What is the NYMEX and how does it work?

NYMEX : Presentation and functioning

The NYMEX for New-York Mercantile Exchange, is a specific stock exchange specialized in the energy and metal sector. In the past, this financial centre was known as the Butter and Cheese Exchange of New York. Today, it is the largest commodity derivatives market in the world and trades futures and options on raw and processed energy products such as oil, natural gas, heating oil, unleaded gasoline, coal and electricity.

The NYMEX also controls the Commodity Exchange or COMEX which, however, retains autonomy over precious metals. This exchange is also located in New York, USA.

The vast majority of transactions that take place on the NYMEX were spot transactions with physical delivery of products until the 1960s. Until the end of the 1970s, the NYMEX specialized in agricultural commodity contracts. It developed a futures market for oil products in 1976 following a bottleneck in the potato market.

Trading on the NYMEX is done on an open outcry basis with a daily opening time of 6:30 a.m. and a preponderance of options trading, or through a trading and clearing platform called Clearport, which allows for futures contracts on oil and gas products, coal, electricity and other energies. These contracts can be traded continuously, i.e. 24 hours a day, from Sunday evening at 7 p.m. to Friday at 2:30 p.m.

Each year, more than 175 million contracts are traded on the New York Mercantile Exchange. We also note that in 2008 and as we will see below, the NYMEX merged with the Chicago Mercantile Exchange or CME.

History of the NYMEX from its inception to the present day:

The NYMEX was founded in 1872 as the Butter and Cheese Exchange of New York. At that time, it was a trading exchange created by a group of dairy product traders in an attempt to standardize trading in this market.

About ten years later, when other agricultural products were traded there, this financial centre was renamed the NYMEX or New York Mercantile Exchange.

During the 21st century, the NYMEX merged with the COMEX and no longer offers contracts on agricultural commodities. This market has indeed refocused its activities on industrial products such as energy with oil, natural gas, electricity and metals including gold, silver or platinum. The NYMEX is then my very last exchange to use the auction method and the brokers who work there carry out their transactions with physical signals whereas other exchanges like Euronext already use electronics.

A look back at the NYMEX IPO in 2006:

In November 2006, the NYMEX was listed for the first time. The IPO was a great success, with an increase in the price range from $48-52 to $54-57 and a fixed price of $59. The NYMEX took advantage of the enthusiasm of investors to raise more than 383.5 million dollars.

The stock soared to $132.99, up 125.4% in its first trading session on Wall Street, with a high of $152 in the same session. At the time, the NYMEX was the number one trading venue for energy-related products and the number three trading venue for non-ferrous metals.

However, some of the members of the NYMEX had expressed their reticence in front of this strategic reorientation decided by the CEO at the time, James Newsome. Some of them criticized the IPO process as too timid with only 7.5% of the shares being placed publicly, but also too late compared to its more or less direct competitors. Indeed, the CME or Chicago Mercantile Exchange has been listed since the end of 2002. The CBoT Holdings and the Intercontinental Exchange were listed in October and November 2005 respectively.

Other members pointed the finger at the lack of influence of the members of the market and thus feared the closing of the floor for the all electronic. It should be remembered that before this IPO, on 14 March, a 10% stake was acquired from the American company General Atlantic. This participation was made at an extremely low price of 170 million dollars. But this new shareholder company has the advantage of being particularly competent in the field of information technology and benefits from the experience acquired with Archipelago, an electronic trading platform in which the company was a leading shareholder and which was subsequently absorbed by the NYSE. This company undoubtedly allowed the New York Mercantile Exchange to gain expertise in the area in which it had the most weaknesses, namely IT.

This NYMEX IPO was arguably the most successful IPO of any commodity market.