ICE ends 142-year tradition of open outcry trading

Louis Barbera will go to work in downtown Manhattan on Monday to trade soft commodities as he has done for almost two decades.

But instead of stepping into a circular trading pit to take part in a more than century-old tradition of open-outcry trading, he will place trades for his customers - from textile mills to merchants - entirely electronically.

On Friday The IntercontinentalExchange Inc silenced 142 years of floor-based open-outcry trading in the New York soft commodity trading pits, a sad but inevitable end to a tradition once practiced by more than 1,000 traders.

The last of the exchange's contracts traded with shouts and complicated hand signals - options on futures tied to agricultural products such as sugar and cocoa - will go exclusively electronic on Monday.

ICE had said in July that it would end the tradition after volumes in the pits had dwindled in favor of electronic trading. The number of open outcry traders had dropped to only 100 this week.

"Being in the floor community, you always knew this was going to come," Barbera, who works for ICAP Plc , said.

Many traders said they plan to return to the space housing the pits on Monday to trade softs - cotton, raw sugar, cocoa, coffee and frozen concentrated orange juice - electronically at the stations they've been at for decades.

"We will continue to attempt to do business for our clients and we'll see how long that remains profitable to us. When it doesn't, we'll reassess the situation," Joe Scaduto, who owns JPS Commodities, said earlier this week.

WRITING ON THE WALL

Barbera has worked on the floor since 1993, when as many as a 1,000 traders jostled for business in the exchange's 13 pits.

The rubberized floor, sound-deadening wall tiles and high ceilings have had less noise to contain since open-outcry trading in ICE futures stopped in 2008.

Most traders now monitor their market using handheld pricing screens even when they're sitting in the pits.

The market share of electronically traded options of soft commodities has ballooned to 90 percent, from 10 percent in early in 2011 just before electronic options were introduced by ICE.

ICE has said that it would maintain its New York facility for now for brokers who elect to use it. The site's lease runs out in Mid-2013, and when it moves, ICE plans to provide an electronic dealing room for customers, if needed.

GOING BACK TO 1870

The roots of softs' trading go back to 1870 when the New York Cotton Exchange was founded, followed by other exchanges which launched coffee, sugar and cocoa.

When those markets merged to create the New York Board of Trade (NYBOT) in 1998, business largely continued as usual.

But it was the 2007 takeover by Atlanta-based ICE that implemented one of the biggest changes in the market's history when it introduced its electronic trading platform.

At first ICE ran its electronic platform side by side with open-outcry, although screen trading hours were longer than those of the pit, attracting European dealers during their office hours.

The bulk of volume switched to the screen faster than many had expected and many brokers gradually closed floor desks they had run for years, preferring to run trading from an office.

ICE futures trading went fully electronic in March 2008, but at the time the exchange lacked the capability to shift its options dealing to a fully electronic platform.

GOING FORWARD

Advocates of open-outcry trading say the human touch still has a role to play in a market dominated by screen trading and algorithmic execution.

While simple, straight forward trades are quicker to transact on a screen, more complicated options trades can actually take longer outside of the pit, dealers said. While these typically take about 30 seconds to conduct in the pit, they can take around five minutes electronically, dealers said.

Some dealers who have specialized in just one asset see opportunities with electronic trading to expand into other markets because of the ease of doing business in one place.

"Before, if you needed to trade sugar, you had to run half way across the floor, leave your cotton operation. Now we can watch multiple things at multiple times," he said.

(Reporting By Marcy Nicholson; Editing by Josephine Mason and Carol Bishopric)