We document that, starting in the Fall of2008, the benchmark West Texas Intermediate (WTI) crude oil has periodically traded at unheard-of discounts to the corresponding Brent benchmark. We further document that this discount is not reflected in spreads between Brent and other benchmarks that are directly comparable to WTI. Drawing on extant models linking oil inventory conditions to the futures term structure, we test empirically several conjectures about how calendar and commodity spreads (nearby vs. first-deferred WTI; nearby Brent vs. WTI) should move over time and be related to storage conditions at Cushing. We then investigate whether, after controlling for macroeconomic and physical market fundamentals, spread behavior is partly predicted by the aggregate oil futures positions of commodity index traders.

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This paper analyses the relative merits of an automated versus an open outcry trading system for a derivatives contract which is traded simultaneously at two competing exchanges. The only characterizing difference between these exchanges is the mode of operation. The domestic exchange (listing the underlying asset) operates by automated trading, the foreign exchange uses open outcry. Investigations are made to determine whether this operational competition supports a trading system segmentation hypothesis. First, quote setting is investigated to determine whether or not it is related to the transparency of the trading system. Second, analysis is carried out to determine whether the transparency of the trading system influences the lead/lag relationship in returns and volatility between the two markets. Both hypotheses are empirically tested for the Bund futures contract as it is traded in London (LIFFE) and Frankfurt (DTB).

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Vilarin provided valuable research assistance. Bernie Flores tracked down many obscure references. The analysis and conclusions of this paper the author's and do not suggest concurrence by the Federal Reserve Bank of Chicago. Contracting Innovations and the Evolution of Clearing and Settlement Methods atFutures Exchanges