Running head: BUSINESS STRATEGY AND TECHNOLOGICAL INNOVATION

Business Strategy and Technological Innovation In Natural Gas Trading Market Vrushali Soni Northwest University

BUSINESS STRATEGY AND TECHNOLOGICAL INNOVATION

Business strategy of an organization constitutes three major elements: 1. Asset structure 2. Customer base 3. Knowledge creation However, any organizations business strategy is highly influenced by two factors, namely technological innovation and market condition. The natural gas trading market has few emerging high-speed trading firms that adapt a business strategy to manipulate market condition in order to make profit whereas some other veteran trading firms include technological innovations for revamping their business strategy to safeguard their firms from worsening market conditions. The WSJ article focuses on recent unusual trading patterns that startle the veteran trading firms from doing business in natural gas market. This unusual patterns are a part of business strategy, banging the beehive, which is used by some high-speed trading firms. Under this strategy, a firm can bring tremendous price swings in the gas market for their personal profit. The U.S. Energy Information Administration (EIA) releases weekly gas inventory data. Few seconds before the gas inventory data goes public, these firms issue huge number of contracts with the motive to increase the gas price and when this price match their target profits they sell these contracts immediately causing the price to fall again. This repetitive pattern has caused enormous price fluctuation in the market and has made the traditional traders to reconsider their business strategies. These traditional traders have their current business strategy as Stay away. They take the aid of technological innovation and set prices through computers, and wait until the target price is achieved. These firms forcefully adapt this strategy because there is risk in frequent trading in the market with such price swings. However, in order to stay away from the market they have to pay broker fees and the also bear the opportunity cost of missing the profit making instances during market volatility.

BUSINESS STRATEGY AND TECHNOLOGICAL INNOVATION Eric Scott Hunsader, CEO at market-data service Nymex LLC, observed this strategy a

couple of times as demonstrated in Fig-1. On August 16, few seconds before the data release, the trading volume increased and the prices dropped by 4 cents. After the gas inventory reported natural gas inventory of 25 billion cubic feet, the market prices increased by 10 cents and after some time the price decreased. In this small time window the high-speed traders got the incentive to sell their contracts and receive high profit margins on it. After seven minutes of these peaks and valleys the price was steady for the rest of the session. Overall, the natural gas market reports that high-speed trading has decreased and potentially will further decrease the liquidity in the market, which is not good for overall market growth and fake price swings might result into complete withdrawal of some of the veteran investors.

BUSINESS STRATEGY AND TECHNOLOGICAL INNOVATION

Fig: 1 Nymex natural gas market fluctuation Source: http://online.wsj.com/article/SB100008723963904446578045780531539390926 68.html?mod=WSJ_Markets_LEFTTopStories#articleTabs%3Darticle

BUSINESS STRATEGY AND TECHNOLOGICAL INNOVATION References

Dicolo, J. & Rogow, G. (2012). Gas Market Stung by Rapid Traders. Retrieved form http://online.wsj.com/article /SB10000872396390444657804578053153939092668. html?mod= WSJ_Markets_LEFTTopStories#articleTabs%3Darticle Zimmerman, L. (2010). Accounting for Decision Making and Control. University of Rochester. McGraw Hill.