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ICE versus Nymex for guts, collars, calls and condors.

The decades-long battle between the two top energy futures exchanges has opened up on a new front this year: oil options.

A growing force in energy markets, options probably played a role when crude prices plunged on waves of selling that crashed through strike levels, causing more losses.

The Intercontinental Exchange has struggled to make inroads on a lucrative niche long dominated by arch rival CME Group's New York Mercantile Exchange. But four months of intensive marketing and incentives, and a rising share of electronic trade, may be tilting the balance.

Both exchanges have been aggressively growing over the past decade, with ICE and Nasdaq making an unsolicited offer for NYSE Euronext on April 1, then withdrawing that offer after it became clear they would not win approval for the deal from the US Department of Justice's antitrust division.

It is a big business for Nymex -- options account for 21 per cent of the volume of the exchange's energy futures trading but only accounts for about 0.2 per cent of energy trade volumes for ICE.

Ironically, the Nymex's decision to retain its trading floor in the computerized trading era has helped it defend its turf as participants build complex strategies through complex option plays with names like butterflies, guts, collars, strangles and condors. Algorithmic trading giants struggle to execute these complex options deals as efficiently as the pros on the Nymex floor.

But they are getting closer. Electronically traded Nymex energy options now eclipse open-outcry activity, up from less than one-quarter a year ago. That could eventually open the door for ICE to grab significant energy trading market share from its rival by offering better prices.

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Publication:Oil & Gas News
Date:May 26, 2011
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