Surprise, even shock, are common reactions to what occurs on the New York Mercantile Exchange on expiration day of a spot month gas futures contract, but yesterday many natural gas traders must have come close to suicidal trauma. Not because of price volatility, however. At about 1:50 p.m. EST, someone at the Teleport Communications Group, the telephone carrier that serves the trading floors of the New York Mercantile Exchange, pulled the plug. All commodity trading, including of course gas futures, screeched to a halt, creating a hair-raising state of panic.
The incident would not have been that serious had it not been expiration day for the March contract. Thousands of futures traders were left with open positions not knowing whether they would be able to complete their trades. Cash traders were left exposed without the industry’s most useful hedging mechanism. To say the least, the experience was infuriating for many market players (please see related cash and futures stories).
“If your organization lives and dies by the telephone, why use a fly-by-night company?” asked one angry futures analyst. But TCG clearly is not a fly-by-night organization. It’s the nation’s largest competitive local exchange carrier, with networks in 47 U.S. markets. “We checked them out before we signed on with them,” said Nymex spokeswoman Nachama Jacobovits, adding, however, Nymex may soon sign off as a customer. TCG service went dead on many of its East Coast customers, she added. And it isn’t the first time. Last October, a similar outage occurred, though not on a spot-month expiration day. “We are evaluating whether or not this carrier is sufficiently reliable for the nature of our business but we really need more information at this point,” she said. “We need to look at the problem and see whether there’s something that is not likely to repeat itself.” The problem may have been caused by a breakdown in equipment owned by Illuminet Inc., a privately-held company that provides signaling and other services to TCG and other networks.
But Nymex also faced criticism for the relatively short trading period it eventually scheduled during the outage. Traders normally would have had another hour and 20 minutes to complete near-month transactions, but Nymex ended up scheduling a brief 20 minute trading session between 5:05 p.m. EST and 5:25 for the spot month with phones still being down. Traders were allowed to get out of their positions in all other months between 5:23 and 5:25 p.m. EFP deals were scheduled for between 5:25 and 6:30 p.m. and the after-hours Access trading session was set for between 6:15 and 7 p.m.
“Unfortunately because of the phones not being available, we just were not comfortable with a longer period [of trading]. We gave people ample notice [about the trading period] so people had time to place orders with brokers. Some brokers were on cell phones, others were communicating with their back offices. We have been given every assurance that they will work to correct the phone problem by morning.”
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