Likely responding to the success of the IntercontinentalExchange's (ICE) electronic trading activity, the New York Mercantile Exchange Inc.'s (Nymex) board of directors voted last week to offer side-by-side open outcry and electronic trading of its benchmark, physically settled energy futures contracts. Nymex said that electronic trading during open outcry hours is expected to launch during the second quarter of 2006.
"Last year, Nymex committed to aggressive investments in technology with the intention of expanding its successful existing product lines," said James E. Newsome, Nymex president. "With the volume records we have seen on the Nymex ClearPort system, particularly in the Nymex miNY futures contracts, we believe that electronic trading of our full-sized, floor-traded contracts will be the perfect complement to our robust and liquid open outcry markets. We are confident that this will benefit not only our customers but also the entire energy marketplace."
Prior to the vote, Nymex's electronic trading was only accessible during the hours the Nymex floor in New York was closed. Some market participants said the vote appeared to be in response to recent action from competitors.
"I think Nymex has always put forth the idea that it doesn't want to get rid of open outcry trading," said Steve Blair, a broker with Rafferty Technical Research. "I think their membership is very reluctant to let them do away with that format. I think that Nymex recognizes the fact that electronic trading is a necessity. To go side-by-side with the floor is a great step for them to take to get up into competition with the other electronic markets, particularly ICE."
Nymex's decision to go side-by-side was also probably influenced by recent energy contract-related comments made by the Chicago Mercantile Exchange (CME). Nymex and CME have a noncompete agreement that expires in June.
A New York energy broker said Nymex will likely have to go purely to electronic trading somewhere down the road in order to compete with ICE and anyone else that goes electronic. "There was talk last week that the CME was thinking about launching some energy contracts," the broker said. "The CME is almost fully electronic at this point in many of its contracts. I would imagine if they were to get into the energy markets it would be electronic. I wouldn't think they would set up pits on the floor. I don't think they have the space for it."
ICE reported record exchange-wide volume last Tuesday at its ICE Futures subsidiary. On Tuesday, Feb. 7, total ICE Futures volume reached 364,064 contracts, exceeding by 21.5% the prior daily record set on Jan. 11, 2006 of 299,585 contracts, and marking the first time that daily exchange volume has exceeded 300,000 contracts.
ICE's record day included 45,962 contracts traded in ICE Futures' ICE West Texas Intermediate (WTI) Crude futures contract, which was launched on Friday, February 3. The volume that day of 38,633 contracts represented the best first-day volume of any product in the exchange's history. Open interest in ICE WTI Crude futures stood at 30,513 contracts at the close of trading on Feb. 7.
Nymex also announced last week that it is moving forward with General Atlantic on a revised investment proposal, where General Atlantic would invest $160 million for a 10% equity position in Nymex, which represents an increase of $25 million over the original deal signed in Nov. 2005 (see related story).
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