New York Board of Trade (NYBOT) – Definition

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New York Board of Trade Definition

New York Board of Trade (NYBOT) is a physical commodity futures exchange created in June 2004, by the merger of two historic exchanges: the New York Cotton Exchange and Coffee Sugar and Cocoa Exchange.

The New York Board of Trade was renamed as ICE Futures US in September 2007 when it was acquired by the Intercontinental Exchange.

A Little More on What is the New York Board of Trade

The NYBT is located in the New York city and trades options and futures for the commodities like cotton, sugar, coffee, orange juice, and cocoa, as well as interest rates, market indexes, and currencies.

The New York Board of Trade was originated in 1870 as the New York Cotton Exchange. The Coffee Sugar and Cocoa Exchange was acquired by them in 1997 and in 2004 the two exchanges merged to form the New York Board of Trade.

The trading floor of the NYBOT was regulated by the U.S. Commodity Futures Trading Commission, an independent market watchdog agency of the United States government. The trading on the exchange floor used to be conducted by open cry system for more than a century. After a few years of the acquisition by the Intercontinental Exchange, the floors were closed, and entire trade was shifted to the electronic communication networks. At present, the ICE functions as an electronic exchange and is linked directly to individual traders and companies.

On the exchange, the investors trade contracts to buy or sell commodities, currencies and other instruments, at a specified price at a specified time in the future. The investors never really buy any physical commodities, they only trade the contracts in order to control the underlying asset. The traders involved in a deal mostly exchange only cash for the trading. It allows the investors to control a large quantity of the underlying assets with a small amount of money and to wield enormous leverage from it. It helps the market to sort out imbalances as the traders arrive a realistic price of the commodities and other financial instruments by using market forces.

The future exchanges were formed to standardize the contract terms and for facilitating the trade of the contracts in the basic commodities. Like the Cotton Exchange allowed the manufacturers to acquire the raw materials at a predetermined price for a future delivery.

The agricultural products are susceptible to volatile changes. This volatility of the prices makes it difficult for manufacturers to price their products. The future market safeguards both the agricultural producers and the buyers against this volatility.

References for New York Board of Trade

Academic Research on New York Board of Trade (NYBOT)

The information content of implied volatility in agricultural commodity markets, Giot, P. (2003). Journal of Futures Markets: Futures, Options, and Other Derivative Products23(5), 441-454. According to this paper, assessment tests which explain the incremental information content of the implied lagged volatility to the GARCH models of the conditional volatility for a number of agricultural produce traded on the New York Board of Trade was carried out. This paper also studies the significance of the additional information given by the implied volatility in a risk management scheme. According to the result obtained from this paper, the implied volatility for options on futures contracts in various agricultural commodity markets gives relevant information as regards the VAR models.

The implication of cotton price behaviour on market integration, Ge, Y., Wang, H. H., & Ahn, S. K. (2008). In Proceedings of the NCCC-134 Conference on applied commodity price analysis, forecasting, and market risk management, St. Louis (pp. 1-19). This academic paper explains the behaviour of price on market integration and this explanation was aided by the test carried out on the cotton market in China. This market according to this paper is very interactive with the international markets especially the United States market. It was stated in this paper that the prices between these two markets are highly important as they can be used to explain the relationship between them. Also, this paper explains that this relationship (Between these two markets) is induced by the Chinese exchange rate policy change in 2005.

The impact of index funds in commodity futures markets: A systems approach, Sanders, D. R., & Irwin, S. H. (2011). Journal of Alternative Investments14(1), 40-49. This paper explains the debate as regards the role of the index funds in the commodity futures markets. This argument is based on the evidence that the size of the sheer of index investment can overpower the normal activeness of these markets. According to this paper, the result of the analyses drawn uses the information gotten from the United States Commodity Future Trading Commission found in the “Disaggregated Commitments of Trader” report. This result, however, does not imply the bigger commodity index positions are connected to the declining market volatility. Although these results are maybe market specific.

