avery putter spectron marex softs and agricultural commodity markets

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Softs & agricultural commodities Premier brokering for global softs & agricultural commodities

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Spectron soft and agricultural brochure.

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Page 1: avery putter spectron marex softs and agricultural commodity markets

Softs & agricultural commoditiesPremier brokering for global softs & agricultural commodities

Page 2: avery putter spectron marex softs and agricultural commodity markets

The markets: past, present and future

Commodity futures markets have gone through a huge transformation in recent years, with one of the major changes being that traditional open outcry systems have been replaced by electronic marketplaces. The electronic market venue was embraced because it appeared to offer a more transparent, faster, efficient and orderly way to execute. It also promised better liquidity and less market manipulation. But there is now growing debate in the trading community as to whether these new marketplaces have been successful in meeting these objectives and delivering the promised benefits. It is certainly true that electronic screens do not provide commodity markets with all the answers; option floors still remain active and liquidity outside of the front months for futures and options remains erratic.

Soft and agricultural commodity futures are now predominantly traded electronically. But in some markets liquidity is dramatically down from where it was during the open outcry days. In the soft markets, for example, orange juice and cotton see larger intra-day price swings than ever before. This volatility would seem to be, in part, due to the lack of liquidity available on the screen. In addition to the lack of liquidity, thetrading and hedging community has noticed the bid/ask spread has widened in these markets since the open outcry futures pits disappeared. It is even debatable whether the screen has brought increased transparency to these markets. Price discovery becomes more difficult to establish the further away you deal from the front month - it can only be determined by the spread markets’ “carry cost” from month to month. These spread markets have also seen liquidity dry up further out on the curve, which makes hedging and trading much more difficult.

New liquidity poolsAs a result of the increased volatility and reduced liquidity there has been some pushback from traders. Although exchanges are unlikely to bring back the pits, we have seen the establishment of exchange-cleared swaps and options and offexchange futures and options trading in these markets through brokers. Moving forward we believe that there will be increasing volumes being executed in these emerging liquidity pools as market participants realize that these are one of the best ways of accessing greater liquidity and price transparency. The ability of brokers to negotiate price and volume benefits hedgers and traders because they can work their orders without the fear of unduly moving the markets.

The establishment of the hybrid execution model that has developed in the off-exchange marketplace, where participants are able to execute directly on the screen or with the assistance of a broker on the end of a telephone, should be the solution that meets all the objectives of the trading community. Furthermore with the advent of clearing, participants are now able to mitigate counterparty risk whether they are executing on or offexchange.

Hybrid execution - the best of both worlds The exchanges had the best intentions when they introduced electronic trading in the futures markets. Reduced costs of transaction, greater liquidity, and increased transparency are among the things they believed the screen would offer. However floor brokers and traders also added liquidity, price discovery, relative order, and transparency. They also had a key role in providing market “noise” and sentiment, something which electronic platforms just cannot do.

There is no doubt that electronic marketplaces have served the trading community well and many participants use these electronic marketplaces. However as more participants realize that the exchange-cleared market offered by brokers gives the best of both worlds there will be increased liquidity, increased transparency and potentially lower volatility ... the exact benefits that the electronic marketplaces believed they would bring.

On March 3rd, 2008 when soft commodity markets went fully electronic, the exchange held a record open interest of approximately 1.8 million contracts. As of June 30th, 2010 total exchange open interest had decreased to approximately 1.0 million contracts – a 45% drop. In fact, the sugar market saw the largest decline of 50%. While it is unlikely that this drop is entirely due to moving away from the traditional open outcry marketplace to the screen it appears that it is a contributing factor and possibly a key contributing factor.

Page 3: avery putter spectron marex softs and agricultural commodity markets

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

Spectron is able to provide customers with complete anonymity through its provision of on and off-exchange, as well as exchange cleared execution services.

Independent, agency only

Spectron is a neutral intermediary and as such never takes a proprietary position in the markets we cover. We work for buyers and sellers with no conflict of interest.

