Wholesale Physical Markets are Broken

The OTC market dwarfs the physical market in terms of size. Any shift in flows from the OTC market to the physical market as a result of a more efficient physical market could have an outsized impact on physical premiums. There are supply constraints in physical markets that do not exist in OTC markets, and given the near-term inelasticity of supply, the way to accommodate higher demand would be higher premiums. This is somewhat counter to conventional thinking that electronic trading reduces margins.

Wholesale Physical Markets are Broken