IS Prime Releases Revolutionary UK & US Oil Index Rebased at 100
New products could potentially save brokers from losing millions of dollars
27 April 2020 – Award-winning Prime of Prime and Liquidity Provider, IS Prime has become the first Tier 1 Prime of Prime to provide a solution to combat the huge risk associated with the spot oil price potentially going negative again.
On Friday April 17th, for the first time in history, Oil prices fell below zero due to a combination of lack of demand and lack of storage capacity. This event led to significant losses by some of the largest retail brokers in the space due, in part, to their systems stopping clients out at 0 and hedging in the futures market at a negative rate.
Many brokers’ trading systems are unable to accept negative rates and, to combat this, IS Prime has rapidly developed two new proprietary products - the US Oil Index and the UK Oil Index.
These products are rebased at $100, effectively meaning that should IS Prime’s proprietary spot price fall to, say $-5USD, the pricing will reflect this at $95 – this has the effect of preventing stop outs whilst still reflecting the market moves and the full underlying volatility of Oil.
To assist with the transition to these products, IS Prime can move positions in its existing US and UK spot indices into the new products for current clients.
Jonathan Brewer, Managing Partner at IS Prime said:
“Many brokers have not recognised the truly catastrophic effect that negative rates can have on them. Individual retail brokers could face losses in the hundreds of millions of dollars due to stop outs at 0 and subsequent hedges at a negative rate.
Our new fully proprietary Oil Index allows brokers to offer pricing and execution in these products to their clients even if the market drops below 0 again, which is highly probable coming into the next futures expiry.
There will be other providers attempting to develop a solution through third party pricing but, as the market has come to expect from IS Prime, our products are carefully thought out and well-engineered.
“We are very pleased to be able to offer continuity of service to new and existing clients and to have delivered a new product in a very short time-frame when it is most needed.”
IS Prime provides institutional clients with customised pricing primarily sourced from Tier 1 institutions, together with multi-asset Prime of Prime and Agency Brokerage services, and comprehensive front to back technology solutions. The London-headquartered, FCA regulated firm is part of the ISAM Capital Markets Group, which also includes IS Prime Hong Kong and IS Risk Analytics.
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