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Griffin energy trading platform to challenge established brokers

04 Apr 2013 18:44:05 | csd

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Established brokers will face a challenge for their share of Europe's over-the-counter (OTC) energy markets from a newly-launched trading platform.

Griffin Markets Group launched its trading platform on 26 March offering British NBP and Dutch TTF gas products. The move has prepared the ground for a market-share battle between established firms with a larger element of traditional voice broking, and Griffin's predominantly electronic model.

Over the coming months, Griffin intends to add more European gas hubs including Belgian Zeebrugge, German NCG and Gaspool, Italian PSV, Austrian CEGH and French PEG along with coal products and electricity markets including Germany, France, the Netherlands, Belgium and the UK.

It will list the same bilateral and OTC prompt- and curve-cleared contracts that participants currently trade through brokers.

Some in the industry have expressed support for the move, and have revealed concrete intentions to trade on the new platform.

Griffin is selling itself based on a reduction in costs for participants by moving away from voice broking towards electronic execution, although it will maintain a voice-broking desk covering illiquid European energy options.

The fees have caused waves in the market: "It is advantageous for hedge funds and utilities," one UK-based participant said.

Smaller funds may have to trade through banks, he explained, which can be costly, while utilities have to trade large volumes. "And when you have low levels of volatility, such as now, that's quite a significant cost," the source said.

"You can trade and get to see counterparty names, which is what attracted people to OTC," the UK-based source added. "Combine that with the fees and you may have a successful business model."

Yet Griffin could face an uphill battle as it looks to expand its offering across Europe, some traders said.

Liquidity

Amid the initially warm reception, some expressed doubt over the viability of moving steadily away from voice broking in any market other than the NBP, TTF or German power, because of liquidity issues.

"The best market may not necessarily be the cheapest as there is value in the service voice broking provides, especially in an illiquid market such as UK power," one UK-based trader said. "If the price is on Griffin and I am able to trade it, I will execute on that platform, but I do value the service provided by the voice brokers."

Access to non-firm bids and offers that voice broking provides was another advantage to the established system, sources said.

Initial data regarding traded volumes is not publicly available from Griffin, although a spokesman said: "The platform has been well supported since its launch and we look forward to increasing liquidity as more counterparties and products come on line."

As with any new platform, the process of building up liquidity to the point at which new products are supported will be gradual, but the newcomer said it can separate its offering from established brokers.

"Although Griffin offers lower cost matching services in the more liquid markets which no longer need to rely on voice broking, Griffin still has a team of market supervisors which is available throughout trading hours to offer assistance where needed," the spokesman said. "It's a more discreet and less intrusive service than that offered by other IDBs [inter-dealer brokers]."

It has pledged transparent fees with "one structure across all counterparties".

Each of the five established London-based brokers - GFI, ICAP, Marex Spectron, TFS and Tullet Prebon - declined to comment on the record, as did the London Energy Brokers Association (LEBA).

Competition

Griffin has tied up with the Intercontinental Exchange (ICE), which is listing the platform's OTC products on WEBIce, the front end of the ICE trading platform (see ESGM, EDEM and CSD 25 April 2012).

Clearing is venue neutral "and we will offer what the market requires", the spokesman said. The aim is to keep fees to a minimum, with a monthly commission cap per market and no commission charged on initiated orders.

But some cynicism remains in the market. "It is a bare-bones trading application. Essentially it is bilateral trading but without having to call the other counterparty. I would expect that to be far cheaper," one source said.

The fresh competition has been broadly welcomed, with some already seeing Griffin as an alternative to stacked bids and offers via Trayport, a product for which some brokers charge companies on a per log-in basis.

Trayport is itself a subsidiary of the GFI Group, underlining the degree to which Griffin is entering an established market and, by extension, the long battle it will face in wrestling away market share.

"It adds an alternative to Trayport, which is a good thing," one power and gas trader said. "If they get enough support it will work just fine."

However the same source doubted the fees structure: "They will never make enough money to justify running it at the prices they charge the big guys," he said.

As ever, the market's instinct is to wait and see: "If it becomes a viable source of market access and information, then people will come to it," one mainland Europe-based gas and power trader said. Jamie Stewart

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