Market-maker of the year: Theme International Trading

Based in Singapore, Theme International Trading is a quantitative trading fund providing global liquidity across various asset classes, with a strong presence as a market-maker in the iron ore and energy derivatives markets. Testament to this is its recognition as the most active 62% iron ore futures trader on the Singapore Exchange (SGX) for three consecutive years, beginning in 2019.

The achievement is all the greater, given that SGX has a more than 95% market share of the offshore iron ore futures trading volume and open interest. Theme International Trading’s energy team has also steadily expanded over the past 12 months to become the top market-maker in Singapore for the oil derivatives market. The company is also market-making for agricultural products, foreign exchange products and equity indexes across different exchanges.

In fact, Theme International Trading is the only market-maker that has a significant market-making presence in both the iron ore and energy markets in the trading space in which it operates. These are highly active on the interdealer broker (IDB) and over-the-counter (OTC) voice-broking spaces. Theme International Trading also trades with more than 30 IDBs in the markets across its range of products and engages with numerous counterparties directly to help them offset their risk and hedging needs.

Theme International Trading strives to stay ahead in the technological advancement of its trading and risk models. Its proprietary market-making models reflect real-time accuracy on actual values for the various products it trades. An attestation to this is that Theme International Trading’s iron ore team is renowned as the go-to market-maker for iron ore derivatives (futures and options), to which counterparties look to trade directly to hedge their large physical exposure quickly at market prices while maintaining confidentiality.

Representatives at Theme International Trading can and do quote competitively in large sizes as and when a counterparty requires, while other market-makers in the iron ore market may not. It also holds sizeable open positions overnight, while traditional market-makers prefer to offload overnight risk exposure. Additionally, the company quotes contracts further in advance (at the moment one can get a contract for 2025), again differentiating itself from competitors. Theme International Trading is also the only market-maker in the trading space to quote two-way prices from 9am to 11pm (Singapore time), and quote 65% iron ore futures whenever requested.

The energy trading desk at Theme International Trading has seen major growth in its business over the past year, with its trading volume increasing by more than 30% over June 2021 to May 2022, compared with the same time the previous year. This is because of the expansion in manpower as well as its trading more products ‘across the barrel’. At the same time, Theme International Trading has also made initial forays into making markets for products with low liquidity.

Most energy products have greater trading volumes during European hours than Asian ones, and, given China’s exchanges close before European markets open (3pm Singapore time), market participants need prices and liquidity during those Asian trading hours to manage their risk. Theme International Trading understands that it can bring value to the market by quoting actively during Asian trading hours, resulting in possessing high market share during these hours.

Aside from the iron ore and energy markets, which are partly OTC-focused, Theme International Trading acts as a market-maker for other commodities, FX derivative products and equity indexes on various global exchanges. For a relatively young team that started in 2019, they were already able to quote and actively market-make in around 20 products from June 2021 to May 2022.

“We believe our achievement is possible with a nimble team because of our focus on constantly enhancing our trading models and tech systems as well as our people,” says CJ Zhang, chief executive officer of Theme International Trading.

“We learnt a great deal on ways to improve our risk management systems during the surging in electricity prices, noticing, for example, that other market-makers pulled out of quoting. But we have adjusted our trading models and continued providing liquidity up until the point at which our system displayed signals that our existing models could not quote effectively.

“Overall, the past 12 months have seen us enhance our machines while not forgetting to strengthen our people, and to build the synergy of machine and man is something we have believed in from day one as being the key to a successful trading firm,” Zhang adds.