By Kevin Morrison –
The New York Mercantile Exchange is racing to be ready to start trading oil futures contracts from its new European base in Dublin on Monday, the day its rival, London-based International Petroleum Exchange, is set to cut back its hours of open outcry trading.
Telephone engineers were on Thursday still working at the headquarters of Finex Ireland, the Dublin futures exchange subsidiary of the New York Board of Trade which will host Nymex’s operation, making the final connections so that prices in the Dublin trading pit will be available live on the floor in New York.
The plan is part of its ongoing battle with the IPE, the home of the Brent crude contract, for supremacy in the global oil futures market.
Nymex Dublin, which will open from 10am to 7.30pm, will offer traders an opportunity to arbitrage the spread between the two main oil futures products, Brent Crude and the Nymex’s WTI product. “The spread will be available in Dublin from 10am until 3pm, so we’ll fill the gap left by the IPE,” said Nymex.
Nymex claims the move, which will cost the exchange about $2m, is part of the exchange’s strategy to globalise open outcry energy and metals trading.
The IPE’s move to cut short its open-outcry trading hours provided Nymex the opportunity to open its first overseas trading floor operation. Nymex chose Dublin because Ireland does not have a futures regulator, and so the operation will be regulated by the Commodity Futures Trading Commission, the US futures regulator.
Nymex’s plan is not without its critics at a time when most other financial markets are going electronic. Yet James Newsome, its recently installed president, remains unperturbed.
“Our international oil industry customers and the London oil trading community have been adamant about their desire to maintain open outcry energy trading with the liquidity and transparency uniquely provided by this forum,” he says.
Nymex argues that oil is different from other commodities, and from shares, although similar claims were made by bond traders in Europe before exchanges across the region went digital.
One London-based oil trader, who did not want to be named, said: “Nymex is threatened if electronic trading becomes a success, because it reduces costs and possibly opens up the market to more investors.”
However, some traders feel Nymex may be seeking to capitalise on the disarray at the IPE’s US owner ICE, which has an ongoing dispute with former IPE floor traders who feel they were not fully remunerated when ICE bought out the business during the dotcom boom.
ICE’s paper bid included a promise to pay $67.5m to IPE members or shareholders once the exchange had traded electronically for 12 months. However, electronic trading has been less promising than anticipated, remaining at about 5 per cent of total turnover at the IPE.
Moreover, many former IPE members say they have not yet received any cash from the sale. Some allege the move to curtail its open outcry trading is linked with the ongoing row over the terms of the original takeover, a suggestion rejected by Richard Ward, IPE chief executive.
But one London-based trader said: “Make no mistake, there are a lot of upset customers who don’t like what the IPE are doing and are ready to support alternative plans.”
Nymex is leaving nothing to chance. To ensure a smooth start it is offering a $4,000 a month living allowance to New York traders willing to relocate temporarily to Dublin. It expects the number of traders will settle at around 20-30.
Yesterday traders from Finex were enjoying a leisurely cigarette break on the steps of the Finex headquarters. They could soon be more fully employed, trading oil futures as well as the current swathe of currency contracts.
Source: Yahoo News