Gas Futures Will Trade All Night Long
Futures traders and observers are going to be burning the
midnight oil following final approval of a Nymex board decision
last week to extend electronic futures trading of natural gas and
three other energy commodities.
Natural gas traders in particular are going to have a much
longer work day. Gas is getting a 13-hour daily trading extension
for Access and a new Sunday-Monday Access session from 7 p.m. to 9
a.m. In addition, the open outcry session for natural gas futures
and options has been moved up 15 minutes earlier and will open at
9:45 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 hours
for the light sweet crude oil, heating oil and gasoline futures and
options 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 session
beginning at 7 p.m. and ending at 9 a.m. Monday. Natural gas
futures 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 by
increasing the availability of our premium risk management tools
during the critical morning hours," said Nymex President R. Patrick
Nymex spokeswoman Nachamah Jacobovits said the Access expansion
was necessary to meet a strong demand for risk management tools
during cash trading hours. "Our natural gas contracts in those
three [evening] hours that they're opened do the second most volume
on the system, which is one of the reasons this seemed to make
"On those occasions when there are overnight events, we
certainly have seen an increase in activity in whichever market the
event occurred in," she added. "You need to be able to react to
important events right away. You want to be able to react
efficiently and not wait for the price to jump."
The decision didn't sit well with some observers and futures
brokers, however. For Tom Saal of Miami-based Pioneer Futures, the
decision to move the opening of the open-outcry session up 15
minutes is a nice idea, but ultimately falls short of what's
needed. "It's clear that they wanted to match the trading time up
with 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 the
physical market is traded. That is when the OTC market is most
active. That is when cash traders most need the risk management,"
And this won't be the first time the Nymex has moved the opening
bell for natural gas. Gas used to open at 9:20 a.m., but Nymex was
forced to push it back after having problems with crude oil traders
overwhelming the gas pit while they waited for their commodity to
open at 9:45, Saal noted. That no longer would be a problem because
of 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 that
there are some early morning moves in the physical market that
sometimes lead to a discontinuity from the overnight session.. The
reason why I think it's a bad idea is that on some occasions
somebody is going to set their alarm clock for 2:30 a.m. and they
are 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 catch
the market at the right time they could sell 100 contracts and
drive the thing a dime."
Despite Nymex's optimism, Evans said he expects a complete lack
of liquidity in the "wee hours of the morning" and "miles between
the bids and the offers."
"The gasoline market specifically, which trades all night, is a
virtual Access session wasteland where it is not uncommon for the
spread between the bid and the offer to be a penny-and-a-half
wide," he said. "You can get business done, but you do it at your
peril. That bid-ask spread translates to about 6 cents in natural
gas and if we were to also adjust that for the difference in
volatility between the two markets [gasoline and natural gas] it's
even more significant. Volatility for natural gas is about one and
a half times as much as in gasoline futures. Just as a rough guess
what you're going to have, certainly during those wee hours of the
morning, is a market that is something like $3.95 to $4.05, a
bid-ask spread you could drive a truck through."
"Greed" is behind this Nymex decision, according to Evans. "It's
an electronic system that already exists. Their incremental cost
for making this change is zero. And the [Nymex board members] are
not going to be the ones whose eyes fly open at two o'clock in the
morning wondering where the market is," he noted.
"It's not really making the market more efficient either," he
said. "And for everybody in the business who is a salaried
employee, their hourly rate of pay just dropped because guaranteed
this means that everybody has to work more hours. Thanks a lot
Nymex. Wonderful deal."
E-Nymex Plans Alliances with Other Trading Sites
Evans, however, does like Nymex's plan to open e-Nymex, a new
electronic energy trading platform. He said the "possibility of
collusion" among the investors in other major unnamed trading sites
creates a real need for an independent exchange such as Nymex to
set up a trading system.
However, Nymex's Jacobovits said Nymex intends to align with
those other trading sites in a way not unlike what EnronOnline did
earlier in the week (see related story this issue). Jacobovits said
e-Nymex probably would function on its own as well as be
incorporated into other existing trading platforms.
"We are much more focused on the back end, which is the ability
to trade, manage and process the clearing. Our feeling right now is
we may actually work with a number of what we call front end
operators to actually let the user pick which format he is more
comfortable with. A lot of the names we heard thrown around out
there are really what we call front-end systems. They are very
focused on the customer and the ease of use, which obviously is
valuable, but not necessarily what we want to focus on. We may do
business with many vendors." She said e-Nymex is expected to be
ready for launch in the fourth quarter.