The PRA Business Model Flashcards
What are the two main aspects for a PRA?
Informational
Benchmarking - providing financial and physical benchmarks is key to profitability
(third for some - consultancy etc)
Why do PRAs want as many strands to their business models?
Added value to the core subscription makes the subscription more sticky
What is the ultimate aim of a PRA?
To diversify from pure reliance on subscription and to broaden revenue base. They know they can’t raise prices forever and insurance against weak commodity cycles when subscriptions may drop
What is a value hierarchy?
Informational usage is at the bottom of the hierarchy while benchmark usage sits at the top
Informational usage is made up of what?
Written news and information
What is the value of information for a PRA subscriber?
Whether it makes them money
What is the lowest value information?
None exclusive news
What is “market moving”?
If the dissemniation of the info will have consequences for the price of the commodity affected
A good specialist news story, is one…
Where you can trade off the headline
What is fundamental data?
Part of informational, any data that relates to supply and demand
What’s an example of fundamental data?
Grain harvest sizes, wind power outage
What is the least valuable pricing data?
Just a general check or just for informational purposes
What mark to market pricing?
Where the middle office of a commodity firm needs to compare the positions that their company had taken in the market with daily information in order to check the performance of their trading activity and portfolio
Why would a risk manager subscribe to a daily feed like a PRA?
To compare the values that her firm is assigning to specific commodities that they buy or sell with with the values the PRA is assigning them
What would a risk manager do if there were major discrepancies?
Reduce a traders position if his view of the market is diverging majorly from the PRA data. You can’t operate a risk management business without a PRA making it the most valuable for all of the informational uses of PRA
Why is there a cap to how much you can charge for a PRA
The risk manager can choose from any PRA, can take a feed from Reuters bloomberg or broker information to construct their own PRA
What comprises the top third of PRA value hierarchy?
Benchmark usage
If a PRA is used as a benchmark it is
Used as the basis for physical or financial transactions
What do traders use benchmarks for?
Shorthand when they negotiate trades
What is the least valuable type of benchmark usage for a PRA?
A spot contract usage - as a one time thing the two counterparts cab use a different benchmark every time. We want long term annual supply deals
The longer the duration of the deal that uses the benchmark..
The better chance the PRA will come to dominate the market
What is a “term deal”?
A PRAs pricing in a lengthy supply deal
Why do PRAs want term deals?
1) provides security from being displaced by another PRA agency
2) gives greater security of revenue - the counter parties can’t cancel their subscription whilst the deal is still going on?
The definition of a major physicals benchmark…
It is referenced outside the market to which it specifically refers (oil is more likely to be referenced outside its market than something obscure like polymers)
What are the benefits for a PRA to having a major physical benchmark?
It enhances the reputation, makes it easier to enter new markets and introduce its services to traders in far removed areas
What grows up around major physical benchmarks?
A derivative market
