04/28/2004
These over-the-counter options will be offered through an auction process and will be cleared by the Exchange. The first natural gas inventory auction is anticipated for June 2, ahead of the June 3 release of the gas storage number by the Energy Information Administration (EIA) of the Department of Energy. The first oil inventory auction has not yet been scheduled, but is anticipated for this summer.
This market will build on the success of two previous implementations of a proven, patented risk-mutualization framework developed by Longitude, Inc. This method has been successfully used in auctions on economic derivatives, launched by Goldman, Sachs & Co. and Deutsche Bank in October of 2002, and mortgage prepayment derivatives launched in June of last year by Goldman Sachs, both developed in partnership with ICAP.
The options will help market participants manage exposure to the impact of reported oil and natural gas inventories released by the EIA each week. The strike units of the options will be the number of billions of cubic feet of natural gas or millions of barrels of oil that could potentially be the difference in inventory from the previous week’s report.
The options will be traded through an auction format in which the options prices are based solely on the relative demand of participants – the more popular the strike, the greater its value.
The inventory statistics auctions will be held the night before – and, as the market grows, an additional auction will be added the morning of -- the release of the EIA weekly reports for natural gas held in storage (which generally occurs at 10:30 AM each Thursday) and crude oil stocks (generally at 10:30 AM each Wednesday). The change in the inventories determines which options are in-the-money and which are out-of-the-money. The premium collected from those holding out-of-the-money options is paid to those holding in-the-money options.
The auctions will be marketed to the world’s leading energy market participants including a broad range of natural gas and oil companies, institutional investors and other risk intermediaries.
The New York Mercantile Exchange is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals. The Exchange introduced energy futures 26 years ago as the first successful price discovery and risk management tool for this vital marketplace.
ICAP is the world’s largest inter-dealer broker and following the recent acquisition of several BrokerTec businesses is one of the world’s leading electronic brokers of fixed income securities with daily average transactions well in excess of $600 billion daily, 50% of which are electronic. The Group is active in the wholesale market for OTC derivatives, fixed income securities, money market products, foreign exchange, energy, credit, and equity derivatives. ICAP is one of the UK’s 110 largest quoted companies. It is listed on the London Stock Exchange and is a FTSE 250 company with a market capitalization of circa £1.6bn (US$2.8bn). For more information go to www.icap.com
Goldman Sachs (NYSE: GS) is a leading global investment banking, securities and investment management firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments, and high net worth individuals. Founded in 1869, it is one of the oldest and largest investment banking firms. The firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong, and other major financial centers around the world.
Longitude, Inc. provides a patented, enabling technology that allows financial intermediaries to create innovative derivatives' products for their customers without assuming market risk. Longitude's clients are investment banks and financial institutions that make markets or facilitate transactions in the capital markets. Founded in 1999, Longitude is privately held and located in New Jersey. For more information, please go to www.longitude.com.
Forward Looking and Cautionary Statements
The New York Mercantile Exchange, Inc., has attempted, wherever possible, to make statements in good faith, as of the date of this release, by using words such as anticipates, believes, expects, and words and terms of similar substance in connection with any discussion of its present and future operations within the industry. Any forward-looking statements made by, or on behalf of, the Exchange involve a number of risks, trends, uncertainties, and other factors which may cause actual results to differ materially, including the Exchange's receipt of the necessary Commodity Futures Trading Commission approval; timely performance and cooperative effort of exchange partners; and changes in financial or business conditions at the Exchange.