BrentBroker.com will, next week, launch an online energy trading system that seeks to replace the telephone as a means for traders and brokers to exchange information and execute deals in the energy trading business.
BrentBroker Chief Executive Officer David Salomon says, currently, traders and brokers in the energy business have to make numerous phone calls just to handle one trade. "They would have their traders on the phone calling other traders calling brokers, calling the floor of the exchange," says Salomon, "The phone company has been getting rich off this system for years." So in the place of the phone company, Salomon recommends BrentBroker. The paradigm of OTC energy trading will be much the same as it has been, though, as companies and traders will only be able to transact business with those counterparties with whom they have a credit relationship.
Much like FXall.com in the world of foreign exchange, the system will have a "look, but don't touch" aspect to it. Traders might be looking at a better price on their screen but anything displayed in red will mean they cannot execute against that bid or offer. Salomon explains, "But that happens all the time in the oil market today. You can call a broker and you can say, 'I've got a bid that's two cents better than your offer,' but unfortunately you don't deal with the guy." Salomon says that is because, contrasted with exchange-based trading, OTC transactions require pre-established party-to-party credit relationships.
BrentBroker will not charge a commission on trades but plans to obtain revenue through what it terms "value-added services," such as clearing services, software, back-office functions and financial services. People who come on and solely trade for free are fine with Salomon, because they enhance the system with their liquidity.
The BrentBroker system is an Internet-based, application-based trading system, according to Chief Technology Officer Ramin Yazdi. The system provides order matching through several components of software that were developed in-house. The software is a Java-based client that is Internet deployable and supports all the variants of Windows. It requires nothing proprietary of the client, is Internet updateable and uses the Internet to communicate between the client and the data center.
Signing up with BrentBroker requires only filling out an application available through the Web site that indicates BrentBroker is not the principal in any transaction. "It's just like when you pick up the telephone and conduct a trade-nobody says that the telephone company is the principal in that trade," says Salomon.
Salomon adds that his main competition is the NYMEX and the Intercontinental Exchange Venture-the alliance of Morgan Stanley and Goldman Sachs. A spokesperson for NYMEX says, "We wouldn't comment on any specific systems, but we are talking to a number of them on ways that we can work with them on our eNYMEX platform. We hope to be partnered with some of these systems eventually."
Back in January, there were already rumblings of a partnership between BrentBroker and NYMEX. Wall Street & Technology reported in January that NYMEX was considering whether or not to buy a piece of BrentBroker, which, at that time, was supposed to go live in mid-February.
Salomon says the company has already signed on Hess Energy Trading Co. and has deals in the works with other large refiners and independent oil traders, which he would not name, for reasons of anonymity.
Salomon adds, "There's a lot of vaporware out there. There are a lot of people saying we've got something, and it's coming to you in the third quarter or the fourth quarter. There have been a lot of announcements and consortiums that have been announced, but we think that for the specific application that we're using, which is high-transaction application-based, we are the first to market at this point."