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NYMEX still favoring open - outcry
- Thread starter SethArb
- Start date
Quote from Brandonf:
maybe, but when people want to do size they still go to the pit if its available and do not execute it electronically.
The only reasons why anyone ever does business in any pit are 1. the only forum to execute the trade, or 2. massively reduced transaction costs (eg CME emini SP vs pit SP, eCBOT bonds vs pit bonds, emiNY crude vs Nymex crude)
In fact, in the US there has been a concerted effort by the futures exchanges to charge a substatially higher price to do business electronically so as to funnel business to the 'den of thieves' (aka Trading Pit).
What is really f-ed up is that it is in tremendously cheaper for the exchanges to do the business electronically, so the public gets gouged both by the exchange and by the pit traders.
I'm pretty sure there is something about a fiduciary responsibility to the public in the exchanges' charters, but that was forgotten long ago in favor of lining the memberships pockets.
Quote from hofficita:
The only reasons why anyone ever does business in any pit are 1. the only forum to execute the trade, or 2. massively reduced transaction costs (eg CME emini SP vs pit SP, eCBOT bonds vs pit bonds, emiNY crude vs Nymex crude)
In
That transaction cost does not include just commissions and whatnot though. If you are doing size in most cases if there is an electronic market next to a pit the pit can better accomodate you for that size. Just because we do not like it does not make it untrue. I wish it was not the case too, but it is.
Brandon
Quote from Brandonf:
That transaction cost does not include just commissions and whatnot though. If you are doing size in most cases if there is an electronic market next to a pit the pit can better accommodate you for that size. Just because we do not like it does not make it untrue. I wish it was not the case too, but it is.
Brandon
I do not know where you get this opinion; your experience, or understanding, in this matter must be extremely limited. Mine is not.
Of course bid/offer spreads and depth of market are components of the true transaction cost, but the exchange fee structure of the US exchanges ensure that playing field is tilted toward the pit traders (ie more depth to stay in the pit). What is remarkable to me is how even in spite of this, depth of market has steadily moved to the screen where exchange fees have been, until recently, two or three time more expensive.
Have you never compared depth of market of eminis vs the big SP, of ZN vs TY? The screen kills the pit. Yeah, some size may still go to the pit in these markets- Why not save yourself $0.50 a car on 1000 contracts? But only because the pit arbitrage guys keep the Bid/Asks in line with the screen.
Quote from hofficita:
I do not know where you get this opinion; your experience, or understanding, in this matter must be extremely limited. Mine is not.
Of course bid/offer spreads and depth of market are components of the true transaction cost, but the exchange fee structure of the US exchanges ensure that playing field is tilted toward the pit traders (ie more depth to stay in the pit). What is remarkable to me is how even in spite of this, depth of market has steadily moved to the screen where exchange fees have been, until recently, two or three time more expensive.
Have you never compared depth of market of eminis vs the big SP, of ZN vs TY? The screen kills the pit. Yeah, some size may still go to the pit in these markets- Why not save yourself $0.50 a car on 1000 contracts? But only because the pit arbitrage guys keep the Bid/Asks in line with the screen.
Lets say on Monday you wanted to buy or sell 5000 10 years, assuming you want the best fill and lowest total transaction costs where would you execute it? Here is another example. Assume you want to trade 50K shares of a thin stock. Would you be better off executing it on DOT, or having someone on the floor represent you? Or, if you had to trade 50K shares of a thin stock, would you rather it be a Nasdaq one or a NYSE one?
Quote from Brandonf:
Lets say on Monday you wanted to buy or sell 5000 10 years, assuming you want the best fill and lowest total transaction costs where would you execute it? Here is another example. Assume you want to trade 50K shares of a thin stock. Would you be better off executing it on DOT, or having someone on the floor represent you? Or, if you had to trade 50K shares of a thin stock, would you rather it be a Nasdaq one or a NYSE one?
Brandon,
You really don't know what you are talking about. The pit has no inherent advantage againist the screen. Like you example of selling 5000 10 years. The pit volume for 9/9/05 for the 10 year was ~82k, the screen was 560k, it seems that it would be easier to execute large size on the screen. Believe me, you can execute 5000 cars on screen instantly with little (tick or so) or no slippage.
The is a difference between just selling 5000 cars market then asking some one else to trade for you. That someone else probably won't just sell everything at the market, ideally they would sell your entire position in pieces into a rising market. All that matters is where the most volume is.
It should be cheaper for exchanges to do everything on screen, less infrastructure is the best reason.
Quote from hofficita:
The Nymex membership are all well aware of tremendous edge they have in maintaining their closed marketplace which allows them to continue to profit prodigiously at the expense of the energy trading public.
I find their commitment to open outcry extremely short sighted because it is only a matter of time before some other exchange decides to compete head to head with the Nymex's product line. Remember how Liffe lost the Bund to Eurex? Huge mistake.
If the IPE were to 1. offer a West Texas crude product, 2. put an IPE terminal on every major energy trading desk, and 3. develop a more robust trading system; they would take all Nymex's business in a matter of weeks.
Doubt it. What could does it do to list a Light Crude contract without a delivery mechanism. Not only are these not cash settled contracts, the price discovery comes from futures not visa versa. Totally different dynamic than financial futures.
Quote from 5yrtrader:
Brandon,
You really don't know what you are talking about. The pit has no inherent advantage againist the screen. Like you example of selling 5000 10 years. The pit volume for 9/9/05 for the 10 year was ~82k, the screen was 560k, it seems that it would be easier to execute large size on the screen. Believe me, you can execute 5000 cars on screen instantly with little (tick or so) or no slippage.
The is a difference between just selling 5000 cars market then asking some one else to trade for you. That someone else probably won't just sell everything at the market, ideally they would sell your entire position in pieces into a rising market. All that matters is where the most volume is.
It should be cheaper for exchanges to do everything on screen, less infrastructure is the best reason.
In an easily arbitraged "front month" financial future that has a corresponding electronically traded cash market, the screen can replicate the pit. Not as easy in Crude or corn when spreaders must facilitate markets over a broad spectrum of delivery months. That's why most options volume is still open outcry. And most of that open outcry 10yr volume you site was the U-Z spread coming out of rollover.