Liquidity

Spectron has access to a wide variety of liquidity pools and can bring the customer market color to assist their execution requirements.

CommercialsGrowers, Shippers, Mills,

Commercial Brokers, Consumer Companies and Refiners

Financial institutions Banks, Index Funds, Hedge Funds and Pension Funds

Liquidity providers High Frequency Traders,

Algorithmic Traders and Market Makers

Bilateral swaps &physical

commodities

On-exchangefutures

& options

Exchange clearedswaps & physical

commodities

Off-exchangefutures & options

“blocks”

Customization & flexibility

Spectron is able to bring the customer a wide variety of execution services in terms of products, term and execution venue. Spectron is a “one-stop” shop for your execution requirements, ranging from the execution of a standard exchange traded future or option to a long term strip in the exchange-cleared or bilateral markets.

Page 4: avery putter spectron marex softs and agricultural commodity markets

Deal execution: blurring the boundaries

The execution of commodity products has historically been split into two broad categories; onexchange 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• Predominantly voice-brokered in brokered

market, although can also be traded on-screen • Direct credit exposure to swaps/physical

counterparty• Complete flexibility in deal structure• Swaps trade under ISDA master agreement• Counterparties limited to whom swap user has

ISDA in place with

• Exchange traded either on-screen or in pit• Credit exposure is to clearing house• Not flexible with respect to structure or

term• Liquid front months• Less liquidity further out the curve• Significant levels of price slippage

Bilateral swaps and physical commodities

On-exchange futures and options

Off-exchange futures and options (“Blocks”), clearedswaps and options, EFSs, EFPs, EFRPs and EOOs

• 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

Trader B

Trader A

Trader A

Trader A

Trader B

Trader B

Clearing house

Clearing house

Broker

Broker

Broker BrokerFloor

Page 5: avery putter spectron marex softs and agricultural commodity markets

Spectron’s hybrid solutions

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-traded futures and options, “blocks” in all futures and options, as well as bilateral and exchange cleared swap contracts. Spectron Commodity Futures Inc and Spectron Energy Inc can assure our clients that every deal we broker we are on their side.

Spectron Commodity Futures Inc

Spectron Commodity Futures Inc i s a p p r o v e d a s a n i n d e p e n d e n t Introducing Broker by the National Futures Association and operates a full service floor brokerage operation on ICE Futures US. We provide execution services in all exchange traded futures and options. Spectron’s trading floor operation is headed by Avery Putter. Avery has been an exchange member since 1996 and has over 18 years of experience on the trading floor. In 2001 he started his own floor operation and acquired member firm status. Spectron floor brokers do not take positions in any markets they broker. It is our strong belief that acting as a neutral intermediary in the markets we broker, we can assure our clients the best possible price available with no conflict of interest.

Spectron Energy Inc

Spectron Energy Inc’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. The desk is based in New York and headed by Roger Corrado, the former Vice Chairman of NYBOT. Together with his team, Spectron has over 65 years experience in the softs & agricultural industry, has connections in several soft & agricultural producing countries, commercial soft & agricultural participants and the investment community of banks, hedge funds and liquidity providers. Spectron’s soft & agricultural desk provides brokerage services in bilateral, OTC cleared and futures & options blocks. We are also uniquely placed by working closely with one of the leading biofuels desks in the industry.

  

Spectron’s hybrid solutions

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-traded futures and options, “blocks” in all futures and options, as well as bilateral and exchange cleared swap contracts. Spectron Commodity Futures Inc and Spectron Energy Inc can assure our clients that every deal we broker we are on their side.

Spectron Commodity Futures Inc is approved as an independent Introducing Broker by the National Futures Association and operates a full service floor brokerage operation on ICE Futures US. We provide execution services in all exchange traded futures and options. Spectron’s trading floor operation is headed by Avery Putter. Avery has been an exchange member since 1996 and has over 18 years of experience on the trading floor. In 2001 he started his own floor operation and acquired member firm status.

