Nymex Side-By-Side Trading Shows Early Growth

Completing its second week of side-by-side energy trading on the Chicago Mercantile Exchange's Globex platform, the New York Mercantile Exchange (Nymex) said Friday that despite small volumes on a number of the electronically traded contracts, the company has seen growth over the two-week span along with new business that wasn't trading in open outcry or on Nymex's after-hours Access electronic system. Reaction from the marketplace appears encouraging (see Daily GPI, June 12).

First announced in April (see Daily GPI, April 7; May 12; May 22; May 30), Nymex said the deal would bring access to electronic trading of Nymex products "virtually 24 hours a day" on the CME Globex electronic trading platform. In the initial phase of the launch, Nymex will offer cash-settled energy futures contracts for all listed months. The second phase of the launch will offer physically delivered energy futures contracts.

While volumes to date on Globex remain small, they do appear to be growing. On the June 12, the first day of side-by-side trading, Henry Hub financial last-day futures posted total volume of 1,099 in the trading of two monthly contracts. On Thursday, June 22, that volume increased to 1,397 in four monthly contracts. Similarly in crude futures on Globex, WTI financial on June 12 saw 10,996 contracts change hands in seven monthly contracts, and on June 22, 12,491 contracts were exchanged in three monthly contracts.

"We are really comfortable with the volumes so far," said Nymex spokeswoman Anu Ahluwalia. "It is a great start for the first two weeks of operation. We have seen growth, which is what we are all hoping for."

Addressing fears related to the possible fall-off in open outcry pit trading in New York, Ahluwalia said it has been business as usual. "We have not seen any drop-off in volume on the floor or in Access trading, so this volume on Globex is pretty much new business," she said. "The feedback from members has been good overall. It takes time to get everyone signed up. They are figuring out how to best use both the electronic and the open outcry in tandem, but the fact that we are seeing the pick-up in volume is great."

As for any start-up glitches, Ahluwalia said it has been "really smooth" so far. "Everything has gone to plan," she added. "What it is all about is providing the marketplace with as many options as possible." As for physically delivered energy futures contracts, Ahluwalia said Nymex is hoping for a launch before the end of the year.

Talk among analysts and traders so far has been supportive. "I've heard more talk about the side-by-side trading of crude oil more than anything else. Most of what I hear is encouraging," said Tim Evans, an analyst with Citigroup. "Apparently the volumes don't look to thin when compared to what has been trading in Nymex Access. I think the concept is a net addition to the ongoing business.

As to the impact on pit trading, Evans said the verdict was still out. "At this point, it is very hard to get a read on whether anybody who has been executing futures through the pit has abandoned the pit in favor of Globex," he said. "However, I think there is a market there from the traditional Globex user who may not have done much, or any, energy trading. This might get them to start looking at these markets."

Evans classified Nymex's move to side-by-side as "a reasonably good move" by the company. "They, at the very least, put the deal together with a strong partner," he said. "From that standpoint, it is hard to fault them. We might fault them for having taken so long to get to this point, but the move itself is not a bad move."

Echoing the small volume comments from Ahluwalia, Nymex local trader Eric Bolling said the side-by-side addition is "fine" for the market. "It's lightly traded," said Bolling, who is known as "RBI" in the natural gas futures pit. "The Nymex miNYs are definitely trading more. It is really business as usual. It is nothing that is changing the market that much, if at all."

Copyright 2006 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.


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