LONDON, 7 April 2005 — London’s International Petroleum Exchange (IPE) was to end a quarter of a century of tradition today by calling time on oil pit trading, paving the way for full-scale electronic dealing.
“I have mixed emotions” about the change, said Robert Laughlin, an oil trader with broker GNI Man Financial who has been a pit trader in crude at the IPE since its creation in 1980. “I have always worked on the floor so to see it close is a great shame, but it’s progress. Other exchanges have gone this way and gone on to great success.”
Laughlin predicted that about 25 percent of oil traders would lose their jobs because of the switch from pit, or open-cry trading.
The IPE began a gradual transition to a full electronic trading system in 2002. It last reduced pit trading hours in November 2004, to further promote its Internet-based trading system.
A complete switch to electronic trading would improve the exchange’s competitive edge and build on the greater adoption of its electronic dealing, according to the IPE. “The board’s decision has been taken to maintain and enhance the competitive position of the IPE as well as to take advantage of the greater acceptance and adoption of electronic trading,” the exchange said last November.
Pit trading sees brokers take customers’ orders over the telephone before transmitting them to oil traders, who in turn shout and use hand signals to close deals.
They were to shout and mime their final orders to buy and sell the Brent North Sea crude contract on Thursday, switching to full electronic dealing a day later. “It is easy to feel nostalgic about the floor trading and a lot of people will miss it,” Bache Financial trader Christopher Bellew said. “But it is difficult to think of any convincing logical reason why the market should retain floor trading. It is probably an inevitable development.”
Bellew said that two of Bache’s 15 oil pit traders had already left, owing to the switch. “Other firms have been more ruthless in terms of laying people off,” he noted.
The end to pit trading on the IPE comes just a few months after the New York Mercantile Exchange (NYMEX) - the world’s largest oil market - began pit trading of Brent North Sea crude oil futures in Dublin, a move aimed at pinching IPE customers. Some customers “are very much against this move to screen trading and are seriously looking at what NYMEX has to offer”, said one London broker wishing to remain anonymous.
The Brent contract, traded on the IPE since 1980, is based on light, sweet crude oil taken from the North Sea and is used to price more than 65 percent of the world’s traded crude oil supplies. The IPE trades also in gasoil, otherwise referred to as heating fuel and diesel.
