Market quality and price discovery: Introduction of the E-mini energy futures

In mid-June 2002, the New York Mercantile Exchange (NYMEX) introduced E-mini futures contracts on natural gas and crude oil, a natural response to information technology developments and investor interest. The transition data allow examination of the effects of the new contracts on market quality and price discovery. Bid-ask spreads on the regular futures have been reduced significantly since introduction of the E-mini futures, showing improved market quality from competition effects. The E-mini market contributes more than 30% to the price discovery process, although it represents less than 1% of the volume of the regular futures with the same underlying. E-mini futures have several advantageous characteristics over regular futures, which should explain these significant results.