ “carry marketplace to the screen it appears
cost” from month to month. These spread that it is a contributing factor and
markets have also seen liquidity dry up possibly a key contributing factor.
further out on the curve, which makes
hedging and trading much more difficult.
3. Spectron’s advantages: your edge
Spectron’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.
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 Refiners
Liquidity
Spectron has access to a wide Financial institutions
variety of liquidity pools and Banks, Index Funds, Hedge
can bring the customer market Funds and Pension Funds
color to assist their execution
requirements.
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 boundaries
The 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 between
these two main categories have become increasingly blurred primarily through the introduction
of centrally cleared contracts by exchanges and clearing houses. Spectron offers services across
execution 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 price
et 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 solutions
ptions, 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 Chairman
sociation and operates a full team, Spectron has over 65 years experience
erage operation on ICE in the softs & agricultural industry, has
ovide 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 investment
y 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 service
or 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 leading
ers 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 placed
roker. 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 ICE
aps 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?
via
p 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
ally
eets
ICE 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 meets
lish 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 fair
ime 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 Exchange
ring 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’S
Cleared swaps
Cleared swaps are OTC agreements that are eligible to be cleared at an exchange’s clearing house but are not executed on that
exchange either electronically or on the floor. A cleared swap contract provides the same efficiencies and benefits that centralized clearing
offers traders of contracts listed for trading on an exchange – including credit risk intermediation and the ability to offset positions initiated
with 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.pdf
http://tinyurl.com/48brp3m
Bilateral
Bilateral physical and swap contracts are executed OTC under standard ISDA agreements or bespoke agreements and are subject to
lines of credit between the two counterparties.
What are the minimum thresholds on exchange traded futures and 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 only
Cleared 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 are
no brokers off the floor brokering softs and agricultural commodities in options like they do in the energy markets. You must be a member
of 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 the
Electronic Futures ICE US system or “ETS” This is a new rule and allows Spectron to obtain two sides of a customer order. 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 – 2:00pm
The link below explains this process in more detail.
https://www.theice.com/publicdocs/futures_us/Pre_execution_Communication_FAQ.pdf
http://tinyurl.com/643eb7n
8. About Spectron
Spectron operates a global marketplace for commodities, energy, environmental products
and 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 and
for exceptional client service and as well as physical transactions and is able the hybrid voice/screen model this created
innovation, Spectron acts as a neutral to guarantee clients’ neutrality because has since become the industry benchmark
intermediary broker in the softs & we do not trade or take market positions. in Europe.
agricultural commodities, natural gas, Spectron is also a leading provider of
electricity, crude oil and petroleum market prices, report and analysis. Spectron was founded in 1988 and has a
products, freight, coal, base metals, track record spanning over 2 decades. In
weather, 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 in
the UK and Europe and the National Futures Association in the USA.
Contact Spectron floor services
softs&ags@spectrongroup.com Sugar +1 212 742 5352
Coffee +1 212 742 5353
Telephone +1 201 610 1082 Cocoa +1 212 742 5354
Cotton +1 212 748 3320
Fax +1 201 420 7136 Orange Juice +1 212 748 3321
www.spect rongroup.com
