Message-ID: <21517066.1075840825895.JavaMail.evans@thyme> Date: Sat, 8 Sep 2001 07:20:54 -0700 (PDT) From: daniel.diamond@enron.com To: brad.richter@enron.com, louise.kitchen@enron.com, bob.shults@enron.com, andy.zipper@enron.com Subject: E Nymex: Market Forces - ENymex still on launchpad. Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Diamond, Daniel X-To: Richter, Brad , Kitchen, Louise , Shults, Bob , Zipper, Andy X-cc: X-bcc: X-Folder: \ExMerge - Kitchen, Louise\'Americas\EOL X-Origin: KITCHEN-L X-FileName: louise kitchen 2-7-02.pst 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 ______________________________________________________________________ To review or revise your folder, visit or contact Dow Jones Customer Service by e-mail at custom.news@bis.dowjones.com or by phone at 800-369-7466. (Outside the U.S. and Canada, call 609-452-1511 or contact your local sales representative.) ______________________________________________________________________ Copyright (c) 2001 Dow Jones & Company, Inc. All Rights Reserved