Nymex listing futures on CME
: Sunday, 2 April, 2006, 08:45 AM Doha Time
Nymex chief
NEW YORK: The New York Mercantile Exchange agreed to offer its benchmark energy futures on the Chicago Mercantile Exchange’s Globex electronic trading system, people familiar with the matter said.
The partnership was approved by the board of the Nymex, the world’s biggest energy market, on Tuesday, according to three people who asked not to be identified because the talks were private.
Nymex crude oil, natural gas, heating oil and gasoline futures will be offered on Globex during the day, when the trading pits are open on the floor of the New York exchange.
Nymex decided in February to expand its electronic trading in response to an online US oil futures contract introduced by Intercontinental Exchange Inc, the second-biggest energy market. Nymex said at the time that it would use its own ClearPort electronic system.
Intercontinental, also known as ICE, did more than 30% all US oil trades in the past week.
“This is certainly a smart move for Nymex,’’ said Robert Webb, a professor of finance at the University of Virginia. “Nymex now has access to the superior Chicago Mercantile trading system and can more readily compete against ICE.’’
Nymex chief executive officer James Newsome wants to restore the monopoly the New York exchange has had in US oil trading since it pioneered the futures contract 23 years ago.
Teaming up with the Chicago exchange addresses concerns raised by traders and some exchange members that Nymex electronic systems might not be up to the task.
Nymex will announce the agreement with Chicago Mercantile next week, the people said.
Newsome said earlier this week that the expansion of Nymex electronic trading would be ready sometime in April.
Nymex last month completed the sale of a 10% stake to buyout firm General Atlantic LLC, a move designed to help ready the exchange for electronic trading and push it towards completion of an initial public offering later this year.
Nymex spokeswoman Anu Ahluwalia and Chicago Mercantile spokeswoman Pamela Plehn declined to comment on Friday.
“The real question is how much of a penalty will the Nymex pay for letting the ICE gain a significant share of the market in terms of crude oil?’’ Webb said. “The Nymex should hurry up with their IPO before people realise they may lose their preeminence.’’
This is not the first time the New York and Chicago exchanges have discussed partnerships. The Chicago Mercantile approached Nymex in December, while the investment by General Atlantic was pending, about possibly making an investment, according to a February regulatory filing by Nymex.
“We engaged in preliminary discussion with the CME, during which it became clear that there was no reasonable likelihood of a mutually-agreeable transaction,’’ Nymex said in the filing.
The Chicago Exchange is no longer seeking a stake in Nymex, making the negotiations less complex, the people said. The terms of the current deal are also better for Nymex, the people said. They declined to be more specific.
The partnership with Chicago will also remove the threat of a potential competitor for Nymex.
The Chicago Mercantile Exchange, the biggest US futures exchange, said this week that it was planning to introduce its own energy contracts in June, after a non-compete agreement with Nymex expires.
Intercontinental last week traded an average 65,875 US oil futures a day, compared with 211,875 on the Nymex. That’s about 31% of the Nymex’s futures trading volume. Each contract is for 1,000 barrels of West Texas Intermediate crude, worth more than $66,000.
Increasing the pressure on Nymex, ICE Futures plans to introduce electronic heating oil and gasoline futures contracts next month to compete with contracts Nymex trades on its floor.
Nymex members approved the sale of 10% of the exchange’s equity for $170mn to Greenwich, Connecticut-based General Atlantic earlier this month. That vote made the buyout firm’s president, Bill Ford, a Nymex board member. – Bloomberg
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