NYMEX oil trade 45 percent computer-driven

I don’t usually post news on the blog, but this is interesting:

(Reuters) – Computer-driven trades now account for around 45 percent of all futures volume on the New York Mercantile Exchange, the CEO of CME Group Inc (CME.O) told Reuters in the first public comments by the exchange head on the growth of automated transactions.

Craig Donohue, chief executive of CME, the parent company of the NYMEX exchange, told the Reuters Future Face of Finance Summit on Wednesday that concerns raised by traders and regulators about the rapid growth of automated and High Frequency Trading (HFT) were overstated.

“I’d say as a rough guide 45 percent is proprietary electronic trading and a smaller percentage of that is true high frequency algorithmic trading,” Donohue said, adding that automated volumes on equities were around 30 percent higher.

“I don’t think you can place a value judgment on it. Even a crowd follower or a scalper contributes to liquidity in some way, perhaps not as valuably as someone who is lifting bids or taking offers but they still have a role to play.”

Algorithmic programs, which buy and sell contracts at certain predetermined price points, have been used by traders for years, but the rise of lightning-fast HFT programs, which can buy and sell thousands of futures in seconds, is perceived by some as stoking volatility in commodities.

At 45 percent of total trade, computer-driven programs would have accounted for roughly 189,000 crude oil contracts changing hands on the NYMEX Exchange on Wednesday, or the equivalent of 189 million barrels of oil. That is more than double the amount of oil consumed globally every day.

HFT has been under the spotlight since the flash crash in May last year, and on Tuesday commodity traders in the U.S. cocoa futures market were spooked by a 10 percent drop in prices in less than 60 seconds, which led many to question the value — and risks — of computer-driven trading.

Oil prices have also risen above $100 a barrel in the United States for the first time since the financial crisis, focusing attention on commodity trading.

“Generally those concerns are specious, there have always been differences in quality of liquidity,” Donohue said.

“I don’t think it’s reasonable to say that things are too fast. Everything in the world is faster today. We have to adapt.”

Last week, the chairman of the U.S. Commodity Futures Trading Commission (CFTC) said the agency was working on a proposed rule for testing and supervising algorithmic trading.

Economists at the CFTC estimate high-frequency traders account for about a third of all trading volume on regulated U.S. futures exchanges, commissioner Bart Chilton said in December.

Exchanges make substantial revenue from automated programs, earning commission on each trade they make. CME’s volumes across oil and product futures trade were up 17 percent last year, though it is not clear how much of that was driven by growth in automated trading.

Donohue said algorithmic volumes in equity markets were far higher.

“(Computer-driven trades) in cash equity markets are often in excess of 70 percent,” Donohue said.


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