The New York-London Connection: Copper Futures and Options, Traded at the New York Mercantile Exchange and the London Metal Exchange, Mimic Each Other's Price Movements, but the Time Difference between New York and London Presents Some Unique Opportunities

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Although the futures and options contracts traded at the Comex division of the New York Mercantile Exchange (Nymex) both of which are part of CME Group and overseas at the London Metal Exchange (LME) share approximately the same price movements, they are separated by the time difference between New York City and London.

"Copper futures: Comex and LME" (right) illustrates the close connection between the two prices, charting the daily LME official settlement price and Comex opening price over five months, May 1 through Sept. 30, 2009.

The LME provides for trading in liquid, standardized futures and options contracts in non-ferrous metals, steel and plastics. LME pricing continues 24 hours each day through three methods: a trading ring, an inter-office telephone market and the LME Select electronic trading platform. Official settlement prices result from open-outcry trading between ring dealing members.

LME is a principal-to-principal market in which buyers and sellers wishing to hedge price risk access futures through trading members. The exchange also functions as a market of "last resort," providing physical delivery as a source of material or as a means to sell excess stock in times of over-supply. In the chart, LME copper is represented by three-month grade-A copper futures.

The trading unit for copper on the Comex exchange is 25,000 lbs of high-grade copper with the symbol HG. Tick size is 0.0005[cents] per lb. or $12.50 per contract, and the value of one trading unit is $25,000. In the chart, New York copper is represented by the December 2009 contract.

The LME trading unit for Grade A copper is one tonne (one metric ton, 1,000 kilograms or 2,204.623 pounds of metal). LME prices per tonne are listedin U.S. dollars, and for the purposes of our charts the LME prices are converted to price per pound to approximate the price scale of Comex futures. For example, the LME price for copper grade-A three-month average buy and sell was $6,153 on Sept. 30, 2009. Converted to price per pound, the LME futures produce $2.7910. The opening price per pound on Comex on the same day was $2.7175, for a difference of 7.35[cents].

The five-hour time difference between London and New York means that the official settlement prices are announced at the LME at 8:15 a.m. in New York, at the beginning of trading at Comex. This is at 1:15 p.m. in Great Britain, the end of the ring trading session.


Given the time differential between London and New York City, is it possible for traders on the Comex exchange to use LME settlement prices to assist in pricing copper futures and options? From May 1 through Sept. 30, the average difference between the opening Comex price for December 2009 copper futures and the three-month copper settlement price on LME was plus 1.51cents. The greatest differences were plus 9.42cents on Aug. 17 and minus 7.46cents on Sept. 30.

If the difference between the Comex opening price and LME settlement price is helpful in trading copper futures and options, the effect should be seen in the movement in Comex futures during the day. For each of the 105 days in the four-month sample, the differences between the opening Comex price and London settlement price were ranked in ascending order along with the gains or losses in the Comex price on the same day.

"Negative relationship" (above) includes a scatter chart that demonstrates the correlation between the Comex open and the LME official settlement price. The following change in the Comex price during the day is negative. In general, the larger the opening spread over LME, the more negative the daily price change in the Comex December 2009 futures price, all else being equal. Of interest is the upper left quadrant on the chart, which shows that most price changes during the day were positive when the opening difference was negative. Also noted is that when the opening Comex-LME difference is greater than 0. …