IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v17y2024i6p252-d1417893.html
   My bibliography  Save this article

Lessons from the Demise of the Brent Crude Oil Futures Contract on the Singapore Exchange

Author

Listed:
  • David K. Ding

    (Lee Kong Chian School of Business, Singapore Management University, 50 Stamford Road, Singapore 178899, Singapore)

  • Wui Boon Lim

    (Lee Kong Chian School of Business, Singapore Management University, 50 Stamford Road, Singapore 178899, Singapore)

Abstract

This paper highlights the lessons drawn from the demise of the Brent Crude Oil futures contract that was traded on the Singapore Stock Exchange (SGX). We analyze the market microstructure of the contract prior to its failure—specifically, the number of trades, trading volume, open interest, bid–ask spread, and volatility. We find a steady decline in the mean volume, open interest, and number of trades as the contracts near their demise. The bid–ask spread of the contract also widens. Investigations of the mutual offset feature of the Brent Crude Oil futures contract between SGX and the International Commodity Exchange (ICE) provides evidence that trading volume, open interest, and the number of trades increase significantly during 4:00–5:45 PM local time when mutual offset is available.

Suggested Citation

  • David K. Ding & Wui Boon Lim, 2024. "Lessons from the Demise of the Brent Crude Oil Futures Contract on the Singapore Exchange," JRFM, MDPI, vol. 17(6), pages 1-22, June.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:6:p:252-:d:1417893
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/17/6/252/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/17/6/252/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shmuel Baruch & G. Andrew Karolyi & Michael L. Lemmon, 2007. "Multimarket Trading and Liquidity: Theory and Evidence," Journal of Finance, American Finance Association, vol. 62(5), pages 2169-2200, October.
    2. Grammatikos, Theoharry & Saunders, Anthony, 1986. "Futures Price Variability: A Test of Maturity and Volume Effects," The Journal of Business, University of Chicago Press, vol. 59(2), pages 319-330, April.
    3. Rohan Christie‐David & Timothy W. Koch, 1997. "The impact of market‐specific public information on return variance in an illiquid market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 17(8), pages 887-908, December.
    4. McInish, Thomas H & Wood, Robert A, 1992. "An Analysis of Intraday Patterns in Bid/Ask Spreads for NYSE Stocks," Journal of Finance, American Finance Association, vol. 47(2), pages 753-764, June.
    5. Brorsen, B. Wade & Fofana, N'Zue F., 2001. "Success And Failure Of Agricultural Futures Contracts," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 19(2), pages 1-17.
    6. Shao, Lili & Shao, Jun & Sun, Zheng & Xu, Huaxin, 2019. "Hedging, speculation, and risk management effect of commodity futures: Evidence from firm voluntary disclosures," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    7. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
    8. Sandor, Richard L, 1973. "Innovation by an Exchange: A Case Study of the Development of the Plywood Futures Contract," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 119-136, April.
    9. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    10. Mark J. Powers, 1967. "Effects of Contract Provisions on the Success of a Futures Contract," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 49(4), pages 833-843.
    11. Dennis W. Carlton, 1984. "Futures markets: Their purpose, their history, their growth, their successes and failures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 4(3), pages 237-271, September.
    12. Bradford Cornell, 1981. "The relationship between volume and price variability in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 1(3), pages 303-316, September.
    13. Jian Yang & Zheng Li & Tao Wang, 2021. "Price discovery in chinese agricultural futures markets: A comprehensive look," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(4), pages 536-555, April.
    14. Li, Miao & Xiong, Tao, 2021. "Dynamic price discovery in Chinese agricultural futures markets," Journal of Asian Economics, Elsevier, vol. 76(C).
    15. Johnston, Elizabeth Tashjian & McConnell, John J, 1989. "Requiem for a Market: An Analysis of the Rise and Fall of a Financial Futures Contract," The Review of Financial Studies, Society for Financial Studies, vol. 2(1), pages 1-23.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Doojin RYU & Hyein SHIM, 2017. "Intraday Dynamics of Asset Returns, Trading Activities, and Implied Volatilities: A Trivariate GARCH Framework," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 45-61, June.
