Nymex Spent Up to $20 Mln on London Trading Floor (Update1) 2006-03-08 11:43 (New York) (Adds comment in third paragraph.) By Matthew Leising March 8 (Bloomberg) -- The New York Mercantile Exchange, the world's largest energy market, spent as much as $20.2 million last year in a failed effort to take business away from its biggest rival, London's ICE Futures exchange. ICE Futures, formerly the International Petroleum Exchange, has fended off the bid by Nymex to take market share in Brent crude-oil trading, the benchmark variety that is used to set oil prices outside the U.S. Since opening its London floor in September, Nymex has averaged less than 1 percent of the daily Brent contract trading volume on ICE Futures. ``That $20 million spent on London would have been much better spent on upgrading their technology,'' said Craig Pirrong, director of the Global Energy Management Institute at the University of Houston. ``They would have had a better chance going head to head against ICE if they'd been electronic in London.'' The London trading floor will be closed some time this year in favor of all-electronic trading, Nymex Europe Chairman Roy Leighton said yesterday. The Nymex London floor traded 12 Brent contracts yesterday, compared with 191,837 on ICE Futures. ``The company derives foreign revenues from its London trading floor and market data services, the total of which is considered immaterial,'' Nymex said today in its regulatory filing. Nymex also holds a lease for 8,000 square feet of office and trading floor space in London that does not expire until 2015, the filing said. Cash Incentives The exchange opened a trading floor in Dublin in late 2004, which it closed upon opening the London facility. The company also provided cash incentives, such as living expenses and payments to traders who were willing to facilitate trading by buying and selling contracts at certain prices, what's know as being a market maker. Such market-maker payments could have totaled as much as $300,000 a month, according to Nymex rules posted on its Web site. The London and Dublin expenses were detailed today in the filing with the U.S. Securities and Exchange Commission as part of general and administrative expenses, which increased $20.2 million, or 62 percent, in 2005 compared with a year earlier. The increase ``was due primarily to transaction incentives the company incurred during 2005, which it believes are necessary to promote trading in London and, previously, in Dublin.'' The exchange also said a 9 percent rise in salaries, a 14 percent increase in telecommunication costs and an 8 percent jump in occupancy and equipment expenses were partly caused by the Dublin and London operations. Electronic Trading Nymex president James Newsome said in November that the London exchange would offer electronic trading of its contracts in an attempt to increase volume. The Brent crude oil market ``has not supported`` live floor trading in the way Nymex expected, Newsome said at the time. The exchange has not said when it expects to offer screen trading in London. Pirrong said Newsome's commitment to spend $15 million to upgrade Nymex's technology systems last year made that amount sound like ``a big deal,'' suggesting that $20 million was a material expense for the exchange. Nymex last month said it would for the first time offer electronic trading during the day when traders are shouting buy and sell orders at one another, what's known as side-by-side trading. Some industry analysts and Nymex members have questioned whether its electronic systems are capable of handling the increase volume side-by-side trading will bring. Competition From ICE Nymex is also facing direct competition for trading its benchmark West Texas Intermediate oil contract from ICE Futures, which offered its own West Texas contract on Feb. 3. ICE Futures has traded about 16 percent of the daily volume of Nymex's contract since then. The ICE Futures contract does not appear to have taken away from Nymex's volume. Nymex reported average daily volume of 274,094 West Texas oil contracts in January, before the ICE Futures contract was introduced. Since Feb. 3, daily trading has averaged 292,734 contracts, according to data compiled by Bloomberg. --Editor: Banker. Story illustration: For a chart comparing Nymex Brent and WTI oil futures prices, see {CD1 CL1 HS2 }. For top oil news see {OTOP }, top energy news see {ETOP }. To contact the reporter on this story: Matthew Leising in New York at (1) (212) 617-1151 or mleising@bloomberg.net. To contact the editor responsible for this story: Robert Dieterich at (1) (212) 617-4485 or rdieterich@bloomberg.net. [TAGINFO] 78948Z US CN ICE US CN NI NRG NI CMD NI OIL NI CRUDE NI OILPROD NI EXC NI NYMEX NI US NI UK NI FUTURES #<228738.27849.2005-11-10T14:40:00.25># #<228743.2984487.2005-11-10T14:40:00.96># #<228738.27849.2005-11-10T14:40:00.25># -0- Mar/08/2006 16:43 GMT