GFI Group’s North American commodities business was the biggest driver of growth within the company in 2011, and the global energy and commodities business saw a 7.1% increase in revenues year-on-year. Technological improvements were largely responsible, according GFI Group president Colin Heffron.
He highlights investments in the North American power and ethanol markets in 2011, and also the increased use of the company’s EnergyMatch platform. The system enables traders to anonymously buy or sell certain contracts during daily matching sessions.
“The desk will pick the midpoint of the price that has been on the screen for a specific contract all morning, for example – that midpoint flashes for a certain amount of time and traders can buy or sell at that level,” explains Richard Giles, head of commodities and energy brokerage, North America at GFI Group. “The secret ingredient to this is anonymity and the trading community has embraced that.”
The brokerage enhanced EnergyMatch in both Europe and North America in 2011. In the latter, GFI Group increased the number of weekly matching sessions from five to 55 (30 sessions in power and 25 in natural gas). Trades are up 88% year-on-year, according to the company, and approximately 42% of that increase can be attributed to the matching system. In Europe, the company added more products last year, including European and US coal prices, and fuel oil and iron ore swaps. Across all asset classes, the brokerage now holds more than 2,200 matching sessions per week.
We’re a hybrid model; we deploy great technology but we also need that backbone of the best brokers
GFI Group’s strong focus on technology has also been an advantage in a market faced with the new regulatory regimes currently being rolled out for US and European derivatives trading. “We’ve implemented technology that is going to be key to operating in this new regulatory world,” Giles says. And Heffron points out that GFI Group is the only company among its traditional competitors that owns a fully interactive screen – via subsidiary Trayport – that it can enhance to address these new rules.
“Because of our technological prowess and the way we got ahead of the game in this area, we think we are uniquely positioned to benefit from increased clearing and increased activity from our customers,” says Heffron.
The company’s ability to navigate the new rules for derivatives trading has also been enhanced by its long history in the energy and commodities space, Heffron adds. “Our company has seen what happened in the energy markets post-Enron and we looked at that as a potential model for other asset classes. As the use of clearing has increased in these markets, we’ve seen an expansion in our customer base, leading to increased volumes,” he says.
In 2011, new clients came from the world of high-frequency trading, as well as energy-specific and more general hedge funds looking to increase their exposure to commodity markets such as power and gas.
To address client demand, GFI Group bolstered or launched new desks in a number of markets. In addition to expanding its power desk by adding nine brokers to its 14-strong team, subsidiary Starsupply launched new crude oil and power options desks last year.
Explaining the need for these additional people and new services, Giles says: “We’re a hybrid model; we deploy great technology but we also need that backbone of the best brokers. And, as an interdealer brokerage, we are set up as a one-stop shop, so we try to cover almost every product to some degree.”
In addition, being at the forefront of technology will continue to be an important goal for the brokerage, Heffron emphasises. “Our investment in new types of technology in the energy space is ongoing and we think that will continue to increase the gap between ourselves and our competitors.”