OTC trading platform of the year: BNP Paribas

Energy Risk awards 2023: Cortex CD platform meets surge in client demand for speedy, efficient OTC hedging

Guillaume Picot, BNP Paribas

As energy prices soared in the wake of Russia’s invasion of Ukraine last year, producers and consumers were forced to revisit their hedging strategies. However, as the need to increase or adjust hedging became more pressing, huge hikes in margin calls led to liquidity and funding challenges. This triggered a renewed migration to over-the-counter markets.

Throughout the extreme conditions of last year, BNP Paribas was able to capture these increased OTC flows, as well as service clients’ demand for direct market access, self-service and rapid execution, through its electronic OTC trading platform Cortex Commodity Derivatives. The platform saw an increase in trade volumes across all commodity classes in 2022, a 30% growth in client numbers year-on-year to more than 350, and a doubling of individual users.

“Cortex CD has been developed above all as a service to our clients,” says Guillaume Picot, BNP’s head of corporate and investor commodity derivatives sales. “Enabling clients to self-service on Cortex CD has given them full price visibility in a highly volatile and uncertain environment enabling them to capture market moves without the delay associated with traditional voice execution,” he adds.

In 2022, BNP Paribas broadened Cortex CD’s product coverage and rolled out several technological improvements to the platform. “Together, these developments meant we had record usage from clients,” says Picot.

The platform, which spans 500 commodity indices in 12 currencies, now covers gas, emissions, voluntary carbon offsets, steel, iron ore, aluminium, cobalt and lithium. Customers also use it to access research, chat with dedicated marketers, extract market data and manage post-trade requirements, such as electronic confirmation matching or portfolio valuation access.

Recent functionality updates include improving price discovery for clients with useful features such as forward curve extrapolation, price exporting or time spread matrix. Notably, an order management system allows clients to place limit or fixing orders and receive price alerts.

While the Cortex CD platform was able to efficiently capture and book the growing customer flows, the credit risk appetite of BNP Paribas meant sales and structuring teams were simultaneously able to design new products for Cortex CD clients, including liquidity and working capital solutions.

Equally, for BNP Paribas, the platform has allowed traders to continue offering liquidity in wildly fluctuating markets while risk-managing their books closely, thanks to the possibility of seamless transition from live streaming of prices to requests for quotation.

The request-for-quotation system is unique to Cortex CD, according to BNP Paribas, since most of its competitors rely on live stream. Clients wait 30 seconds on average to obtain their price, which will remain live for 15 minutes depending on underlying market conditions.

Throughout 2022, Cortex CD served two important functions, says Ekaterina Metelkina, head of commodity derivatives MAST corporate sales. “Request-for-quote functionality provided more clients with access to more markets as they could direct requests through to voice traders,” she says. “Additionally, the platform allowed BNP Paribas to handle record client volumes as we could price, hedge, book and recap requests efficiently with lower operational risk.”

Transaction volume executed directly by clients on Cortex CD now represents more than 45% of BNP Paribas Global Commodity flow and the bank plans to continue investing in Cortex CD by adding more markets and greater functionalities.

“For 2023, we are looking to in particular [growing] our local franchises in Poland, China and Brazil,” says Picot.

BNP Paribas has “rigorously innovated” the platform since inception, keeping clients’ needs at the core of the strategy, says Picot. “Technology is one of the central tenets of BNP Paribas’ 2025 strategy, and Cortex CD is at the heart of the strategy for the Commodity Derivatives franchise,” he says.