The gas industry is about to get another Henry Hub futures contract. The Chicago-based Merchants’ Exchange, the nation’s oldest exchange founded in 1836, announced that it will list cash-settled futures contracts in Henry Hub natural gas, light sweet crude, Brent crude, European gas oil, New York Harbor unleaded gasoline and New York Harbor No.2 heating oil. All of the contracts were approved by the Commodity Futures Trading Commission on Jan. 25. Electronic futures trading is expected to commence during the first quarter.

“Even before Enron’s failure, the energy trading community seemed to desire more than the available markets could offer to them,” said Exchange CEO Robert S. Hamada. The New York Mercantile Exchange remains the largest and most active energy futures market in the nation and its Henry Hub natural gas contract is the industry’s main benchmark. However, Hamada believes the market is in need of a new alternative.

“We aim to meet needs in the energy market that are presently underserved. We have conducted extensive research and identified those areas in which market participants are in need of additional functionality for hedging and futures execution. For example, by offering a fully electronic, transparent market that enables block trading, the Merchants’ Exchange will be offering functionality that, to date, has been only a dream for these market users.”

The new contracts will be cash settled. The specs for the contracts are as follows:

“Traditional exchanges lack the flexibility necessary to accommodate the structured trades that have come to be an everyday part of the energy markets. Merchants’ Exchange remedies that situation,” said Patrick Catania, former executive vice president for product development and marketing at the Chicago Board of Trade. “Furthermore, energy market participants will welcome the transparency, level playing field and elimination of counterparty risk provided by Merchants’ Exchange.”

The exchange is an independent, demutualized and fully electronic contract market. It is an all-electronic platform that matches trades in real-time across a secure, proprietary network. The platform is a complete end-to-end solution for electronic trading services created by Exchange Cubed LLC, which has integrated elements provided by, among others, IBM, Savvis and TradinGear, Inc.

“Through outsourcing, we have been able to ‘cherry-pick’ the best solutions available,” said Merchants’ Exchange COO Jay Sorkin. “Even beyond technology, we have outsourced the many exchange market surveillance and oversight functions to the National Futures Association, while clearing is outsourced to the Board of Trade Clearing Corp.”

In July 2000, the CFTC awarded designated contract-market status to the Merchants’ Exchange. The exchange said it plans to launch electronic trading of options on energy futures in the near future.

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