One more trading floor is turning into an endangered species if the rumors in yesterday's New York Post are true. Yesterday, The New York Post reported (on Page Six) that New York Board of Trade (Nybot) is planning to officially shut down its futures pits in the next six months as electronic trading takes over the soft commodities marketplace.The outcome is somewhat expected since Intercontinental Exchange (ICE), an all-electronic commodities marketplace acquired NYBOT for $1 billion in January. When exchanges merge there is usually the intent to cut expenses and consolidate trading on a single platform. But unfortunately, shutting down the floor at Nybot (renamed ICE Futures US) could spell the end of jobs for about 1,000 floor traders who would need to convert to screen-based trading or choose another profession.
Here's what Brad Bailey, Aite Group'ssenior analyst, had to say: "The rumored closing of the Nybot should come as no surprise. Humans in futures pits, like dinosaurs in tar pits, are something for the museum; exchanges around the world are becoming more and more electronic and the role that people play intermediating between orders at the speed of light is becoming less important," says Bailey. "The fact that ICE, a uber-electronic exchange bought NYBOT should also dampen any feelings of surprise," Bailey added.
On Feb. 2, 2007, after ICE bought the exchange, it launched electronic trading in Nybot's coffee, sugar and cocoa products, according to the Post, which reports that most volume moved to the computers which are faster and anonymous. Today, Nybot's trading floor accounts for only 15 percent of the volume.
Certainly the trend is more toward electronic trading, says Bailey in an interview. At Chicago Mercantile Exchange, over 77 percent of its futures and options volume is electronically traded on Globex and it's now integrating the CBOT products on to the same platform.
Bailey notes that Europe went electronic on the futures side over a decade ago (remember the Deutsche Terminboerse or DTB now known as Eurex). "The last of the holdouts are being found." But Bailey says there's some nostalgia in the loss of Nybot's floor since the Boston Stock Exchange, which had a floor, was sold to Nasdaq Stock Market recently and the NYSE has downsized its floor from five rooms down to two.
But there could be more to this story than meets the eye. Nybot leases space in the building owned by the New York Mercantile Exchange (Nymex), which is the main competitor to ICE. Tensions began to flare in December, when the Post reported that Nymex made a surprise decision to trade Nybot's top products.
But there was a provision in the lease preventing Nybot from trading products that compete with Nymex, if Nybot gets acquired. So if both Nybot and Nymex were trading the same products, then Nybot would need to shutter the floor. So perhaps the floor closure is just as much about Nymex kicking out ICE as Nybot going electronic?One more trading floor is turning into an endangered species if the rumors in yesterday's New York Post are true. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio