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NYMEX plans to offer more energy risk-management products

Paula Dittrick
Senior Staff Writer
Oil & Gas Journal

HOUSTON, Aug. 30 -- The New York Mercantile Exchange is trying to respond rapidly to customers' risk management needs, NYMEX Pres. J. Robert Collins said Thursday.

Collins was in Houston promoting the Sept. 5 launch of North Sea Brent crude futures trading and the Sept. 6 launch of Brent options trading.

Meanwhile, NYMEX also is evaluating other new products and expects to make incremental improvements.

"One mistake NYMEX made is not evolving with the risk management business over the last 15 years. That's over. The field of risk management is changing every month," Collins said.

On Sept. 7, NYMEX will initiate a Brent/West Texas Intermediate spread options contract, based on the differential between the exchange's Brent and the light, sweet crude oil futures contracts.

NYMEX has waived clearing and exchange fees for its Brent crude oil futures contract for the first year of trading and is offering rebates for 3 months on any light, sweet crude futures contract traded to offset a position in the NYMEX Brent futures contract.

The International Petroleum Exchange (IPE) has been the normal trading exchange for Brent.

"This is not about my [trading] volume is x and theirs is y. This is not about NYMEX vs. IPE," Collins said. "This is not about a [trading] volume number. It is about seeing a reasonable flow of activity."

IPE CEO Richard Ward has said he welcomes the competition but he has concerns about "splitting liquidity" (OGJ Online, Aug. 15, 2001).

Collins said the nature of traders is that a subset of traders will create an arbitrage of Brent between IPE and NYMEX.

"My expectation is that you are more likely to see the IPE see a new level of interest," in Brent trading once the arbitrage opportunity exists, Collins predicted.

Appointed NYMEX president in July, Collins previously was a trade representative on the exchange board while working as a senior vice-president of natural gas trading at El Paso Merchant Energy.

He anticipates that NYMEX will offer more electronic trading products within a year, although he emphasized that some products are handled best on the existing trading floor while other products are better suited to an electronic format.

"The pit is good, very good, at options, but options trading is very difficult to recreate electronically," Collins said.

There is no launch date set for the anticipated enymex, he said, adding its progress has been delayed for various reasons, including the bankruptcy of one of NYMEX's contractors.

"We're not finished developing enymex. ... We've had some classic technology delays," Collins said. NYMEX is internally developing some of the front-end technology that it previously contracted, he said.

"We're now in the last one-third of a development cycle," he said of enymex, which initially will not involve physical deliveries of commodities.

Meanwhile, NYMEX has delayed the introduction of internet-based Access electronic trading to allow more time for member firms to address their own computer security issues.

The transition to an internet-based platform for the system was scheduled for Sept. 3 but that has been postponed. No new date has been set.

NYMEX has offered electronic trading on Access via a NYMEX proprietary electronic network since 1993.


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