Magazine article Modern Trader

NYMEX Sues New Jersey

Magazine article Modern Trader

NYMEX Sues New Jersey

Article excerpt

Some New Yorkers might find a lawsuit against New Jersey justifiable on any basis, but the New York Mercantile Exchange (NYMEX) suit against the state, which aims to keep New Jersey from unilaterally dropping out of the Clean Air Act requirements that NYMEX bases its New York Harbor unleaded gasoline contracts on, has caused a ruckus.

The controversy centers on New Jersey's April decision to immediately terminate its 2.7% oxygenate gasoline sales requirement for winter months, when the U.S. Environmental Protection Agency (EPA) requires certain regions - such as the metropolitan area including counties in New York, New Jersey and Connecticut - to sell higher oxygenate-content gasoline.

The exchange filed a motion for summary judgement in June. Time is of the essence, says NYMEX President Patrick Thompson, because NYMEX hasn't been able to list contracts expiring past December 1995.

"As it stands now, we're down to six months; normally we list [futures] contracts to 18 months out," Thompson says.

NYMEX is suing New Jersey because of potential delivery point problems and because the state lacks the authority to unilaterally opt out of winter fuel requirements without an EPA waiver. By law, the New York metropolitan area must act as a unit, he adds.

The uncertainty is taking its toll. By May's end, open interest in gasoline futures stood at 8,135 positions for the October through December contracts, a 9% drop from year-ago levels, while options open interest was down 67%.

Todd Miller, a member of NYMEX's products advisory committee, says there hasn't been much forward trading and volatility is up. …

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