New York Mercantile Exchange, Inc.

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New York Mercantile Exchange
Nymexlogo.png
Founded 1872
Headquarters New York
Products Futures, Options, Clearing
Website www.nymex.com

The New York Mercantile Exchange (NYMEX) is the world's largest energy and metals commodity platform, and has been a unit of CME Group Inc. since the Chicago exchange operator acquired NYMEX Holdings, Inc. on August 22, 2008 in a $8.4 billion transaction.[1]

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.

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

In 2016, Nymex trading volume was 618,424,303 contracts, up 22.8 percent from the previous year.[2]

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.

In May 2013, the CME Group put the 16-story New York Mercantile Exchange building up for sale, with plans to potentially lease back a portion of the building and its trading floor. CME Group also said they might consider relocating the exchange within lower Manhattan and that it would continue operating the Nymex trading floor in New York regardless of a sale. CME Group acquired the building, along with the exchange, in 2008. [3]

On November 26, 2013, CME Group sold the building to Brookfield Office Properties in a $200 million in a sale-leaseback deal that provides space for the New York Mercantile Exchange trading floor and offices.[4]

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.[5]

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.[6]

A group of dissident NYMEX members won some concessions from the CME after complaining the deal undervalued NYMEX.[7]

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.[8]

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."

On Nov. 26, 2008, CME Group announced that Bryan Durkin, Anthony George Gero, William Giannone, William Purpura, and Joseph Raia had been named members of the COMEX Governors Committee, which is the guiding body for gold, silver, copper and aluminum futures and options traded at CME Group. The COMEX Governors Committee originally operated as the executive board to the COMEX.[9]

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.

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 of 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.

News

  • On June 25, 2009, CME Group delisted the COMEX miNY Gold Futures (code QO; 50 Troy Ounces) and miNY Silver Futures (code QI; 2,500 Troy Ounces) contracts. The contracts are being replaced with the cash-settled E-mini Gold Futures (code XGN; 33 Troy Ounces) and E-mini Silver Futures (code XSN; 1,000 Troy Ounces) contracts that began trading on CME Globex on April 20, 2009.
  • On Aug. 18, 2008, CME Group Inc. said its acquisition of NYMEX Holdings Inc. was approved by NYMEX members, after a tumultuous seven-month campaign.
  • 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.[11] 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.[12]
  • On Dec. 30, 2016, NYMEX shut its open-outcry trading floor in lower Manhattan after markets close, in a new step toward electronic trading. The decision was made by parent CME.[13]

References

  1. Press Release. CME Group.
  2. FIA Volume Survey 2016. MarketVoice.
  3. CME Group Puts Nymex Building in Manhattan Up for Sale. Bloomberg News.
  4. CME Group Agrees to Sell Nymex Building to Brookfield for $200 Million. Wall Street Journal.
  5. "CME Purchase Gets NYMEX OK". Crain's Chicagobusiness.
  6. "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.
  7. "CME Snags a Big Prize as NYMEX Deal is Approved. guardian.co.uk.
  8. "NYMEX Blinked in CME Battle". The Wall Street Journal.
  9. Press Release. CME Group.
  10. "NYMEX and Other Major Market Participants to Form the Green Exchange, the World's Most Comprehensive Environmental Marketplace”. NYMEX.
  11. "NYMEX Buys 15 Percent Stake in Norway's IMAREX". reuters.com.
  12. "NYMEX Ships In Port; A Future In Freight". nypost.com.
  13. Nymex Trading Pits Shut Down, Marking End of an Era. Wall Street Journal.