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NYSE Begins Metals Mini-Options - Analyst Blog

Posted: 2/29/2012 4:00:00 PM
Referenced Stocks: CME;ICE;NYX

On Monday, NYSE Euronext Inc. ( NYX ) announced that its futures exchange in the U.S. - NYSE Liffe - has successfully launched its mini-sized options on gold and silver futures contracts. NYSE Liffe is the former London International Financial Futures Exchange, which trades coffee, sugar, cocoa and wheat futures.

Moreover, the options on NYSE Liffe U.S. 33.2 ounce (oz.) mini gold and 1,000 oz. mini silver futures contracts provide traders flexibility by offering multiple trading strategies. Such option contracts should enable NYSE to enhance its risk management efficiencies, thereby strengthening the fundamentals and liquidity of the futures market for precious metals.

The launch of mini-sized contracts has been initiated in order to help the trading of options of the previous metals to reach out to smaller consumers and the rising demand of these markets.

Meanwhile, following the collapse of its merger deal with Deutsche Boerse, NYSE has been meticulously working to enhance its efficiencies through technology and risk management upgrades. Simultaneously, the company also seeks to expand its options business through metal exchanges.

In this context, recently NYSE has shown significant interest by submitting its bid this month for London Metal Exchange (LME), along with other derivative giants - CME Group Inc. ( CME ) and IntercontinentalExchange Inc. ( ICE ). The business of LME blends well with NYSE Liffe's soft and agricultural commodity derivative business.

On the flip side, addition of LME to CME's basket could enhance its metals exchange, Comex. Hence, the deal is also considered important for other derivative exchanges, such as CME and IntercontinentalExchange, in order to boost their competitive strength in Europe.

While LME is reviewing the bids, its owners are apprehensive about safeguarding its business model, we believe the complex structure of its futures contracts and its network of registered warehouses could pose some issues in the business sale.

Besides, in an attempt to increase its global market share, on Monday, CME also announced its strategic alliance with Japan's foremost vendor of energy price and information services - RIM Intelligence - in order to develop the clearing services for over-the-counter (OTC) risk management products that are used by the energy industry in Japan. Besides, the energy products will be listed and are subject to the rules of NYMEX and will be cleared through CME ClearPort.

CME expects to launch the energy products later this year. Management believes that RIM's trusted price yardstick in the Japanese energy market should blend well with CME's long-term growth strategy of expanding its energy markets across the globe.

Both NYSE and CME carry a Zacks Rank #3, implying a short-term Hold rating, while the long-term stance remains Neutral.

CME GROUP INC ( CME ): Free Stock Analysis Report
INTERCONTINENTL ( ICE ): Free Stock Analysis Report
NYSE EURONEXT ( NYX ): Free Stock Analysis Report
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