London's Oil Traders Stay in Pit in First Week of Electronic Alternative
Oct. 10 (Bloomberg) -- Members of the International Petroleum Exchange did most of their trading on the floor of the exchange in London, avoiding an electronic option offered this week by Europe's largest energy bourse.
Less than 5 percent of Brent contracts were exchanged online in the first three days of so-called parallel trading, traders and brokers said. On Monday, 3,287 were handled electronically, compared with 72,354 through open-outcry floor trades, IPE figures show.
``We haven't got time to sit down and learn how the new system works,'' said David Sadler, a senior trader at Sucden (UK) Ltd. in London. ``The market's been busy this week, so we've stuck with the pit because it's what we know and love.''
IPE directors have tried to shift the exchange's $2 billion- a-day trading onto computers since its purchase in April 2001 by Intercontinental Exchange Inc., or ICE, the operator of a commodities-trading Web site. In June, the IPE dropped a plan to replace morning floor trading in Brent futures, the benchmark for two-thirds of the world's crude oil.
``We've had no glitches and the system has run smoothly,'' spokeswoman Alison Herring said. ``Parallel trading is part of plan to switch to a full electronic system at some point.''
She didn't give a target date for the switch.
Nigeria News
ICE, owned by BP Plc, Goldman Sachs Group Inc. and 12 other companies, says electronic trading is cheaper and faster and will help the IPE compete with the larger New York Mercantile Exchange. Brokers and smaller traders worry the switch would cut volumes and make it harder for them to get a good price.
``The pit allows us to assess the market better because you can hear who is buying what,'' said Christopher Bellew, a broker at Prudential Bache International Ltd. in London. ``With it being such a busy week of news, we haven't wanted to risk trying a new system when the old one provides us with what we want.''
A possible strike by Nigerian oil workers, instability in the Middle East and concern about heating-oil shortages boosted volumes this week. In the first four days of the new system, a total of 426,631 Brent futures lots traded in the pit, up from 359,875 a week earlier, according to IPE figures.
Electronic trading on the IPE accounted for 2.8 percent of total volumes from Monday through Thursday, an increase from 1.4 percent for all of last week, when the system ran only overnight, according to Bloomberg calculations. Transaction fees are the same for both floor and online trading.
``The figures show it's not exactly a roaring success,'' Sadler said. The floor session lasts from about 10 a.m. to 7:30 p.m. Electronic trading runs from 2 a.m. until 10 p.m.
`We'll Lose'
Half the 10 IPE traders and brokers who spoke to Bloomberg News before the switch said they wouldn't use the electronic system. Some are hoping the Nymex will offer a Brent contract to rival the IPE's, allowing them to leave London for New York.
``We know we'll ultimately lose,'' said Peter Aitken, a broker at Vitol Group who sits on the IPE committee overseeing the move to electronic trading. ``If we stick it out, Nymex may offer Brent again and if it does, the IPE will see a massive exodus.''
Nymex introduced a North Sea Brent contract two years ago, prompting 17 traders to leave the IPE and move to the U.S. Trading was suspended after the Sept. 11, 2001, terrorist attacks.
The exchange has no plans to reactivate the contract, though it may offer European oil-product contracts, spokeswoman Nachamah Jacobovits said.
Last Updated: October 10, 2003 04:43 EDT |
