Electronic trading may be the antidote to anemic trading of theNew York Mercantile Exchange’s Alberta and Permian Basin gasfutures contracts, Exchange President R. Patrick Thompson said lastweek.
“Once a major contract in a commodity [NYMEX’s Henry Hub gasfutures contract, for instance] has developed strong liquidity,it’s been difficult to take contracts that are really meant toprice off that and develop good enough liquidity to where we reallyserve our price discovery function,” Thompson told attendees at aTexas Independent Producers and Royalty Owners luncheon in Houston.
“We also have difficulty because in the end brokers on thetrading floor get paid on a transaction by transaction basis. We’vehad difficulty in those satellite contracts in getting thebrokerage community to devote the proper amount of resources tosupport those contracts and to execute the orders.”
Thompson said NYMEX will decide by the end of the year whetherto re-launch the two contracts with less costly electronic trading.”And I think because we will do it electronically, we may be ableto place the machines in a wider array around the country so thatwe can have more direct access to the contracts electronically.”
NYMEX launched the Permian contract in May 1996 and the Albertacontract in September 1996. While the Kansas City Board of Trade’swestern gas futures contract at Waha, TX, has grown, the NYMEXcontracts have failed to achieve liquidity. “We do believe thatthere is a tremendous value to those contracts in the West,”Thompson said. “We need to find a way to get through the liquiditycrunch, and we suspect that we will look very closely at electronictrading for those markets and also developing a market-makerfunction where a large company that is interested, has assets inthe region that would normally be delivered through the deliverymechanism, might be able to be a constant market maker.” Joe Fisher, Houston
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