IntercontinentalExchange's transition to futures of all cleared over-the-counter derivatives products listed on its OTC energy market, effective Monday, has caused some uncertainty in the marketplace, sources said.
US Gulf Coast distillate brokers told Platts that the transition has caused headaches as some bids and offers have been mismatched.
Liquidity in the swaps market has also been affected. The bid/offer range in November Gulf Coast ULSD swap differential was heard at around 2 cents/gal in morning trade, far exceeding the typical 25 points to 1 cent/gal spread.
The wide bid/offer spread was being cause by a lack of liquidity.
"I think a lot of guys are sitting back. Some bid/offers are getting mismatched," said a distillate broker. "No one is trading," said a fuel oil broker.
However, the transition has not affected everyone. A fuel oil swap trader said he saw "no change" in the market with the transition.
ICE announced the transition in July in an attempt to prevent many of its customers from facing new derivatives reform rules, particularly in the US.
Brookly McLaughlin, an ICE spokeswoman, said Monday that the transition of open interest over the weekend took place as planned and "trading of these contracts today as futures is taking place as expected."
"We appreciate the cooperation of our market participants in making this transition run smoothly," she said.
McLaughlin has said previously that the swaps-to-futures plan was motivated by customer requests.
"They are seeking regulatory certainty amid the continued evolution of new swap rules and how those rules might impact their operations," McLaughlin said. "They have strong familiarity with operating in the futures markets in their risk management and hedging activities, and have expressed a preference for a timely transition to gain operational and regulatory certainty."
In 2006, ICE completed the same process by transitioning all of the open interest in its WTI crude oil swap to an equivalent futures contract at ICE Futures Europe.
