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CME to Launch New Brent Contracts - Analyst Blog

Posted: 11/22/2011 11:45:00 AM
Referenced Stocks: CME;ICE

Yesterday, CME Group Inc. ( CME ) announced the launch of NYMEX Brent 25-day (Platts) futures and options contracts. The option contracts will be of various types, namely, American-style, European-style and average price options, along with an underlying calendar swap.

While the contracts will start trading on December 12, 2011, they will be listed on the New York Mercantile Exchange (NYMEX) in February 2012. Consequently they will be subject to the rules and regulations of NYMEX. Additionally, they will be listed on CME Globex for electronic trading and on CME ClearPort for open-outcry and over-the-counter clearing.

The futures and options contracts will be settled as per the new Platts 25-day Brent cash assessment, after the price assessment agency decided to change its method from the usual 21 days to compensate for the reduced supply of North Sea oil. Additionally, the contracts will use the Platts Market on Close method for pricing, as per the industry practice.

The contracts are launched with the aim of taking advantage of the strong demand for a Brent hedging tool, considering the volatility in the Brent market at present. Moreover, CME plans to launch monthly Brent futures contracts by 2017-end. Earlier, in March 2011, the exchange had launched two new Brent crude futures, which are currently traded on the CME Globex.

CME is not the only exchange to take advantage of the growing demand for Brent contracts. On November 7, 2011, rival exchange IntercontinentalExchange Inc. ( ICE ) also announced the launch of ICE Brent NX (New Expiry) Crude Futures and Options contracts, which will be traded from December 5, 2011.

Currently, CME carries a Zacks #3 Rank, implying a short term Hold rating, with no clear directional pressure in the near term.

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