Fragmentation in OTC Markets Gives Rise to Automated Platforms
The fragmented nature of liquidity in over-the-counter markets is giving rise to new trade platforms that promote price discovery in both liquid and illiquid asset classes.
Skystream Markets, a provider of institutional transaction platforms for renewable energy markets, has launched RECstream, an OTC platform designed to provide institutional investors with efficient, high-quality access to the growing renewable energy certificate (REC) market.
RECstream is designed to address core market issues by creating executable market prices with known depth and transparency.
“Specific to the REC market, it is difficult to access liquidity, trade efficiently or to value positions,” said Kapil Mohindra, co-founder of Skystream Markets. “RECstream produces unique and valuable price information that allows users to mark positions to market, and creates liquidity opportunities by concentrating the market on a periodic and confidential basis.”
RECs are tradable, non-tangible energy commodities in the U.S. that represent proof that one megawatt hour of electricity was generated from an eligible renewable energy resource.
RECs can be sold, traded or bartered, and the owner of the REC can claim to have purchased renewable energy.
By utilizing a hybrid approach that combines technology and traditional brokerage services, Skystream creates price discovery, concentrates liquidity and improves trade execution quality, said Mohindra.
Skystream Markets’ customers are institutions that include large industrial and financial companies such as renewable power producers, utilities, energy trading companies and investment banks.
“Working directly with power producers and major trading counterparties, the company has built specific market mechanisms that are lacking in both the primary and secondary markets, Mohindra said. “The customer base is a combination of industrial and financial participants.”
While in the foreign exchange markets, FXSpotStream, which facilitates FX trading for institutional clients, provides a multi-bank FX aggregation service to clients for the purpose of executing spot FX trades.
The offering functions as a market utility, supplying the infrastructure that facilitates the multi-bank API and associated routing mechanism to route trades from clients to liquidity providing banks.
FXSpotStream has announced that Morgan Stanley is now live as a liquidity provider of FXSpotStream’s price aggregation service from FXSpotStream’s sites in New York and London. Morgan Stanley is the seventh bank available to clients connected to FXSpotStream’s service.
In addition to Morgan Stanley, FXSpotStream’s liquidity providers include BofA Merrill Lynch, Citi, Commerzbank AG, Goldman Sachs, HSBC and JPMorgan all of which are live globally.
“In addition to providing a service that allows Commerzbank to deal directly with clients in a more efficient and transparent manner, the reliability of the service and the experience for us and our clients is important,” said Paul Scott, global head of eFX Trading at Commerzbank, in a statement. “We expect the volume transacted via FXSpotStream and the clients using the service to continue to grow in the coming year.”
Meanwhile, Mohindra at Skystream Markets said that RECstream is a multi-round transaction event designed to trade a particular REC class.
A proprietary algorithm calculates the market clearing price from live submissions. Trading is governed by specific rules that ensure that counterparties are efficiently matched.
“RECstream transacts all REC classes and provides deeper markets than brokers or exchanges,” said Mohindra. “Participants receive a true mark-to-market price and can transact volume anonymously without impacting market prices.”
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