Energy traders count the days to end of NYMEX floor

Traders work on the floor of the New York Mercantile Exchange (NYMEX) March 28, 2007. Floor trading of energy contracts on the New York Mercantile Exchange (NYMEX) is ending more quickly than anticipated, as screen-based trading brings to a close a way of life for many floor traders.

NEW YORK (Reuters) - Floor trading of energy contracts on the New York Mercantile Exchange (NYMEX) is ending more quickly than anticipated, as screen-based trading brings to a close a way of life for many floor traders.

Screen trading, once only available for overnight trade, was introduced in September 2006 for use during regular exchange hours.

Now, volumes traded via screens during the day have eclipsed volumes in the face-to-face, open-outcry trading the exchange has used for the past 125 years. Screen-traded contracts now represent about 75 percent of the total.

As a consequence, the NYMEX trading pit -- where contracts for 1,000-barrel lots of light, sweet crude oil change hands -- has quietened considerably from its heyday.

The pit, expanded three times over the years, was once so crowded that orders flew like confetti into a center ring and traders were sometimes physically pushed out of the ring by the sheer crush of activity.

"Before on a good day, we would be doing 250,000 to 300,000 lots. Today, we are lucky if we get 50,000," said one crude oil trader currently employed by a major bank.

Many of the big banks with a trading presence are cutting floor staff.

The crude oil trader, who declined to be identified by name, said his bank currently had 24 floor brokers but they expected to cut 25 percent of those by the end of June.

"I don't see the floor being around more than six months," he said.

The exchange, a subsidiary of NYMEX Holdings, is considering turning the relatively empty floor space into an arcade where traders would rent booths to trade, similar to the booths are it rents to brokers, said Anu Ahluwalia, a spokeswoman for the exchange

"It's happened a lot faster than we thought," she said about the demise of floor trading.

"It's been hard adjusting to electronic trade but some of traders are making the shift," she added.

CLOSED SHOP

Floor traders on the NYMEX, which is the world's largest physical commodity marketplace, are unlike their more-polished counterparts at the nearby New York Stock Exchange.

Many of the floor traders, who wear brightly colored coats and four-letter name tags by which they are known within the trading community, live in Brooklyn, Staten Island and other boroughs outside of Manhattan.

"These are mostly five-borough guys. There are no Armani suits," Ahluwalia said.

It is not unusual to have family members working on the floor. Husbands work with wives, brothers with brothers and fathers work with sons. Traditionally floor traders have been recruited by word of mouth rather than by a formal job posting.

"You could graduate from high school and your friend's uncle's father was in the business and he took you in. If you had any street savvy, you would figure it out," said the local trader.

The hours were short, but they are also intense. But compensation makes the job well worth it. A typical floor traders can make a lot more money than in many jobs open to someone with little or no post-secondary school education.

"You could make good money. That's gone now. People who were making $400,000 to $2 million a year are struggling to make $500 a day now," said the trader.

The smaller shops have been hit the hardest. The "locals" as the traders were known, are now struggling to keep their heads above water and many have folded.

But many brokers and traders say that screen trading was the logical response to competing with the locals on the floor, where some brokers said they felt that trades were not always dealt with fairly.

"It's a good thing," said one NYMEX seat holder, who has been trading energy for 30 years and sees screen trading as more honest and less prone to personal intervention.

"They have to learn different skills to use the screen. So those that can't, won't be able to trade."