Kansas City Board of Trade launches natural gas index futures

The Kansas City Board of Trade launched natural gas index price futures on June 8, offering the industry an alternative pricing mechanism for hedging. KCBT western natural gas index price futures will be settled to the Inside FERC West Texas-Waha Index price, rather than to the existing KCBT western natural gas futures flat price. The new index pricing mechanism eliminates the index risk in the existing flat price contract, providing an effective hedge for physical and over-the-counter gas trades based on the index price. In addition to offering a hedge for physical gas index deals, index price futures also offer arbitrage opportunities for gas market participants. Index price trading is expected to take place in a relatively narrow range of prices, with volatility concentrated on bid week. As a result, margins can be established at levels that reflect the lower risk associated with such positions. "The index price contract will be an excellent complement to our existing flat price contract, providing another much-needed hedging option," said Michael Braude, KCBT president. "We look forward to expanding our services to the natural gas industry."