New York Mercantile Exchange, Inc.

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New York Mercantile Exchange
Founded 1872
Headquarters New York
Key People James Newsome, CME board member
Products Futures, Options, Clearing
Web site www.nymex.com

The New York Mercantile Exchange (Nymex) is the world's largest energy and metals commodity platform, and a unit of CME Group Inc. since the Chicago exchange operator acquired the business in a $8.4 billion transaction that closed on August 22, 2008.

Nymex offers trading in crude oil, petroleum products, natural gas, coal, electricity, gold, silver, copper, aluminum, platinum group metals, emissions, and soft commodities contracts for trading and clearing virtually 24 hours a day. In addition, it provides clearing services for more than 320 off-exchange energy contracts.

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Trading is carried out through a hybrid model of open outcry floor trading and electronic trading on CME Globex and NYMEX ClearPort.

Contents

History

The New York Mercantile Exchange opened in 1872 as the Butter and Cheese Exchange of New York. It was founded by a group of dairy merchants who were trying to bring order and standardization to the chaotic conditions that existed in their industry. Gradually, the product base was broadened, and the name was changed to the New York Mercantile Exchange 10 years later.

Over the years, NYMEX increasingly shifted its product mix toward industrial products. In 1978 became the first exchange to successfully trade energy futures, and later options, with the introduction of the Heating Oil futures contract.

The exchange's two divisions, the NYMEX Division and the COMEX Division, were formed by the merger in 1994 of the New York Mercantile Exchange and the Commodity Exchange, Inc. (COMEX). The trading operations of each exchange were continued as the two divisions, offering trading in their respective futures and options contracts – energy, platinum and palladium for the NYMEX Division; gold, silver and copper on the COMEX Division (aluminum was added since the merger). Trading rights on each division are bought, sold and leased separately, but there are occasions when cross-divisional trading privileges in specific markets are granted to the other division.

The CME Transaction

CME finally secured shareholder and member approval to acquire Nymex Holdings Inc. on August 18, 2008, a year after starting talks with its target and seven months after negotiations became public. The final value of the transaction slid by more than $3 billion over the course of the talks, which were punctuated by opposition from some Nymex members. [1]

The final offer remained the same as outlined on March 17, 2008 after an initial 30-day negotiating period was extended. CME offered 0.1323 of its own shares and $36 in cash for each Nymex share, and a separate $612 million payment to the 816 Nymex members to buy out their rights to revenue.

The deal was first proposed in late January 2008. The value of the transaction had fallen by about a third since then, because the CME's stock price (a major portion of the payment) had lost more than half its value since a December peak of $714.


Roughly a month and a half of negotiations followed to sort out details of the revised $9.4-billion plan, with the announcement of merger agreement made on March 18, 2008.[2]

A group of dissident Nymex members won some concessions from the CME after complaining the deal undervalued Nymex[3]

Nymex had converted from a member-owned exchange to a listed company on Nov. 17, 2006, offering (initial public offering) 6.5 million share of its common stock at $59 per share. The company’s shares were listed on the New York Stock Exchange under the symbol "NMX."

Lines of Business/Products

New York Mercantile Exchange, Inc., offers futures and options trading in energy and metals contracts and provides clearing services for more than 320 off-exchange energy contracts. Through a hybrid model of open outcry trading on the NYMEX trading floor and electronic trading on the CME Globex electronic trading platform and NYMEX ClearPort, NYMEX offers crude oil, petroleum products, natural gas, coal, electricity, gold, silver, copper, aluminum, platinum group metals, emissions, and soft commodities contracts for trading and clearing virtually 24 hours each day.

2007 Volume

NYMEX's average daily volume for 2007 was 1.485 million contracts, a 25 percent increase over 2006.[4] Of that, NYMEX electronic trading volume on CME Globex averaged about 650,000 contracts per day, which represented a 234 percent increase over 2006 electronic trading volume. NYMEX floor-traded energy futures and options averaged just more than 260,000 contracts a day in 2007. COMEX electronic trading volume on CME Globex averaged 113,500 contracts per day, an increase of 755 percent over 2006 average daily electronic trading volume. COMEX metals open outcry average daily volume was just under 44,000 contracts a day in 2007. Average daily volume on NYMEX ClearPort was 335,500 contracts in 2007, up from almost 314,000 contracts in 2006. The remaining average daily volume of roughly 82,000 per day consisted of other transactions, which included position transfers and exchanges.

