A noisy system where traders scream "buy" and "sell" orders at the New York Board of Trade should be able to withstand the onslaught of electronic dealings as long as the traditional trading of options holds. "The pit will still be there as long as we have the options," one New York-based coffee trader said.
Traders said open-outcry option trade allows them to know easily who is participating in the market, which some see as important to options trade.
IntercontinentalExchange, an Atlanta-based energy derivatives marketplace, introduced side-by-side screen trade to NYBOT futures shortly after acquiring the exchange in January and following the New York Mercantile Exchange's launch of electronic agricultural commodity futures in competing commodities.
Atlanta-based ICE is all-electronic, while NYBOT - which trades futures and options on coffee, cocoa, sugar, cotton and frozen concentrated orange juice - had long clung to pit trading.
Recently, the electronic volume has frequently exceeded that of pit trade for some commodities. In early March, ICE Chief Executive Jeffrey Sprecher said the exchange aims to introduce electronic options trading in 2007. Local traders are dropping away from the floor in the wake of electronic trade in futures contracts, traders and analysts contacted by Reuters said.
"I think they (market-makers) are very important for the options market in terms of providing liquidity and always being there providing (a) market for everyone which eventually, if we go electronically, you might see the number of players diminishing," the coffee trader said.
Electronically traded cocoa futures contracts made up 62 percent of the total volume on an average daily volume basis in March, from 27 percent in February, the first month of electronic trade, according to data released by ICE on Tuesday.
For coffee futures, this grew to 59 percent of the total volume in March while raw sugar swelled to 67 percent. Electronic cotton futures contracts, however, made up only 29 percent of the total volume in March while 21 percent of the orange juice lots traded electronically.
CPM Group commodities analyst Rohit Savant, however, said it is too early to get a solid impression about market interest in electronic trade, citing recent fundamental factors as driving increased interest in some commodities. Still, Savant said he expects open-outcry futures contracts will eventually be eliminated.
"A majority vote of the NYBOT board of directors is required to terminate floor trading and only if liquidity events occur," said Kelly Loeffler, ICE spokeswoman, stating ICE does not have any plans to eliminate open-outcry at this time.
The board can vote to eliminate pit trade if the open-outcry volume makes up less than 50 percent of the average daily volume, on a rolling 90-day basis, compared with a comparable period in 2005, according to the company's prospectus.
The ICE NYBOT electronic futures contracts trade from 1:30 am ET to 3:15 pm ET and are available in 20 international jurisdictions, while open-outcry opens at staggered starts from 8 am ET.