Broker of the year: OTC Global Holdings

Energy Risk Awards 2019: Brokerage’s 2018 expansion includes 40% growth in its oil business

Joseph Kelly, OTC Global Holdings
Joe Kelly, OTC Global Holdings

OTC Global Holdings (OTCGH) had a stand-out year in 2018, growing its oil business by 40%, hitting the one-millionth trade on its EOXLive electronic platform and adding forward curves for freight and coal to its data product set. Already the largest independent commodity broker by volumes, its recent expansions diversify the business as well as providing a service to clients, says London-based chief executive Joe Kelly.

“The beauty of what we have done is continue to expand our offerings and services so that the company is highly diversified, which will protect us from slowdowns in certain markets, and create a one-stop-shop for clients,” says Kelly.

One of the biggest successes of last year was the brokerage’s growth of its oil business. This came as the firm continued to integrate UK-based Oil Brokerage into its portfolio after purchasing it in 2017. The acquisition also increased OTCGH’s geographic reach, particularly into Asia where the firm has a light-end refined products business.

“There are different areas where we continue to expand and one of the largest is oil,” says Kelly. “This year a big part of our work was simply integrating [Oil Brokerage] into OTCGH, alongside the rest of our brands. The end result was a phenomenal success. We have been able to grow volumes in that part of the business by 40% in one year, and I’ll take that every day.”

OTCGH, which is co-headquartered in New York and Houston, started life in 2007 in the US natural gas options market. It has grown over the years into a collection of nearly 20 independent brokerages in nine different locations: Chicago, Des Moines, Geneva, Houston, London, Louisville, New Jersey, New York and Singapore.

In addition to the evolution of its product offering and locations, OTCGH continued to strengthen its position in its original home, the natural gas market, brokering 37.25% of the US block market for natural gas options in June 2018, according to the firm. This included taking a market-leading 42% share of the Nasdaq Future Exchange’s total monthly natural gas options block volume in June.

This year a big part of our work was simply integrating [Oil Brokerage] into OTCGH, alongside the rest of our brands. The end result was a phenomenal success. We have been able to grow volumes in that part of the business by 40% in one year, and I’ll take that every day

Joe Kelly, OTC Global Holdings

The month was notable as it was the first time Nasdaq had the highest monthly block volumes for natural gas options of any US energy exchange, with a market share of 42% – ahead of CME Group with 36% and Intercontinental Exchange (Ice) with 23%.

Meanwhile, in March last year, 94% of Ice’s natural gas option block volumes were executed on EOXLive and 51% of CME’s. And while total volumes traded were lower that month than during their November and December peak, Kelly believes, this demonstrates the firm’s constant presence in the natural gas hedging markets.

“We are always performing at the top of the natural gas market, with a 30%-plus share of any given month of volumes traded in natural gas options. Obviously, market share is hard to get a grip on when activity is tight. But it’s important nonetheless, and when the market is trading in big volumes this really counts. We are consistently at the top of that too.”

OTCGH did not just make strides in the major oil and gas markets in 2018. It also sought to diversify further by launching coal and freight forward curves. These add to a product suite that also includes end-of-day forward curve reports for crude oil and refined products, natural gas basis and power forwards, natural gas implied volatilities, basis options and markets data.

According to Kelly, it is vital to continuously expand the company’ coal and freight product set in response to client demand, even if these markets are relatively niche compared with the oil and natural gas markets.

“A lot of clients are looking at both freight and coal and, as a commodities broker, you want to cover everything. Some of our products are more bespoke and illiquid and trade only a fraction of, for example, a Brent marker. But you are still going to have certain pockets of your clients that look at those sectors, so it’s good to be able to provide them with hedging tools like this.”

The commodities broking sector has seen a wave of consolidation in recent years, but Kelly is adamant that OTCGH has a much greater value proposition to clients by staying independent and has no plans to change the company’s status.

“I like being nimble, being able to make decisions quickly and being able to be aggressive when I want be,” says Kelly. “That’s the same philosophy we offer to all our different companies. They are very entrepreneurial [and don’t want] a large bureaucracy with layers of management to deal with.”

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