Move to Electronic Trading - Hybrid Approach

How It Began

Once reliant only on open outcry trading - as were all earlier-established futures exchanges - NYMEX responded to user requests to become a more electronic exchange. In 2006, NYMEX sealed an agreement with then-Chicago Mercantile Exchange to launch trading of physically delivered energy futures on the CME Globex electronic trading platform during open outcry hours. Trading began on Sept. 4, 2006. Since that time, other NYMEX contracts have been added to the electronic mix on Globex, as well. The increase in electronic trading volume has been rapid and sustained from the beginning.

In September 2007, for example, NYMEX average daily volume totalled 1.6+ million contracts, a 13 percent increase over September 2006. NYMEX electronic volume on the CME Globex electronic trading platform was almost 770,000 contracts daily, representing a 178 percent increase over September 2006 CME Globex volume. In contrast, NYMEX floor-traded energy futures and options averaged close to 231,000 contracts per day for September 2007. (Realistically, given that comparisons are made between start-up volume on Globex in September 2006 and September 2007, percentage increases are high. The fact remains, nonetheless, that electronic volume continues to mount as a percentage of total NYMEX volume.)

COMEX electronic volume on CME Globex averaged just more than 121,000 contracts per day in September 2007 and represented a 1,396 percent increase over 8,090 contracts per day in September 2006 NYMEX ACCESS electronic volume. COMEX floor-traded average daily volume was 40,004 contracts for September 2007.

Average daily volume on NYMEX ClearPort was almost 363,000 contracts for September 2007, compared to just less than 480,000 for September 2006. The NYMEX ClearPort clearing and trading platform allows the marketplace to mitigate counterparty credit risk by processing off-exchange transactions through the NYMEX clearinghouse in the same manner as the NYMEX core futures contracts.

2007 for Nymex Products on Globex

For all of 2007, more 760,000 NYMEX contracts per day on average (including COMEX products) were being transacted on Globex, a little more than half of all NYMEX volume for 2007.[5]

Clearing

NYMEX has its own clearing operation where all contracts are cleared, including NYMEX contracts listed on CME Globex.

  • Note that NYMEX Division contracts were delisted from NYMEX ACCESS on the Aug. 6, 2007. Market participants wishing to establish their own direct connection to CME Globex were required to make arrangements with their clearing firm/s and a third-party systems provider/s. Trading also continues to be conducted through any firm that is connected to CME Group.

News

  • On August 18, 2008, CME Group Inc. said its acquisition of Nymex Holdings Inc. was approved by Nymex members, after a tumultuous seven-month campaign.
  • At the beginning of February 2008, NYMEX reported that clearing and transaction fees rose 35 percent for the year ended Dec. 31, 2007, to $565.8 million compared to $419.7 million in 2006.[6] Market data fees were $96 million for 2007 versus $63.6 million in 2006, an increase of 51 percent. Total operating expenses for 2007, excluding direct transaction costs of $96.8 million, decreased to $167.2 million versus $174.4 million in 2006, driven primarily by the NYMEX's cost-cutting initiatives. Income before provision for income taxes was $394.8 million for 2007 compared to $278.9 million in 2006. Excluding the one-time charge, income before provision for income taxes was $420.7 million. Pre-tax margin was 65 percent in 2007 compared to 60 percent in 2006. Excluding the one-time charge, pre-tax margin in 2007 was 70 percent. For the full year 2007, the company declared dividends totaling $128.4 million, or $1.36 per common share, which included a special, one-time dividend per share of $1.05.


  • On Nov. 12, 2007, U.S. NYMEX Holdings Inc. entered into an agreement to buy a 15.1-percent stake in Norwegian sea freight derivatives exchange Imarex. Imarex, based in Norway, provides shipping companies, merchant banks and other big financial players the ability to hedge or take opportunities on movements in global freight prices. Following settlement of this transaction, NYMEX Holdings Inc. will hold 1,714,544 shares in the company.[8] More than 90 percent of the world's traded goods by volume are carried by sea in large tankers. Over the last few years, global freight prices have soared along with demand for commodities such as iron ore, coal, grains and cement. The move is seen as NYMEX's first step toward an outright acquisition of Imarex, which is now valued at more than $300 million. The exchange is buying the stake from Frontline Ltd., the world's largest oil tanker company.[9]


