London Oil Exchange Ends Floor Trading as Nymex Enters Europe
April 7 (Bloomberg) -- The International Petroleum Exchange, the world's second-largest oil exchange, today will close its London trading floor after 17 years and move its markets online, seeking to save money as competition increases.
The New York Mercantile Exchange, its bigger rival, in November opened a trading pit in Dublin to compete for the $5 billion-a-day Brent crude oil market, where prices this week reached a record $57.65 a barrel. Energy trading is soaring as prices for oil, coal and natural gas rallied and banks including Merrill Lynch & Co. and Deutsche Bank AG expanded in the market.
``It's a very close call'' as to which exchange will win the business, said Steve Lambert, a senior trader with BNP Paribas, who has traded Brent crude on the IPE for 15 years. ``Our business has a habit of happening very quickly, and we will know within one month whether there is traction or not'' with the Nymex challenge.
The closure leaves the London Metal Exchange as the city's last open-outcry commodities marketplace. The IPE was purchased in April 2001 by Atlanta-based Intercontinental Exchange Inc., which is owned by a group of banks and energy companies including Morgan Stanley and London-based BP Plc. The shutdown was announced a month ago, after the exchange curtailed the number of hours floor traders could buy and sell Brent crude and gasoil contracts.
The Nymex Dublin floor so far has failed to grab the market. On April 4, when Brent crude reached its record high, 1,512 futures contracts traded in Dublin, equal to 1.4 percent of the 106,621 traded on the IPE, data compiled by Bloomberg shows.
Moving Online
About 220 people work on the IPE floor. Futures markets have been moving to electronic trading during the past five years. Last year, trades through computer screens surpassed floor-based trading on the Chicago Mercantile Exchange, the biggest U.S. futures market.
On the IPE, which started moving to electronic trades in 2002, the proportion of Brent contracts traded electronically rose to 26 percent in the last two months of 2004, up from as little as 5 percent before it started to reduce floor trading hours.
The IPE, based at St. Katherine's Dock, near Tower Bridge along the River Thames, expects to save $5 million to $8 million a year by closing the floor, according to a filing from the Intercontinenal Exchange. Spokeswoman Alison Herring wouldn't comment on how many will work at the exchange after permanent electronic trading begins.
`Dissatisfied'
``A lot of people are dissatisfied that the floor is closing,'' said Kevin Blemkin, a broker at London's Man Financial, which is tied as the owner of the largest number of IPE memberships. ``People are going to be finding out whether they still have their jobs or not. In the last day of trading, there may be a lack of people and a lack of spirit'' on the floor.
The Nymex is giving a reception in a pub called Mint across the street from the IPE after the close of the trading floor ``as a kickoff to the fact that traders can continue to trade open- outcry the following day'' in Dublin, said Anu Ahluwalia, a spokeswoman for Nymex in New York. She didn't have an estimate for when the exchange's London pit would open.
Joseph Raia, Nymex's vice-president of marketing, will be attending the reception.
Nymex expects at least 40 traders and brokers to be working in Dublin next week, where the exchange is offering 9 1/2 hours a day of open-outcry trading. The exchange is opening a trading pit in London this year to provide an open-outcry alternative to the computers of the IPE.
Top Traders
The top 15 Brent traders in Dublin and at its planned London trading ring will share in a 13 percent stake of Nymex Europe Ltd., the exchange said in a notice on its Web site. The top 10 holders of open interest, or the number of outstanding contracts held by traders, will get a 6 percent stake. The programs start April 1.
Traders in Dublin also benefit by paying less to make bets on differences between Brent crude and New York oil prices, a practice called arbitrage. The difference is a required deposit of $400 using only Nymex contracts, compared with the $8,000 margin needed if both the Nymex and IPE are used, said Conrad Eldridge, a trader with Amerex Futures Ltd. who trades in both London and Dublin.
``At the end of the day, it's the people that are holding the arbitrage that put good liquidity in the marketplace,'' Eldridge said. As many as 60 people are expected in Dublin on Monday where a gasoil contract also will be offered to traders, he said.
No Options
Nymex is seeking approval from the U.K. Financial Services Authority to open its own exchange floor in London, and regulatory approval could take as long as four months.
Nymex may lose traders, known as locals, who trade on their own behalf should too much time elapse before the exchange opens its London trading ring.
``I haven't got many options,'' said Bart Pepper, a local trader who has worked for different companies on the floor for the past 10 years. ``I've got Dublin or I've got ICE. It's going to be hard for Nymex to make it work because the floor community has to keep the client base together.''
The exchange now trades Brent crude on electronic screens continuously from 2 a.m. to 10 p.m., and in its trading pit from 2 p.m. to 7:30 p.m. in London. |
