NYMEX Targets Trading Floor
Liz Moyer, 07.31.07, 3:19 PM ET
If floor traders in Manhattan didn't already get the memo, the New York Mercantile Exchange made the future clear for them Tuesday. There isn't one.
Nymex Holdings (nyse: NMX - news - people ), the parent of energy trading giant New York Merc, is slashing costs over the next three months, specifically targeting the population of its trading floor, which has seen volume dwindle as more contracts are traded through an electronic alliance with the Chicago Mercantile Exchange (nyse: CME - news - people ).
"There's significant opportunity to change the way we do business," said Richard Schaeffer, mentioning both the size of the floor and its location, in comments during a conference call Tuesday. "These are things that I believe you will see in the near-term, these aren't things that are going to be put off for six months."
Floor trading volume dropped by half in the second quarter compared with last year, when Nymex agreed to start trading its contracts on the Merc's Globex electronic system. Energy futures and options volume averaged 257,000 contracts on the Nymex in the second quarter, compared with 537,000 in the same period last year. Meanwhile, electronic trading volume soared more than 400%.
Nymex continues to consider its future as a stand-alone company as well. Schaeffer said he speaks to Chief Executive James Newsome every day about opportunities, though he was coy about the details.
It could include a merger with NYSE Group (nyse: NYX - news - people ), whose chief executive, John Thain, has talked about wanting to expand beyond equity trading into bonds (which he has done), options (that too) and U.S. futures.
Speculation about a Nymex-NYSE tie-up started last year, when the 130-year-old market filed its initial public offering, following the footsteps of most other formerly member-owned exchanges, including NYSE. The closely watched IPO was a resounding success and the stock is now trading more than twice its first day close.
Global energy futures trading has exploded in the last two years and rivals have stepped in to try to loosen Nymex's grip on the benchmark contracts. Atlanta electronic exchange Intercontinental Exchange has managed to take more than a quarter of the market share in just over a year and is urgently trying to find a partner to expand its business more.
ICE lost out in its quest to win the Chicago Board of Trade, which instead is merging with the Chicago Merc to form the world's largest futures exchange. It is awaiting word on whether owners of the privately held Winnipeg Commodity Exchange, for which it has offered $38 million, are going to approve the merger. Winnipeg has gotten a nonbinding bid from a mysterious third party (which many believe to be Nymex).
ICE bought New York Board of Trade, the coffee, sugar and cocoa exchange, for $1 billion last year.
Electronic trading has been a boon to the exchanges and alternative trading venues, which collect more fees when volumes soar regardless of which direction the markets are heading. But it has been a painful transition to the people who once crowded the trading floors of lower Manhattan.
Over at the Big Board, brand new trading rooms are being closed and floor traders and specialists are being laid off because more trading is being done through NYSE's Arca and hybrid trading programs. NYSE itself cut 500 jobs, and most of the big specialist firms and brokerage houses have dramatically reduced floor headcount. |
