R. J. O’Brien, the largest independent futures broker in the U.S., has launched a new service providing agricultural structured products to its clients, the company’s first venture into this area.
Designed for commercial agricultural firms of all sizes, the service covers structured products based on corn, soybeans, wheat, cotton, sugar and coffee. Structured products are bilateral contracts between two counterparties and typically are customized to the customer's business needs. The product features that can be customized include contract expirations, cash settlements, barriers, and binary payoffs.
"When we decided to enter this market, we knew we wanted to offer something different than others provide, that would produce real value for our clients. This includes the ability to generate far more quotes, much faster than competition is offering," RJO's Chairman and CEO Gerald Corcoran said in an announcement.
The service is powered by a homegrown software platform known as Cara, "friend" in Irish, a hat-tip to the firm's Celtic roots. Accessible on the RJO web portal, the new web-based trading and back-office application is designed to suggest trading strategies, place orders, track quotes in real time, and monitor clients’ positions throughout the life of the contract. The software first analyzes the client’s needs and then generates a wide range of customized options.
Melisa Culbertson, executive director and senior vice president of the company's OTC Structured Products group, said the desire to accommodate a wide range of client needs led the firm to build the platform itself. "Once it was clear we were going to customize the platform to meet those needs and make sure it could evolve over time as needs change and as new clients communicated their desire to solve different challenges, we decided to build it ourselves," Culbertson said.
The new offering greatly simplifies the process of managing agricultural OTC positions, according to Culbertson. "Prior to our offering, most clients had to track their OTC position on spreadsheets; it was quite manual, and really a disincentive to taking on these types of positions. We've made it all very easy as Cara can make hundreds of thousands of calculations in real time. This allows us to simplify the process of using OTC structures. In Cara, a client can price trades, send us orders, track their positions’ life cycles, and monitor their clients’ trades" she explained.
RJO executives contemplate applying the Cara engine to other OTC products in the future. "The technology can certainly support other structured products," Culbertson said. She added, however, that the company plans to stay focused for now on a limited range of agricultural structured products. "This effort stemmed from setting out to meet a need, and our focus is on that right now," she said.
