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CME exchange committed to European gas offer despite slow start

https://www.chemnet.com   May 26,2015 Platts
Derivatives exchange CME Group is committed to its new European gas cleared futures contracts, it told Platts this week, despite a dearth of interest in most of its current offerings.

"From experience, we know that building a successful franchise takes time, [but] this is an area CME is fully committed to -- we are in it for the long haul," Henrik Hasselknippe, CME Group's senior director of energy products, said.

CME launched its suite of four physically delivered and 14 financially settled products January 19.

The physical futures contracts are for the two major European hubs: the UK's NBP and the Netherlands' TTF.

The financial futures cover the UK, Dutch, Austrian, German and Italian hubs.

But participants have only traded two of the 18 products: the UK and Dutch calendar month physical products, with the Dutch contract seeing virtually all of the volumes.

From launch through to May 8, cumulative trade on the Dutch calendar month futures stood at around 18 TWh, which accounted for 98.5% of total CME European gas volumes.

Hasselknippe attributed the lack of interest in the financially settled products to the idiosyncrasies of the European market.

"Market activity is generally physical in Europe; it might take some time for European market participants to fully adapt to cash-settled contracts," he said.

The relative success of the Dutch physical calendar month cleared contracts is driven by current market realities, Hasselknippe said.

"The market response is that [the Dutch contracts] provide a better fit for the business they are trying to do," he said.

"It all comes back to market structure: the Dutch market predominately trades bilateral, while the UK already has a strong exchange component.

"We are offering counterparties new opportunities for trading -- that is why the Dutch products are doing better."

The key to boosting volumes on the CME gas futures was simply to raise awareness, Hasselknippe said, "so that everyone knows it's available, how it works, and how it could be a good addition to their existing business."

All CME European gas futures volumes have so far only been traded on brokers' platforms.

Rival exchange PEGAS has also launched new European gas products recently, with the company expanding into the UK, Belgian and Italian markets.
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