    2. Cavanaugh, Grant & Penick, Michael, 2018. "The lifecycle of exchange-traded derivatives," Journal of Commodity Markets, Elsevier, vol. 10(C), pages 47-68.
    3. Trin Sittisawad & Pariyada Sukcharoensin, 2018. "Success Factors of Financial Derivatives Markets in Asia," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 25(2), pages 71-86, June.
    4. Gerhard, Frank & Hess, Dieter & Pohlmeier, Winfried, 1998. "What a Difference a Day Makes: On the Common Market Microstructure of Trading Days," CoFE Discussion Papers 98/01, University of Konstanz, Center of Finance and Econometrics (CoFE).
    5. Malinova, Katya & Park, Andreas, 2014. "The impact of competition and information on intraday trading," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 55-71.
    6. Jędrzej Białkowski & Jan Koeman, 2017. "Does the Design of Spot Markets Matter for the Success of Futures Markets? Evidence from Dairy Futures," Working Papers in Economics 17/18, University of Canterbury, Department of Economics and Finance.
    7. Geir H. Bjønnes & Dagfinn Rime & Haakon O. Aa. Solheim, 2002. "Volume and Volatility in the FX-Market: Does it matter who you are?," CESifo Working Paper Series 786, CESifo.
    8. Michael J. Fleming & Eli M. Remolona, 1996. "Price formation and liquidity in the U.S. treasuries market: evidence from intraday patterns around announcements," Research Paper 9633, Federal Reserve Bank of New York.
    9. Fizaine, Florian, 2018. "Toward generalization of futures contracts for raw materials: A probabilistic answer applied to metal markets," Resources Policy, Elsevier, vol. 59(C), pages 379-388.
    10. Ghadhab, Imen, 2016. "The effect of additional foreign market presence on the trading volume of cross-listed/traded stocks," Journal of Multinational Financial Management, Elsevier, vol. 34(C), pages 18-27.
    11. Zhang, Michael Yuanjie & Russell, Jeffrey R. & Tsay, Ruey S., 2008. "Determinants of bid and ask quotes and implications for the cost of trading," Journal of Empirical Finance, Elsevier, vol. 15(4), pages 656-678, September.
    12. Chakravarty, Sugato & Harris, Fredreck H. deB. & Wood, Roger A., 2001. "Do Bid-Ask Spreads or Bid and Ask Depths Convey New Information First?," Purdue University Economics Working Papers 1149, Purdue University, Department of Economics.
    13. Stulze, Rene M., 2008. "Securities Laws, Disclosure, and National Capital Markets in the Age of Financial Globalization," Working Paper Series 2008-13, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    14. ap Gwilym, Owain & Thomas, Stephen, 2002. "An empirical comparison of quoted and implied bid-ask spreads on futures contracts," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(1), pages 81-99, February.
    15. Qianqian Mao & Jens-Peter Loy & Thomas Glauben & Yanjun Ren, 2023. "Are futures markets functioning well for agricultural perishables? Evidence from China's apple futures market," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 69(12), pages 471-484.
    16. Martin Angerer & Georg Peter & Sebastian Stoeckl & Thomas Wachter & Matthias Bank & Marco Menichetti, 2018. "Bid-Ask Spread Patterns and the Optimal Timing for Discretionary Liquidity Traders on Xetra," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 70(3), pages 209-230, July.
    17. Davis, Ryan & Griffith, Todd & Van Ness, Bonnie & Van Ness, Robert, 2023. "Modern OTC market structure and liquidity: The tale of three tiers," Journal of Financial Markets, Elsevier, vol. 64(C).
    18. Tribhuvan N. Puri & George C. Philippatos, 2008. "Asymmetric Volume‐Return Relation and Concentrated Trading in LIFFE Futures," European Financial Management, European Financial Management Association, vol. 14(3), pages 528-563, June.
    19. Rzayev, Khaladdin & Ibikunle, Gbenga, 2019. "A state-space modeling of the information content of trading volume," Journal of Financial Markets, Elsevier, vol. 46(C).
    20. Ben Ammar, Imen & Hellara, Slaheddine & Ghadhab, Imen, 2020. "High-frequency trading and stock liquidity: An intraday analysis," Research in International Business and Finance, Elsevier, vol. 53(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:17:y:2024:i:6:p:252-:d:1417893. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.