Financialization and changes in the social relations along commodity chains: The case of coffee, Newman, S. A. (2009). Review of Radical Political Economics41(4), 539-559. This academic research paper examines the impacts of the distributional effect of the restructuring of the international coffee market that has occurred since the inception of the collapse of the international coffee Agreement Act in 1989 and the liberation in the country having a large production of the coffee farm under the structural adjustment programs. This paper, however, argues that the increase in the financial investment on International commodity exchange as well as with the market liberalization has resulted in the increment in the rate of challenged ad opportunity for the actors in the coffee industry.

A growing focus on preparedness, Rigby, D., & Bilodeau, B. (2007). Harvard Business Review85(7/8), 21-22. This paper explains that the scenario-planning tools are getting better and companies are making effective and efficient use of them to prepare for an unknown and an uncertain future in lieu to the recent result obtained from the Bain and company’s ongoing fourteen years survey of the use of corporate tools.

Economic valuation of the vulnerability of world agriculture confronted with pollinator decline, Gallai, N., Salles, J. M., Settele, J., & Vaissière, B. E. (2009). Ecological Economics68(3), 810-821. According to this research paper, the total effect of pollination worldwide on agricultural produce was studied and estimated to be around 153 billion pounds which is an approx. 9.3% of the world’s value chain in the agricultural sector according to the estimation carried put in 2005. According to the estimation carried out in this paper, there was a positive and significant correlation between the ratio of vulnerability to the pollinator decline of a crop category and its total value per production limit. The result from this paper clearly states the economic importance of the insect pollinators but it cannot still be considered as a scenario since it does not take into consideration the strategic responses of the markets.

 

The impact of index and swap funds on commodity futures markets, Irwin, S. H., & Sanders, D. R. (2010). According to this research paper, a test was carried out to study the impact of the swap and index fund participation in the energy commodity and agriculture future markets. Based on the analyses conducted in this paper, this result finds out that the index fund does not cause a bubble in the agricultural future prices. Hence, the evidence shown in this paper is termed strongest for most agricultural future markets because the data found on the index trader positions are measured with explicit and effective accuracy. The evidence, however, is not as strong in the first two energy markets examined in this paper because of the uncertainty about the degree to which the available information reflects the index trader positions in these markets.

Migration of price discovery in semi-regulated derivatives markets, Hall, A. D., Kofman, P., & Manaster, S. (2006). Journal of Futures Markets: Futures, Options, and Other Derivative Products26(3), 209-241. This paper studies the content of the information of the future option prices when the underlying futures price is controlled while the future option price is not. According to this study, the New York of Trade (NYBOT) submits an empirical setting of this regulatory mismatch. A lot of commodity products in the market have in one way or the other influenced the price of all other product in a single underlying commodity simultaneously. This paper, however, studies particularly the option-implied future price when the price of the observed future price is termed as a locked limit.

Influence of Commodity Derivatives on Volatility of Underlying Asset., Sahi, G. S. (2007). ICFAI Journal of Derivatives Markets4(3). This research thesis studies the effect of introducing the commodity futures contracts according to the volatility of the underlying commodity. This paper uses the Indian market as an example. Examples of evidence gotten from the GARCH method implies that in turmeric, sugar, wheat, raw jute, soybean oil and cotton, the nature of the spot price volatility remains unchanged since the beginning of futures trading. The Granger causality test according to this paper shows that an unexpected rise in the future trading volume mono-directional causes gives rise to an increase in the cash price volatility for sugar, raw jute, wheat, turmeric, soybeans and wheat.

The effect of structural change on information flow between the US and Chinese agricultural futures markets, Lee, K. C., Lin, C. C., & Liao, T. L. (2013). Chinese Economy46(4), 25-48. This paper studies the effect of structural changes on the rate at which information flows between the agricultural future markets of the United States and the China market after 2002. These two kinds of cotton future market are found to be integrated as are the two soybean future markets which suggest that a long-term relationship characterized by an equilibrium that exists in their respective related markets. However, the result for cotton futures shows that the New York market does not take over the Zhengzhou market in the aspect of information efficiency. Both markets are said to incorporate information on a daily basis in these two markets

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