Risk Markets And Politics

Sunday, January 22, 2006

Exchange Updates

The Chicago and New York Mercantile Exchanges have apparently walked away from the bargaining table. The CME, the largest U.S. futures exchange, had expressed interest in acquiring a 10% stake in Nymex, the predominant American energy and metal futures exchange. The story at this point is that talks broke down, "in part over concerns about the cost of using the CME's electronic-trading system." The greatest cost of the electronic trading is of course incurred by open outcry floor traders. For Nymex seatholders, any bid for the exchange potentially carries a tradeoff between the floor trading rights and equity components of the seat price. In 2005, the 816 Nymex seats more than doubled in value, and a good deal of this was likely due to the equity component appreciating ahead of the IPO, which had been planned for mid 2006. On Friday we learned that General Atlantic increased their bid to $170 million, up from the original $135 million, but seats are still apparently hovering near $3.5 million despite significant gains in crude oil since they first traded there in November.

The industry trend is clearly electronic trading and the transparency it provides. CME's non-compete agreement in energy products with Nymex expires in June. Additionally, a WTI Light Sweet Crude contract is scheduled to begin trading on the Intercontinental Exchange on February 3rd — and Iran is planning to open its oil bourse in March.

Meanwhile, Hedgestreet seems newly invigorated in their push to reach retail clients. Their edge will continue to be the ease of use for the average person who does not otherwise trade futures, and I wish them luck.

1/24/06 Update: There is a report in Natural Gas Week that CME will list energy contracts in June. CME's stock was up over 6% today, and ICE, 10%. There is a graphic on Nymex's web site that says, "Evolution is Inevitable."


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