OTCGH Preps Oil Options Data from New Broking Desk

The desk is part of OTCGH's Aalpha Energy broking unit, which already produces a range of market data. For example, in 2014, EOX launched a new data product covering over-the-counter swaps and futures on all middle distillates products brokered by Aalpha's trading desk. The new oil options desk will operate out of OTCGH's OTC Europe office in London, and will broker crude oil and product options around the globe.

"We are trying to build a global, international energy desk, and in the past we have offered oil swaps and futures, so it was a natural extension for us to offer oil options," says Campbell Faulkner, chief data analyst at OTCGH. "We launched Aalpha over a year ago─first in the UK, then in the US─-and predominately it was trading dated brent-to-frontline swaps (DFL) and contract-for-difference (CFD) swaps, but until now we couldn't help people who wanted to trade oil options," he says. OTCGH has traditionally provided gas and power brokerage, and previously only had limited access to oil options "as we didn't have a large desk set up, but [with the new desk] now we can become a dominant player in crude," he adds.

The desk will produce market data in a number of ways: First, the deals executed by the desk; second, indicative bids and offers submitted; and third, feedback from clients. "The brokers generate their own data through coordination with clients, and we can feed off that data and put it into models. We generate granular data across a large variety of tenors," Faulkner says.

The desk is now up and running, but EOX will likely wait until later this year to launch market data products to give the desk time to establish itself and build liquidity.

"We have already started receiving market data─but there is a process on EOX's end to get a good handle on the data and develop an understanding of how to correctly model the option volatility," Faulkner says. "Important indexes are an easy thing to publish, but we want to create products that will provide insight-implied volatilities across less liquid locations is where the value-add is, for example," he says, adding that unlike rival data providers, EOX and OTCGH will be able to draw on internal liquidity as well as indicative bids and offers, and infuse broker insights to generate "heavy-duty market data" for traders, large merchants and oil companies.

To produce market data products, EOX has designed an algorithmic approach that combines internal liquidity with indicative prices, which differentiates it from other non-broker commodities and energy data providers, Faulkner says. "Our internal markets allow us to provide market data that has far more insight into illiquid and hard-to-price commodities," he adds.