کیفیت بازار و کشف قیمت :درآمدی بر آینده انرژی E-mini

In mid-June 2002, the New York Mercantile Exchange (NYMEX) introduced E-mini futures contracts on natural gas and crude oil, a natural response to information technology developments and investor interest. The transition data allow examination of the effects of the new contracts on market quality and price discovery. Bid–ask spreads on the regular futures have been reduced significantly since introduction of the E-mini futures, showing improved market quality from competition effects. The E-mini market contributes more than 30% to the price discovery process, although it represents less than 1% of the volume of the regular futures with the same underlying. E-mini futures have several advantageous characteristics over regular futures, which should explain these significant results.

Energy products and energy markets have played essential roles in the U.S. economy since the Industrial Revolution. Energy markets have been much more volatile than the stock markets in recent years. During the 5-year period of 1997 through 2001, the variances of daily returns of natural gas and cruel oil were 0.00230 and 0.00071, while that of the stock index was only 0.00016 (source: Commodity Systems Inc. (CSI) daily market files). Gas and oil prices since deregulation in the 1970s have been considerably more volatile than other commodity prices at most times.1 Gas and oil prices are volatile because they are affected by many supply and demand factors, such as compacts among the Organization of Petroleum Exporting Countries (OPEC) and other oil-producing countries, the general economic environment, season of the year, storage circumstances, regulatory changes and so on. Susmel and Thompson (1997) find that broad regulatory changes from the 1980s through the 1990s had great impacts in the natural gas spot market, including increased volatility of prices and risks of market participation. In the 1970s, OPEC cut oil production significantly, which led to the so-called energy crisis or oil crisis. More recently, investors have worried about labor strife and subsequent supply disruptions in Venezuela and Nigeria. The possibility of terrorist attacks targeting energy facilities, natural incidents such as Hurricane Lily in 2002, and Middle East conditions in 2003 have also greatly affected production and storage. Economic entities such as energy producers, distributors, and financial institutions depend on efficient spot and futures markets for risk management and price discovery. Energy futures contracts were introduced at the New York Mercantile Exchange (NYMEX) after the 1970s mainly to hedge increasing energy risks. Futures exchanges constantly introduce new financial products in response to developments in information technology and to meet the various needs of investors. A recent innovation is the use of E-mini futures, including equity index futures like E-mini SP 500, Nasdaq 100 and Dow 30 as well as commodity futures. An E-mini futures contract is smaller than a regular futures contract with exactly the same underlying pool of assets, and is usually traded electronically. On June 17, 2002, NYMEX and the Chicago Mercantile Exchange (CME) introduced two smaller sized energy futures, natural gas E-mini and light sweet crude oil E-mini futures [called e-miNY Energy Futures(SM)]. E-mini natural gas and crude oil futures contracts are 40% of the size of the regular futures contracts; that is, 2.5 E-mini futures contracts equal one regular futures contract. They are traded through CME's electronic trading platform (GLOBEX), and not on the open outcry market where regular futures are traded.2 According to NYMEX, the smaller sized E-mini futures were designed to appeal to individual speculators–not NYMEX's typical customer–in the energy markets. The margin requirements of E-mini futures are smaller than those for the regular contracts. Therefore, E-mini futures are more affordable to individual investors who were previously unable to trade at NYMEX. Unlike their regular counterparts, the E-mini contracts are cash-settled. Some commercial entitles may use the E-mini futures for hedging odd lots. The appendix provides detailed specifications of the two futures contracts and two news articles by Securities Week, 2002a and Securities Week, 2002b describe the benefits of E-mini futures to individual investors. We examine the impact of introduction of E-mini futures on the regular futures. E-mini products might have multiple effects on the regular products since E-minis are both electronically traded and smaller in size. Whether market quality will be improved through competing trading systems depends on two opposite effects: competition and fragmentation effects. We measure market quality by the bid–ask spread, a common measure for trading cost. As argued by Mayhew (2002), a more competitive and efficient trading environment results in narrower bid–ask spreads. However, the literature on the net effects of competition and fragmentation reports inconclusive results. In the first place, increased competition among market makers across trading systems would tend to narrow bid–ask spreads and increase depth to some degree. Branch and Freed (1977), Hamilton (1979), and McInish and Wood (1996) argue that competition reduces bid–ask spreads and diminishes price volatility. Fleming and Ostdiek (1999) find that energy futures and options have no significant impact on spot crude oil market volatility while improving depth and liquidity. Mayhew (2002) shows that multiple listings tend to reduce spreads for options traded on multiple exchanges compared to those listed on a single exchange, suggesting that competition for order flow drives down bid–ask spreads and thus transaction costs. Other authors also find a significant competition effect, but not a fragmentation effect. Boehmer and Boehmer (2003) and Tse and Erenburg (2003) show improved market quality with a narrower bid–ask spread in the American Stock Exchange (AMEX)-listed index exchange-traded fund (ETF) market after entry of the New York Stock Exchange (NYSE) into the index ETF market. On the other hand, market quality could worsen in the established market if individual market efficiency is reduced due to total trading volume being dispersed over multiple trading markets. Market fragmentation arises when orders from different markets do not interact with one another. Mendelson (1987) shows that individual stock trading in multiple markets reduces market liquidity while increasing price volatility. Khan and Baker (1993), Bessembinder and Kaufman (1997), and Davis and Lightfoot (1998) find a probable increase in bid–ask spreads and greater price volatility due to fragmentation. The overall impact of a new system depends on which effect, competition or fragmentation, is dominant. The effect of new electronic products has attracted considerable attention. Some studies on the price discovery relationship between established futures and E-mini futures markets find that the E-mini market takes a leading role. Hasbrouck (2003) shows that in U.S. SP 500 and Nasdaq 100 index markets most of the price discovery occurs in the E-mini futures markets. Kurov and Lasser (2004) suggest an explanation of Hasbrouck's (2003) result by corroborating the hypothesis that exchange locals trading E-mini contracts use their proximity to the order flow in the pit and the superior execution speed of electronic platforms to take advantage of information from large trades that occur on the floor. Frino, de Harris, McInish, and Tomas (2004) find that locals on the floor contribute significantly to the price discovery process. Futures and options exchanges worldwide are increasingly shifting from floor to electronic trading in order to reduce costs and trading errors, and to increase the speed of execution among other reasons.3 Many traders also believe that automated and anonymous trading systems are the fairest of all market structures, while floor trading markets have suffered from front running and inappropriate order exposure (Harris, 2003). A smaller contract size likely attracts smaller investors seeking affordable instruments, and thus improves market quality. Karagozoglu and Martell (1999) examine changes in contract size in the Australian futures market to show that reducing futures contract size effectively causes enhanced liquidity, while increasing size results in reduced liquidity. Our examination of the application of these conclusions to E-mini energy futures extends research on the commodity and index E-mini futures markets to the more volatile energy commodity futures market. The more volatile a market, the more investors need an efficient means for risk management and price discovery. Any possible positive impacts on market quality through E-mini trading would be significant. Both market quality and price discovery relationships are examined for impacts. Price discovery comparisons across markets are tested using the Gonzalo and Granger (1995) and Hasbrouck (1995) models. We find improved market quality from the competition effect, indicated by much lower bid–ask spreads in the post-introduction period. Our results are consistent with research that shows the E-mini market plays a significant role in price discovery, even with its much smaller trading volume. These findings also have policy implications for the deregulation of electricity markets.

The New York Mercantile Exchange launched electronic trading of E-mini futures for natural gas and crude oil futures contract on June 17, 2002. The smaller E-mini futures were designed to appeal to individual investors who were previously unable to trade at NYMEX. We examine the impacts of these new futures contracts on market quality and price discovery in a comparison of the pre-introduction period (January–May 2002) and the post-period (August–December 2002). Both trading volume and open interest in the regular open outcry trading gas futures contracts decline after the introduction of the E-mini futures; both statistics rise for crude oil futures. Most important, the bid–ask spreads of both regular futures are reduced significantly, indicating improved market quality from competition effects. We use two common factor models to investigate the price discovery process in the regular and the E-mini futures markets during the post-period. For both energy products, the E-mini futures market contributes more than 30% to the price discovery process, although representing less than 1% of the regular futures volume. The overall results show that the E-mini futures have increased competition for order flow and improved market quality. The results do not support market fragmentation in the competing markets. The significant price discovery contribution shows that the electronic trading mechanism of E-mini products provides quicker information and trade transmission, while concealing traders’ identities. The results also provide justification for the worldwide trend of switching from floor to electronic trading.