Spectron floor brokers do not take positions in any markets they broker. It is our strong belief that acting as a neutral intermediary in the markets we broker, we can assure our clients the best possible price available with no conflict of interest.

Spectron Energy Inc’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. The desk is based in New York and headed by Roger Corrado, the former Vice Chairman of NYBOT. Together with his team, Spectron has over 65 years experience in the softs & agricultural industry, has connections in several soft & agricultural producing countries, commercial soft & agricultural participants and the investment community of banks, hedge funds and liquidity providers. Spectron’s soft & agricultural desk provides brokerage services in bilateral, OTC cleared and futures & options blocks. We are also uniquely placed by working closely with one of the leading biofuels desks in the industry.

 

 

Page 6: avery putter spectron marex softs and agricultural commodity markets

How can I do business with Spectron?

Spectron offers agency services in softs and agricultural commodites. In the softs space we have a full service offering, whether you want 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?

On-exchange contracts (whether futures or options) are traded either via open outcry or electronically through an exchange such as ICE 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?

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:

Can you give me more information on the off-exchange products?

BlocksBlocks 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 or exceeds a minimum volume threshold. Block trades are permitted in specified products and are subject to minimum transaction size requirements which vary according to the product. These transactions give the customer the ability to execute a large transaction at a fair 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

Exchange Exchange for Risk (“EFR”), also known as EFS, EFP, EOO is an ex-pit transaction that provides market participants a way to establish 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

FAQ’S

Sugar Options: 8:10 am – 1:30 pm closing period begins at 1:28 pmCoffee Options: 8:00 am – 1:30 pm closing period begins at 1:28 pmCocoa Options: 8:00 am – 1:00 pm closing period begins at 12:58 pmCotton Options: 10:30 am – 2:15 pm closing period begins at 2:14 pmFCOJ Options: 10:00 am – 1:30 pm closing period begins at 1:29 pm

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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

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?

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 agriculturalcommodities 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, as discussed in question 4 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 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.

The link below explains this process in more detail. https://www.theice.com/publicdocs/futures_us/Pre_execution_Communication_FAQ.pdf

FAQ’S

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

Sugar: 3:30am – 2:00pm Block Minimum 250 lots futures and optionsCoffee: 3:30am – 2:00pm Block Minimum 500 lots futures – 250 lots optionsCocoa: 4:00am – 2:00pm Block Minimum 350 lots options onlyCotton: 9:00am – 2:30pm Block Minimum 500 lots futures – 250 lots optionsFCOJ: 8:00am – 2:00pm Block Minimum 100 lots options only

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About Spectron

Spectron is regulated and authorized by the Financial Services Authority in the UK and Europe and the National Futures Association in the USA.

[email protected]@[email protected]

Telephone +1 201 610 1082Fax +1 201 420 7136

With an award-winning reputation for exceptional client service and innovation, Spectron acts as a neutral intermediary broker in the softs & agricultural commodities, natural gas, electricity, crude oil and petroleum products, freight, coal, base metals, weather, biofuels, and emissions & environmental products markets. Spectron

facilitates the trading of financial derivatives as well as physical transactions and is able to guarantee clients’ neutrality because we do not trade or take market positions. Spectron is also a leading provider of market prices, report and analysis.

Spectron revolutionized energy trading in 2000 with the launch of SpectronLive.

com, our electronic trading platform and the hybrid voice/screen model this created has since become the industry benchmark in Europe.

Spectron was founded in 1988 and has a track record spanning over 2 decades. In March 2008.

www.spectrongroup.com

Spectron floor services Sugar +1 212 742 5352Coffee +1 212 742 5353Cocoa +1 212 742 5354Cotton +1 212 748 3320Orange Juice +1 212 748 3321

Spectron operates a global marketplace for commodities, energy, environmental products and freight: more than $500 billion of products trade through the company annually.