By David Sheppard
Back to business as usual for floor traders, a vanishing breed in a market now dominated by machines and algorithms, a fact that some of them say worsened one of the most shocking -- and baffling -- trading sessions ever.
On the waterfront of Manhattan's southern tip, veterans of the New York Mercantile Exchange's (NYMEX) pits recounted how the crash reminded them of the heyday of the trading floor.
"Yesterday was organized chaos down on the floor, it was right back to the old days," said Chris Kenny, crude oil options trader at Lloyd Group. "The size of the move was almost unprecedented and you could see it all there. Greed and fear, that's what this job is all about."
Action in the options pit was still lively, they said, reminding them of the jostling and jousting of days gone by.
Miles away from the emotional rollercoaster that marked Thursday's puzzling rout, the new breed of computer traders counted their profits in anonymous offices across the country.
High-frequency and algorithmic traders, comprising half the oil market, seem to have weathered Thursday's mayhem without breaking a sweat, unlike many of the new breed who took a beating in the stock market "flash crash" exactly a year ago.
"We continued to trade normally and be involved in the market the whole time, no differently than the day before. We didn't change our risk parameters or our model parameters," an oil futures trader at an proprietary algorithmic trading firm told Reuters.
Unlike with the stock market's "flash crash," few old-school traders blamed the algos for the fall, although some did blame them for the end of a way of life that aided both transparency and liquidity in an often opaque market.
"When you get massive electronic long-liquidation like that the price just moves rapidly. It wouldn't have been the same on the floor," said Bob Penny, an individual trader of crude oil and sugar who has been in the business for 31 years. "You didn't get price vacuums there. Funds don't try and finesse it -- when they decide to sell they just hit it."
While conventional wisdom would have suggested buying on the dips in such a seemingly illogical and abrupt decline, computer programs said otherwise as the fall continued.
"If you'd followed conventional wisdom... you would have got killed," said Jeffrey Grossman, President of BRG Brokerage.
Analysts at investment bank Credit Suisse said automated trading probably did play a role in the fall.
"We believe the magnitude of the correction appears in large part to have been exacerbated by algorithmic traders unwinding positioning."
NOSTALGIA
Many oil trading veterans returning to the NYMEX building on Friday swapped war stories of the previous day. Many still work out of booths and offices at the NYMEX, where open-outcry trading has withered due to the rise of electronic trading over the past decade.
The open pit still exists, but only a few thousand lots ever trade there, a fraction of the million-plus that trade almost round-the-clock.
Veteran traders at NYMEX, a unit of CME Group Inc (CME.O), recalled price swings linked to some of the biggest moments in recent U.S. history, including the 9/11 attack and Hurricane Katrina. The difference this time? Even a day later, most are unable to pinpoint exactly what set off the frenzy.
The bout of panic selling jump-started trading in the oil options pit, which has resisted the migration of volumes to electronic screens. Traders and brokers still stand shoulder to shoulder, communicating complex deals through a series of shouts and hand gestures incomprehensible to outsiders.
Brokers described near chaos in the pit as traders loaded up on $95 and $100 a barrel option contracts to protect against further price falls.
"People were getting their faces ripped off yesterday, everyone was yelling and screaming all day," one crude oil options broker said, who asked not to be named.
NEW GUARD
The way prices move has changed with trading practices. Lightening-fast, algorithmic traders, known as "black box" players, have multiplied in recent years. Many used to trade open-outcry, yet they are viewed as the antithesis of the old-fashioned pit trader.
Manoj Narang, CEO and chief investment strategist of Tradeworx, a hedge fund that also runs a high-frequency unit, called Thursday a "great day" for his fund, which trades commodity-linked Exchange Traded Funds (ETFs) and stocks.
Narang said that unlike Wall Street's "flash crash" last May, automated trading was not behind oil's plunge.
Instead, he cited traders who had gone long-commodities and short the dollar, but were caught out when the U.S. currency bounced up.
"It was a very crowded trade," Narang added.
Even as prices plummeted, oil brokers also stood to gain from the huge jump in trading volumes.
On the sun-drenched plaza outside the exchange overlooking the Hudson River, long-term broker Dominick Caglioti was in good spirits.
"It was great for business because there was a lot of action," he said, extinguishing a cigarette before heading back into the exchange.
"It was still quieter than it used to be, but I guess screens don't yell."
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