One-to-Many - Lion's Head, South Africa

One-to-many refers to a proprietary trading platform in which all participants are trading with a single universal counter party. In other words, there is a single market maker and all participants in that market must trade with that market maker. That market maker, who typically owns and operates the platform, posts bids and offers that can be traded on by all eligible participants in the market.

One-to-many facilities are essentially bilateral dealer markets and are not considered to be trading facilities under the Commodity Exchange Act. This universal counter party, because it sees the activity and positions of all other participants, has a substantial information advantage over the other participants.

The most famous one-to-many market was Enron Online (EOL), which was launched on November 29, 1999, and eventually traded roughly 850 commodities, though the most active trading was in natural gas and electricity. EOL operated pursuant to the exemption in Section 2(h)(1) of the Commodity Exchange Act, exempt from all provisions of that Act except the prohibitions against fraud and manipulation.

On EOL, there were no commissions and real-time prices were free. Enron made its money off the bid/ask spread. It was so much easier to use than traditional trading because it replaced the phone and fax with a mouse click. Initially volume grew rapidly.

However, because of the abuses that took place on EOL during the significant manipulation and abuse of California energy markets in 2000 and 2001, the Federal Energy Regulatory Commission in its Final Report on Price Manipulation of Western Markets recommended that one-to-many markets like EOL be prohibited. EOL shut down on November 28, 2001, 2 years after it began and 4 days before Enron filed for bankruptcy.