  • Third-quarter 2007 profits and plans for increasing revenues through cost cuts. On Nov. 1, 2007, it was reported that NYMEX Holdings Inc. had posted better-than-expected third-quarter 2007 profits, aided by stronger electronic trading volume and cost cuts. The exchange also announced a plan to increase revenue and reduce costs as it migrates from open-outcry floor trading to electronic trading, in which it hopes to bring in $50 million in new revenue by increasing trading and market data fees. It also plans to cut 120 jobs over the next five quarters, with layoffs anticipated to save NYMEX about $10 million. Earlier, NYMEX said it was exploring a sale of its downtown Manhattan headquarters, and was retaining real estate broker Cushman & Wakefield to explore a sale. The sale, which could be completed by the end of 2008, could result in $12 million in cost savings, according to the exchange. [10]

Key Dates

NYMEX 2008 Holiday Schedule

Annual Report

NYMEX 2006 Annual Report

Notes

References

  1. ↑ "CME Purchase Gets Nymex OK". Crain's Chicagobusiness. Retrieved on August 19, 2008.
  2. ↑ "CME Adds Political Muscle to NYMEX Bid; Illinois, N.Y. senators Back Revised $9.4 Billion Plan as Scrutiny Looms,” 3/18/08. Chicago Tribune. Retrieved on March 18, 2008.
  3. ↑ {{cite web|url=http://www.guardian.co.uk/business/feedarticle/7735187|name="CME Snags a Big Prize as Nymex Deal is Approved|org=guardian.co.uk|date=August 19, 2008. In July, they persuaded CME to raise its per-seat bid to $750,000 from $612,000. They also got CME's promise that the 816 members could continue to own their seats so they can sell them whenever they wish. An announcement from the CME that Nymex members would have to pay hefty income taxes on the $750,000 they would each be receiving stirred up trouble in the final two weeks of negotiating, but the two sides put together an agreement over a reconciliatory dinner.<ref>{{cite web|url=http://online.wsj.com/article/SB121902721834548771.html?mod=googlenews_wsj|name="Nymex Blinked in CME Battle"|org=The Wall Street Journal|date=August 19, 2008}}</li> <li id="_note-3">[[#_ref-3|↑]] {{cite web|name="Nymex Holdings Reports Record Fourth Quarter and Full Year Results,” February 1, 2008|url=http://investor.nymex.com/releasedetail.cfm?ReleaseID=291233|org=NYMEX|date=February 6, 2008}}</li> <li id="_note-4">[[#_ref-4|↑]] {{cite web|name="Nymex Holdings Reports Record Fourth Quarter and Full Year Results,” Feb. 1, 2008|url=http://investor.nymex.com/releasedetail.cfm?ReleaseID=291233|org=NYMEX|date=February 6, 2008}}</li> <li id="_note-5">[[#_ref-5|↑]] {{cite web|name="Nymex Holdings Reports Record Fourth Quarter and Full Year Results,” February 1, 2008|url=http://investor.nymex.com/releasedetail.cfm?ReleaseID=291233|org=NYMEX|date=February 6, 2008}}</li> <li id="_note-6">[[#_ref-6|↑]] {{cite web|name="NYMEX and Other Major Market Participants to Form the Green Exchange, the World's Most Comprehensive Environmental Marketplace”|url=http://nymex.mediaroom.com/index.php?s=43&item=1705|org=NYMEX|date=December 30, 2007}}</li> <li id="_note-7">[[#_ref-7|↑]] {{cite web|url=http://www.reuters.com/article/businessNews/idUSL1250712220071112|org=reuters.com|date=November 12, 2007|name="NYMEX Buys 15 Percent Stake in Norway's IMAREX"}}</li> <li id="_note-8">[[#_ref-8|↑]] {{cite web|url=http://www.nypost.com/seven/11122007/business/nymex_ships_in_port_690042.htm|org=nypost.com|date=November 12, 2007|name="NYMEX Ships In Port; A Future In Freight"}}</li> <li id="_note-9">[[#_ref-9|↑]] {{cite web|url=http://www.reuters.com/article/marketsNews/idUKN0139504320071101?rpc=44|name="NYMEX posts higher profit and plans cost-cutting"|org=Reuters|date=November 1, 2007}}</li></ol></ref>

Resources

"CME’s Ambitions Rile Many" FT.com, January 30, 2008

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