P&L Report Card

For many years this award was something of a foregone conclusion. While the many banks offered various products around precious metals, JP Morgan and Goldman Sachs stood out by having significantly stronger and broader commodity suites, with the latter traditionally winning this award.

In 2016 this dynamic began to change. The gap between these two banks started to close, not because Goldman Sachs has stood still, but rather because JP Morgan clearly put a lot of effort into improving its commodities offering, adding an impressive range of new products and functionality.

Well now there is a third player in the commodities space worth keeping an eye on, and this is BNP Paribas.

The result of a three-year development exercise, the BNP Paribas commodity platform now offers trading on 60-70 different commodity products. The French bank has also taken a very different approach to its competitors on the commodities side by only offering trading in OTC products on the platform.

The logic here is that BNP Paribas’ corporate clients – who drive the trading volumes in its commodities business – will benefit from the flexibility that OTC trading offers by being able to exactly hedge their various exposures. By putting these OTC products onto an electronic platform, the French bank is looking to improve pre-trade transparency, reduce execution time and streamline post-trade functionality.

Users of the platform are able to create dozens of product structures on one side of the screen, watch the prices ticking on the screen so they can monitor the market and then trade straight from there. The blotter is pretty standard fare but BNP Paribas has made it a more collaborative tool so that users within a company can easily share their trading activity, making it easier for staff members in different geographical locations to monitor trades or transfer them between the team.

At the moment the commodities platform is still separate and distinct from Cortex, but the design, look and feel has been kept the same, meaning that it should be easy for clients to use both.

BNP Paribas has made significant strides in the commodities space in a short amount of time, it’s nice to see that the bank is trying to think about how it can differentiate itself in this area and, ultimately, it’s beneficial to clients to have more competition amongst platform providers.

The approach from Goldman Sachs over the past year has generally been to focus on functionality rather than adding more products onto its platform. Are there some commodities products missing from it’s platform? Perhaps, but at this point the products that aren’t on there, frankly, probably aren’t liquid enough to provide good e-pricing on.

One piece of good functionality that compliance officers and heads of desks will both like is that now users can set up automatic trading alerts for precious metals, base metals or energy products. For example, a trader could set up an alert in the form of an SMS if crude oil hits a certain trading level, or if they’re reaching their trading limit. Other staff members can be included in these alerts via email as well, meaning that it has both a practical function for alerting the trader of a movement in the market and a potential compliance function by providing greater oversight of trading activity by senior staff.

Goldman Sachs has expanded its energy suite, offering more liquid benchmarks in gas and oil products, the order book available for precious and base metals and energy products looks good, as does the ability to leave orders in a calendar strip. It has also added the CHF, MXN, TRY and CNH currencies for precious metals.

Meanwhile, this year a lot of work has gone in under the hood on the commodity side at Goldman Sachs, making sure that the pricing and liquidity is good enough to make the e-trading side of the business very competitive with the spreads offered by the voice desk.

Winner – JP Morgan

That’s right, Profit & Loss said that last year this award was one of the tougher decisions, and the same has been true this year, but JP Morgan have just about edged it.

2017 was another busy year for JP Morgan on the commodities side. For example, it added 40 new commodity products, introduced cross asset grids and cross asset exchange referenced orders; on the precious metals side it has added cross currency swaps and pricing in grams, options RFQ functionality and auction orders; on the base metals side it now offers clients access to Comex metals and LME minor metals.

JPM has also completely re-built the options trading functionality, helped enable mixed execution styles by adding a grid into which clients can add any product and eliminated much of the separation that existed previously between energy and base metals trading on the platform.

On the energy side the bank has added pricing for oil cracks, off exchange streaming, custom fixing dates, more tenors for its energy suits and calendar spreads. Externally, it now offers take profit order and iceberg order types, internally, the firm now has stop-loss order types as well.

On the aggs side, the bank responded to client feedback by adding a full wheat complex onto its platform, oilseed (canola) pricing in USD and CAD and spreads for aggs products.

All of this represents progress for the platform, but doesn’t necessarily clinch the award for them. What it does do is pull them pretty much neck-and-neck with Goldman Sachs. Profit & Loss stated last year that the commodities field presented one of the more difficult award decisions, and this year there is even less to choose from between the two front runners. So in the end, it wasn’t anything in the commodities suite itself that was differentiator, but rather how other elements of the platform can be applied to the commodities segment.

In what is becoming a “must have” product, JP Morgan has built a control centre that allows administrators to implement a wide range of controls and alerts throughout its e-trading platform, including commodities. In addition to this, JP Morgan has started moving more of its commodities products onto its mobile app, which is one of the best out there at the moment.

It was a very tough call this year – and it seems likely that it will be so again next year once both platforms have completed their migration to HTML5 – but when two commodity offerings are so evenly matched, the fact that JP Morgan just about has the advantage at the margins has just – fractionally – carried it over the line 

Galen Stops

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