New York Mercantile Exchange
Encyclopedia
- "Commodity Exchange" redirects here. For other uses, see Commodity exchange (disambiguation); "COMEX" redirects here. For other uses, see Comex (disambiguation)
The New York Mercantile Exchange (NYMEX) is the world
World
World is a common name for the whole of human civilization, specifically human experience, history, or the human condition in general, worldwide, i.e. anywhere on Earth....
's largest physical commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
futures exchange
Futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
. It is located at One North End Avenue in the World Financial Center
World Financial Center
The World Financial Center is a complex of buildings across West Street from the World Trade Center site in Lower Manhattan in New York City, overlooking the Hudson River. This complex is home to offices of companies including Merrill Lynch, RBC Capital Markets, Nomura Group, the Wall Street...
in the Battery Park City section of Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
, New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
. Additional offices are located in Boston
Boston
Boston is the capital of and largest city in Massachusetts, and is one of the oldest cities in the United States. The largest city in New England, Boston is regarded as the unofficial "Capital of New England" for its economic and cultural impact on the entire New England region. The city proper had...
, Washington, D.C.
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
, Atlanta, San Francisco, Dubai
Dubai
Dubai is a city and emirate in the United Arab Emirates . The emirate is located south of the Persian Gulf on the Arabian Peninsula and has the largest population with the second-largest land territory by area of all the emirates, after Abu Dhabi...
, London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, and Tokyo
Tokyo
, ; officially , is one of the 47 prefectures of Japan. Tokyo is the capital of Japan, the center of the Greater Tokyo Area, and the largest metropolitan area of Japan. It is the seat of the Japanese government and the Imperial Palace, and the home of the Japanese Imperial Family...
.
The company's two principal divisions are the New York Mercantile Exchange and Commodity Exchange, Inc (COMEX), once separately owned exchanges. NYMEX Holdings, Inc., the former parent company of the New York Mercantile Exchange and COMEX, became listed on the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
on November 17, 2006, under the ticker symbol NMX. On March 17, 2008, Chicago based CME Group
CME Group
The CME Group bases prices for US gasoline on Brent Crude rather than West Texas Intermediate Crude , which many believe is responsible for artificially high gas prices for US consumers...
signed a definitive agreement to acquire NYMEX Holdings, Inc. for $11.2 billion in cash and stock and the takeover was completed in August 2008. Both NYMEX and COMEX now operate as designated contract markets (DCM) of the CME Group. The other two designated contract markets in the CME Group are the Chicago Mercantile Exchange
Chicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
and the Chicago Board of Trade
Chicago Board of Trade
The Chicago Board of Trade , established in 1848, is the world's oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading. Volumes at the exchange in 2003 were a record breaking 454 million...
.
The New York Mercantile Exchange handles billions of dollars worth of energy products
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
, metals, and other commodities being bought
Buy
Buy may refer to:*Trade, exchange of goods and services*BUY , Burlington, North Carolina*Buy.com, a shopping website*Buy , a 1979 album by James White and the Contortions...
and sold
Sell
Sell can refer to:*A verb relating to sales*Sell *One of several people named Edward Sell *Mary Elizabeth Sell, New York City Ballet dancer*Friedrich L...
on the trading floor and the overnight electronic trading
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
computer systems
Computer
A computer is a programmable machine designed to sequentially and automatically carry out a sequence of arithmetic or logical operations. The particular sequence of operations can be changed readily, allowing the computer to solve more than one kind of problem...
for future delivery. The prices quoted for transactions
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
on the exchange are the basis for prices that people pay for various commodities throughout the world
World
World is a common name for the whole of human civilization, specifically human experience, history, or the human condition in general, worldwide, i.e. anywhere on Earth....
.
The floor of the NYMEX is regulated by the Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
, an independent agency of the United States government. Each individual company that trades on the exchange must send its own independent brokers. Therefore, a few employees on the floor of the exchange represent a big corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
and the exchange employees only record the transactions and have nothing to do with the actual trade.
