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| Texas Eastern Zone M-3 Swap Futures (Platts IFERC) |
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Fueling the energy-hungry Northeast, the Texas Eastern Transmission pipeline network originating on the Gulf Coast is a major provider of natural gas transportation and storage services. Texas Eastern Zone M-3 includes compressor stations in Pennsylvania, delivering gas to interconnect with New York City distributors and to Algonquin Gas Transmission which serves New England. Every day, within Zone M-3, exchanges of gas take place among market participants whose needs vary, contributing to the overall market volatility. The customer base in Zone M-3 is diverse, with industrial load accompanied by a huge residential and commercial demand that reflects seasonal swings, particularly winter peak demand.
The volatility of natural gas prices has given rise to a basis market that is quoted as a differential to the price of the New York Mercantile Exchange, Inc., Henry Hub natural gas futures contract, which has evolved into the benchmark for forward natural gas markets industry-wide because of its liquidity and transparency.
To help market participants offset their price risk in this major market center, the Exchange provides a Texas Eastern Zone M-3 natural gas basis swaps futures contract. The final settlement is calculated as Platts Inside FERC's Gas Market Report Texas Eastern Zone M-3 index minus the final settlement price of the Exchange's benchmark Henry Hub natural gas futures contract for the corresponding contract month. Platts Inside FERC calculates the index price from its monthly bid week survey of buyers and sellers.
In addition to the basis swap futures contracts, the Exchange offers index swap futures and swing swap futures contracts that let market participants fine tune their risk management strategies.
Index swap futures contracts are part of the evolution of the modern natural gas markets. The NYMEX Division natural gas futures contract, the industry pricing benchmark, sets the anchor for all other trading strategies particularly those for hedging location basis differentials.
The index swap futures contract is a financially settled monthly contract that captures the differential of the daily market fluctuations during the delivery month as reported by Platts Gas Daily against the bid week price which is determined in the last days of the prior month and is reported by Platts Inside FERC. The bid week price reflects what is expected to happen during the delivery month; the daily price is what actually happens.
Swing swap futures contracts are also offered and help market participants manage their price risk with greater precision. The financially settled daily swing swap futures contract settles against the Platts Gas Daily index price at a specific location. There is a contract for every calendar day, or "flow date."
The lot size of 2,500 million Btus represents a commonly traded market unit that is one-quarter of the size of the Henry Hub futures contract, giving market participants additional flexibility in managing price risk. The contract must be traded as a multiple of the number of calendar days in the month.
The basis, index, and swing swap contracts are all available for trading on the NYMEX ClearPort® trading platform or can be submitted solely for clearing.
All positions will be aggregated and margined according to the value at risk as calculated by the SPAN® system. Cross margining of offsetting positions across markets can result in reduced margin obligations. |
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