LONDON, -- The pit at the International Petroleum Exchange fell silent for good, as the noisy practice of traders in multicolored jackets shouting orders and using hand signals was banished in favor of a fully electronic system. Posted on 04/07/2005 8:56:20 PM PDT by M. Espinola
LONDON, -- The pit at the International Petroleum Exchange fell silent for good, as the noisy practice of traders in multicolored jackets shouting orders and using hand signals was banished in favor of a fully electronic system.
The switch to screen trading of oil futures contracts, which brought an end Thursday to the 25-year tradition of open outcry trading, is part of the IPE's plan to improve efficiency and competitiveness.
But the move has also prompted a renewed attack from the New York Mercantile Exchange. The world's biggest energy futures market has set up a rival exchange in Dublin that it plans to move to London, pledging its commitment to retain an active trading floor.
"Coming soon to London, a champion of open outcry trading," the Nymex trumpeted in a carefully timed half-page advertisement in the Financial Times on Thursday. "Our floor will be fitted with the latest in technology - humans."
The Nymex's campaign received a further boost when a technical hitch interrupted trading on the IPE for an hour and a half during Thursday morning's electronic session. Traders said an attempt to restart the system failed. The IPE declined to comment Thursday.
"It's a subdued atmosphere in here today, it really is the end of an era," said a trader who did not want his name used. "The electronic outage earlier doesn't help the feeling on the floor, and there'll be a few people making the weekly commute to Dublin for trading."
The Nymex, meanwhile, made that journey easier for many traders - throwing a reception at a pub across the road from the IPE after the traders left the pit for the last time after Thursday afternoon's session.
Nymex spokeswoman Anu Ahluwalia said the gathering was an informal way of saying "we are there for them." About 220 pit traders are directly affected by the IPE's decision, and could lose their jobs.
The Nymex is also offering substantial financial assistance for traders who make the switch to Dublin, which offers an alternative to the IPE's benchmark North Sea Brent contract - providing expenses of US$1,000 (euro777) a week or stipends of US$100,000 (euro77,700) a month in some cases. Ahluwalia said the Dublin operation has attracted more than 150 traders so far.
The Nymex said in March it had signed a lease on a headquarters in central London, but it has not yet registered with the Financial Services Authority for regulatory approval, citing the size of the application. The British watchdog has said the subsequent approval process could take four to six months.
Analysts said the competition between the two exchanges will come down to the debate over open outcry and electronic trading.
Supporters of electronic trading believe cutting the need for a physical presence at the IPE will allow a trader to work in any number of markets from any location. They also claim that on-screen trading ensures a more transparent and easier to regulate market.
Andy Swaine, a broker with ADM Investor Services in London, said the electronic process brings several benefits, such as the flow of prices and technical and fundamental market information.
"We have made a quite deliberate decision to focus upon that which we perceive to be the future of derivatives trading," said Swaine, who trades energy derivatives exclusively on IPE's electronic system.
The switch to full electronic trading was a condition of IPE's takeover in 2001 by the Intercontinental Exchange. The IPE began the process in November when it ditched the morning open outcry session, leaving only the afternoon session.
Nymex President James Newsome, however, said during a visit to London in February that the Nymex will offer open outcry trading as long as customers demand it, and dismissed suggestions that it would alienate newer players such as hedge funds that prefer electronic trading.
Peter Fusaro, chairman of the advisory firm Global Change Associates in New York, called the IPE's decision a "big mistake."
"It's way too premature. Energy is an information-intensive business," he said. "You can't execute strategy on screen. They have failed to understand the physicality of the market."
Fusaro said there would be room for only one energy market in Europe, and Nymex would emerge the winner.
"The IPE is going to lose a lot of liquidity and potentially, eventually, be bought by Nymex," he said.
The closure of the IPE pit leaves the London Metal Exchange as the only commodities pit or ring left in London. The LME has said it has no current plans to abandon its open outcry system, which is used by 11 dealing firms and is supplemented with telephone and electronic trading.
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BTTT
I have relatives in the petroleum industry. All that I have to say is look for increased activity in US companies that manufacture equipment used in the drilling, extracting, and refining of oil - domestic activity is primed for expansion.
IPE Floor Traders (27)
Green-hippies (0)
Part of the problem is that bureaucracy and regulations that linger from the days of Dem controlled congresses damned near killed domestic production. The red tape made foreign oil more cost effective. It will be a while before we can go "full tilt" because capped wells have to be checked, oil field equipment replaced/repaired, and refinery capacity increased (yes, enviroweenies, we'll have to build some new refineries).
There is no overnight quick fix as you stated relating to field equipment & scores of capped wells.
'China alone will account for a quarter of the rise in global demand as the number of vehicles on its roads soars from an estimated 21 million in 2002 to 387 million in 2030.' Yet we shall never hear a word from the radical left.
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