With natural gas prices regularly setting records, the New York Mercantile Exchange is raising the margin on its Henry Hub natural gas contract at the close of business Friday for the fifth time in as many week.
It raised margins to $12,000 from $10,000 for clearing members; to $13,200 from $11,000 for members; and to $16,200 from $13,500 for customers. Margins on spreads involving any of the first 6 months will be $2,500. Presently, spreads involving the first month are $1,500 and those involving the second through sixth month are $500.
Margins on spreads involving the seventh through 12th months will rise from $250 to $1,000. Margins on spreads involving all other months will increase from $100 to $200.
Friday, NYMEX also expanded the initial price limits on its natural gas futures contracts; created uniform limits across all months of trading; abbreviated the trading halt; and expanded the new limits by 200% when the initial limit is reached.
Exchange Chairman Daniel Rappaport said the changes will simplify its rules and allow futures market to more closely track cash market movement, while still serving to disseminate information and assessment of risk during "extraordinary price movements."
The exchange raised the natural gas limit to $1/Mcf and changed the procedures for expanding the limits, so that if any contract is traded, bid, or offered at the limit for 5 minutes, the market is halted for 15 minutes. When trading resumes, expanded limits are in place that allow the price to fluctuate by $2 in either direction of the previous day's settlement price.
Currently, the market is halted for 1 hour if the price in one of the first 2months is traded at $.750 for 5 minutes. When the market reopens, those limits are extended to all months, but are moved to surround the previous limit in place in the direction of the move.
Under the new rules, if a halt occurs during the last 2 days of trading in a contract, when the market reopens, there are no price limits placed on either of the first two nearby contract months.
