NYMEX Pondering Future of Western Contracts
Electronic trading may be the antidote to anemic trading of the
New York Mercantile Exchange's Alberta and Permian Basin gas
futures contracts, Exchange President R. Patrick Thompson said last
"Once a major contract in a commodity [NYMEX's Henry Hub gas
futures contract, for instance] has developed strong liquidity,
it's been difficult to take contracts that are really meant to
price off that and develop good enough liquidity to where we really
serve our price discovery function," Thompson told attendees at a
Texas Independent Producers and Royalty Owners luncheon in Houston.
"We also have difficulty because in the end brokers on the
trading floor get paid on a transaction by transaction basis. We've
had difficulty in those satellite contracts in getting the
brokerage community to devote the proper amount of resources to
support those contracts and to execute the orders."
Thompson said NYMEX will decide by the end of the year whether
to re-launch the two contracts with less costly electronic trading.
"And I think because we will do it electronically, we may be able
to place the machines in a wider array around the country so that
we can have more direct access to the contracts electronically."
NYMEX launched the Permian contract in May 1996 and the Alberta
contract in September 1996. While the Kansas City Board of Trade's
western gas futures contract at Waha, TX, has grown, the NYMEX
contracts have failed to achieve liquidity. "We do believe that
there is a tremendous value to those contracts in the West,"
Thompson said. "We need to find a way to get through the liquidity
crunch, and we suspect that we will look very closely at electronic
trading for those markets and also developing a market-maker
function where a large company that is interested, has assets in
the region that would normally be delivered through the delivery
mechanism, might be able to be a constant market maker."
Joe Fisher, Houston
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