Consolidation was a key theme among the commodity brokerage community in 2016, but OTC Global Holdings continued to forge its own path, building on its current offering and pushing into new markets.
The brokerage took its first step into Asia in January 2017, opening a Singapore outpost of its crude oil-focused portfolio company Aalpha Energy. It will broker crude swaps, enabling OTC Global Holdings to offer its clients full coverage throughout the global working day. Joseph Kelly, New York-based president and co-chief executive officer (CEO) of OTC Global Holdings, says the brokerage has always aimed to build a global network to aggregate the market information clients demand. “Opening the OTC Asia office creates a global network that provides information and trading capabilities 24 hours a day,” he says.
In addition to boosting its physical presence, over the past year OTC Global Holdings continued to develop its technological reach by upgrading its hybrid voice/electronic over-the-counter trading platform, EOXLive. What started as a trade-capture system has evolved over the years to provide market screens enabling users to access data and trading tools, increasing transparency and liquidity. Now a web-based platform, EOXLive provides users with embedded option pricing and analytics grids, among other features. Electronic platforms position brokerages to capture higher-margin business, while the voice element retained by EOXLive means OTC Global Holdings brokers can continue to work with clients that have more bespoke derivatives needs and in more illiquid markets. “The platform enables our clients to trade more efficiently, have more knowledge and access to products and regions,” Kelly says.
Javier Loya, Houston-based chairman and co-CEO, believes the platform has been a major driver of the firm’s success in commodities broking to date. “It’s a difficult process to invest in, build and integrate a system and […] for us EOXLive was a fulfilment of many years of hard work. We have used technology to tie our 20-plus brokerage companies together, to leverage our liquidity pools and create a strong product for our customers.”
Kelly highlights the company’s unique structure as a major factor in its success across many commodities markets. OTC Global Holdings acts as an umbrella for a group of 18 portfolio companies that operate independently but benefit from the group’s resources. Altogether, the organisation serves more than 450 institutional clients in hundreds of commodity delivery points across the Americas, Europe and Asia.
The structure has allowed the firm to remain nimble, Kelly says, in large part leading to growth in recent years in terms of liquidity added via the platform, and increased global coverage. “The structure of our company allows our various portfolio companies to be nimble, to be more entrepreneurial, and to grow without boundaries around how they want to run their businesses, the products they want to add or the geographical regions they want to expand into,” he says. “And they have the opportunity to do that inside a larger firm that can provide the necessary resources. It is that model that has enabled us to grow OTC Global Holdings,” he says.
The structure of our company allows our various portfolio companies to be nimble, to be more entrepreneurial, and to grow without boundaries around how they want to run their businesses
Joseph Kelly, OTC Global Holdings
Overall company revenues grew by 11% between 2015 and 2016, while some portfolio companies saw an even greater uptick. Revenue growth for Choice Refined Products, a US-based refined products brokerage, was 88% in 2016, while natural gas and power broker Ion saw a 30% jump. Revenue growth at physical and financial crude oil broker Aalpha increased by 24% and at crude and products specialist OTC Europe it rose by 22%.
In 2016, this growth occurred amid the wave of consolidation that has swept through the interdealer brokerage landscape in recent years. Most recently, this includes Tullett Prebon’s December 2016 acquisition of Icap, creating the largest interdealer broker in the world, as well as BGC Partners’ merger with GFI Group, which was completed in January 2016.
Discussing how this market restructuring has affected OTC Global Holdings, Kelly says: “We have been able to continue to grow our firm organically and make acquisitions that make sense in relation to our business model. We have also been able to add liquidity via our technology and increase our coverage globally – I think this is something to be proud of.”
Loya adds that the recent consolidation in the sector has only encouraged OTC Global Holdings to be more strategic in terms of its spending and expansion plans. “We focus on markets that are nascent or emerging, pushing the envelope in both physical crude oil – the US domestic oil market – as well as making a continued push into new markets such as natural gas liquids and international liquefied petroleum gas,” he says. “We are one of the largest, if not the last, large independent commodities brokerage firm, and all of those elements have helped to propel us to a position of prominence.”
The week on Risk.net, April 7–13, 2018Receive this by email