Market Forces - ENymex still on launchpad.

09/07/2001
Energy Compass
(c) 2001 Energy Intelligence Group. All rights reserved

The New York Mercantile Exchange has been thinking about shifting some of its
business online since early last year - - and possibly before that - when it
was invited to join the electronic IntercontinentalExchange (ICE). It rejected
the offer - which rival International Petroleum Exchange has since gladly
accepted - instead unveiling plans last May to build its own electronic
trading platform for over-the-counter and smaller futures contracts. But its
cyberspace initiative is still on the launchpad.

Called eNymex, the online system was supposed to launch in October 2000, at
the same time as the Big Oil-backed ICE. But October came and went, and while
ICE appeared, eNymex failed to show. Its start date was pushed back to late
2000 - and then to the first quarter of 2001, and then to the second quarter
of this year. Nymex held to that second-quarter target for months, before
again failing to deliver. It's now given up on the third quarter as well, and
exchange executives have stopped trying to predict when the electronic trading
platform will be ready to go.
That's not the only blow to Nymex's e-trade strategy. Delays are also plaguing
an internet version of its existing Access after-hours electronic trading
system, although it remains available as a proprietary, dial-up system to
existing customers.

Late last month, Nymex announced plans to make Access available over the
internet - at www.nymexaccess.com - in a move designed to widen its customer
base. But just a few days before the planned Sep. 3 start date, the exchange
pulled back (EC Aug.31,p3). As with eNymex, a new date has yet to be
scheduled. Launched in 1993, the dial-up version of Access handled 2.1 million
contracts last year, equal to 2% of Nymex's total trading volume. Nymex
executives say that putting Access on the web could triple the volume of
business completed on the platform. The exchange's new Brent crude oil futures
contract and other existing pit-traded contracts are available on Access.

Compared with ICE - which is steadily unveiling new services and products on
its e-trade system - the New York exchange's path to building an electronic
platform has been bumpy. Earlier this year, Nymex ended its relationship with
Accenture (formerly Andersen Consulting), which had been involved in managing
the exchange's transition to an electronic trading platform almost from the
start. Some observers characterized the move as a cost-cutting measure; Nymex
says Accenture was dismissed because its work was done.

Nymex blames many of the delays on GlobalView Software, one of its technology
partners, with which it is involved in a bitter legal dispute. In April, Nymex
filed a breach of contract lawsuit in a New York court against GlobalView,
alleging that the Chicago-based software firm had stopped work on eNymex, and
seeking unspecified damages. GlobalView chief executive Jon Olson admits that
his company did indeed stop work, but says it was because Nymex stopped
paying. It is countersuing, seeking around $26 million for fees and damages.
Nymex president Bo Collins is also claiming that GlobalView has gone bankrupt.
But Olson says business is good for the 20-year-old company, which has around
150 clients in the energy industry.

With GlobalView off the project, Nymex has decided it will build the
"front-end" piece of eNymex - the part that GlobalView was working on.

When it's all complete, Nymex will have an e-trade platform for derivatives
and smaller futures contracts, and a separate e-trade service for its
after-hours customers. It will also have its existing pit-traded contracts,
which it has no intention of ditching.

With so many different pieces, some observers wonder what Nymex is up to.
Collins, a one-time natural gas trader at US-based El Paso, responds that
Nymex aims to build an "electronic cloud" around its successful pit contracts.
Rather than disrupt a successful business, Collins says the exchange is
creating new, electronic trading opportunities around its pit-traded products.

"The reality is we have a system of pit trading that provides immense
liquidity to the market," he says. "So I have got to figure out a way to marry
the technology to the humanness of the process."

For example, Nymex's Henry Hub natural gas futures contract is successful, and
several types of contracts trade on other exchanges based on the Henry Hub
price. That's where eNymex will come in, Collins says: The e-trade platform
will offer spread and basis swaps contracts based on prices of Nymex's pit
contracts - thus marrying technology and the trading pit.

Some observers suggest that the eNymex roll-out has taken a back seat to the
exchange's newest product, a Brent crude oil futures contract challenging the
IPE. The new contract, which started trading on Sep. 5, was joined the
following day by a new Brent options contract. On Sep. 7, the New York
exchange started offering a Brent-WTI spread options contract.

The battle for the hearts and minds of Brent traders will rage in the
traditional trading pits of New York and London for another year, at least.
But over the next 12-18 months, all of the IPE's business will be shifted
online to a futures trading platform being built by ICE.

The IPE's strategy is clear. By agreeing to be acquired by ICE, the London
exchange obviously sees a future where commodities trading takes place in
cyberspace - not in a trading pit. Nymex is betting that its "electronic
cloud" strategy - whereby e-trade is married with pit trading - will pay off.

In the end, though, the e-trade versus pit trade battle being waged by the
world's two biggest oil futures exchanges may become secondary to the battle
for Brent. If Nymex can create liquidity in its new Brent contract, its bumpy
path toward e-trade may be forgotten.

By Jeff Gosmano, Houston.



Folder Name: E Nymex
Relevance Score on Scale of 100: 95

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