Futures traders and observers are going to be burning themidnight oil following final approval of a Nymex board decisionlast week to extend electronic futures trading of natural gas andthree other energy commodities.

Natural gas traders in particular are going to have a muchlonger work day. Gas is getting a 13-hour daily trading extensionfor Access and a new Sunday-Monday Access session from 7 p.m. to 9a.m. In addition, the open outcry session for natural gas futuresand options has been moved up 15 minutes earlier and will open at9:45 a.m. No implementation date has been set for the changes,pending an electronic systems review, Nymex said.

The Nymex board also voted to expand electronic trading hoursfor the light sweet crude oil, heating oil and gasoline futures andoptions markets by one hour in the morning, to 9 a.m. from 8 a.m.Access trading of all these commodities now will run from 4 p.m.until 9 a.m. Monday through Thursday with a Sunday sessionbeginning at 7 p.m. and ending at 9 a.m. Monday. Natural gasfutures and options currently are traded electronically from 4 p.m.to 7 p.m., Mondays through Thursdays, with no Sunday night session.

“These changes will reinforce our competitive position byincreasing the availability of our premium risk management toolsduring the critical morning hours,” said Nymex President R. PatrickThompson.

Nymex spokeswoman Nachamah Jacobovits said the Access expansionwas necessary to meet a strong demand for risk management toolsduring cash trading hours. “Our natural gas contracts in thosethree [evening] hours that they’re opened do the second most volumeon the system, which is one of the reasons this seemed to makesense.

“On those occasions when there are overnight events, wecertainly have seen an increase in activity in whichever market theevent occurred in,” she added. “You need to be able to react toimportant events right away. You want to be able to reactefficiently and not wait for the price to jump.”

The decision didn’t sit well with some observers and futuresbrokers, however. For Tom Saal of Miami-based Pioneer Futures, thedecision to move the opening of the open-outcry session up 15minutes is a nice idea, but ultimately falls short of what’sneeded. “It’s clear that they wanted to match the trading time upwith that of crude oil, but what they should have done is moved[the opening] up a full hour to try and match more closely when thephysical market is traded. That is when the OTC market is mostactive. That is when cash traders most need the risk management,”he said.

And this won’t be the first time the Nymex has moved the openingbell for natural gas. Gas used to open at 9:20 a.m., but Nymex wasforced to push it back after having problems with crude oil tradersoverwhelming the gas pit while they waited for their commodity toopen at 9:45, Saal noted. That no longer would be a problem becauseof the maturity of the gas market, he said.

Tim Evans of Pegasus Econometric Group, a futures analysis firm,sees no benefit to trading gas around the clock. “It’s a bad idea.First of all, the move here is to try to address complaints thatthere are some early morning moves in the physical market thatsometimes lead to a discontinuity from the overnight session.. Thereason why I think it’s a bad idea is that on some occasionssomebody is going to set their alarm clock for 2:30 a.m. and theyare going to decide, ‘I’m going to make this thing look bearish.’So they come in and hit all the bids, and if they happen to catchthe market at the right time they could sell 100 contracts anddrive the thing a dime.”

Despite Nymex’s optimism, Evans said he expects a complete lackof liquidity in the “wee hours of the morning” and “miles betweenthe bids and the offers.”

“The gasoline market specifically, which trades all night, is avirtual Access session wasteland where it is not uncommon for thespread between the bid and the offer to be a penny-and-a-halfwide,” he said. “You can get business done, but you do it at yourperil. That bid-ask spread translates to about 6 cents in naturalgas and if we were to also adjust that for the difference involatility between the two markets [gasoline and natural gas] it’seven more significant. Volatility for natural gas is about one anda half times as much as in gasoline futures. Just as a rough guesswhat you’re going to have, certainly during those wee hours of themorning, is a market that is something like $3.95 to $4.05, abid-ask spread you could drive a truck through.”

“Greed” is behind this Nymex decision, according to Evans. “It’san electronic system that already exists. Their incremental costfor making this change is zero. And the [Nymex board members] arenot going to be the ones whose eyes fly open at two o’clock in themorning wondering where the market is,” he noted.

“It’s not really making the market more efficient either,” hesaid. “And for everybody in the business who is a salariedemployee, their hourly rate of pay just dropped because guaranteedthis means that everybody has to work more hours. Thanks a lotNymex. Wonderful deal.”

E-Nymex Plans Alliances with Other Trading Sites

Evans, however, does like Nymex’s plan to open e-Nymex, a newelectronic energy trading platform. He said the “possibility ofcollusion” among the investors in other major unnamed trading sitescreates a real need for an independent exchange such as Nymex toset up a trading system.

However, Nymex’s Jacobovits said Nymex intends to align withthose other trading sites in a way not unlike what EnronOnline didearlier in the week (see related story this issue). Jacobovits saide-Nymex probably would function on its own as well as beincorporated into other existing trading platforms.

“We are much more focused on the back end, which is the abilityto trade, manage and process the clearing. Our feeling right now iswe may actually work with a number of what we call front endoperators to actually let the user pick which format he is morecomfortable with. A lot of the names we heard thrown around outthere are really what we call front-end systems. They are veryfocused on the customer and the ease of use, which obviously isvaluable, but not necessarily what we want to focus on. We may dobusiness with many vendors.” She said e-Nymex is expected to beready for launch in the fourth quarter.

Rocco Canonica

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