Although mostly electronic since 2006, the NYMEX maintains a small venue that still practices the open outcry
Open outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
trading system, in which traders employ shouting and complex hand gestures on the physical trading floor. A project to preserve the hand signals used at NYMEX has been published.
Early history
Commodity exchanges began in the middle of the 19th century, when businessmen began organizing market forums to make buying and selling of commodities easier. These marketplaces provided a place for buyers and sellers to set the quality, standards, and establish rules of business. By the late 19th century about 1,600 marketplaces had sprung up at portPort
A port is a location on a coast or shore containing one or more harbors where ships can dock and transfer people or cargo to or from land....
s and railroad stations
Train station
A train station, also called a railroad station or railway station and often shortened to just station,"Station" is commonly understood to mean "train station" unless otherwise qualified. This is evident from dictionary entries e.g...
. In 1872, a group of Manhattan dairy
Dairy
A dairy is a business enterprise established for the harvesting of animal milk—mostly from cows or goats, but also from buffalo, sheep, horses or camels —for human consumption. A dairy is typically located on a dedicated dairy farm or section of a multi-purpose farm that is concerned...
merchants got together and created the Butter
Butter
Butter is a dairy product made by churning fresh or fermented cream or milk. It is generally used as a spread and a condiment, as well as in cooking applications, such as baking, sauce making, and pan frying...
and Cheese
Cheese
Cheese is a generic term for a diverse group of milk-based food products. Cheese is produced throughout the world in wide-ranging flavors, textures, and forms....
Exchange of New York. Soon, egg
Egg (food)
Eggs are laid by females of many different species, including birds, reptiles, amphibians, and fish, and have probably been eaten by mankind for millennia. Bird and reptile eggs consist of a protective eggshell, albumen , and vitellus , contained within various thin membranes...
trade became part of the business conducted on the exchange and the name was modified to the Butter, Cheese, and Egg Exchange. In 1882, the name finally changed to the New York Mercantile Exchange when opening trade to dried fruit
Fruit
In broad terms, a fruit is a structure of a plant that contains its seeds.The term has different meanings dependent on context. In non-technical usage, such as food preparation, fruit normally means the fleshy seed-associated structures of certain plants that are sweet and edible in the raw state,...
s, canned goods, and poultry
Poultry
Poultry are domesticated birds kept by humans for the purpose of producing eggs, meat, and/or feathers. These most typically are members of the superorder Galloanserae , especially the order Galliformes and the family Anatidae , commonly known as "waterfowl"...
.
As centralized warehouses were built into principal market centers such as New York and Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
in the early 20th century, exchanges in smaller cities began to disappear giving more business to the exchanges such as the NYMEX in bigger cities. In 1933, the COMEX was established through the merger of four smaller exchanges; the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange. In the 1970s, COMEX, NYMEX, and other exchanges shared a single trading floor in 4 World Trade Center.
Potatoes
For years, the NYMEX traders had done a large business trading futures of the Maine PotatoPotato
The potato is a starchy, tuberous crop from the perennial Solanum tuberosum of the Solanaceae family . The word potato may refer to the plant itself as well as the edible tuber. In the region of the Andes, there are some other closely related cultivated potato species...
crop. According to Leah McGrath Goodman's 2011 book The Asylum, manipulation in this market was commonplace, performed by various parties including potato inspectors and NYMEX traders. The worst incident was the 1970s potato bust, when Idaho potato magnate J. R. Simplot
J. R. Simplot
John Richard Simplot was the founder of the J. R. Simplot Company, an agricultural supplier specializing in potato products, based in Boise, Idaho. In 2007 he was estimated to be the 89th-richest person in America, at $3.6 billion...
allegedly went short in huge numbers, leaving a large amount of contracts unsettled at the expiration date, resulting in a large number of defaulted delivery contracts. A public outcry followed, and the newly created Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
held hearings. NYMEX was barred from trading not only potatoes futures, but from entering new areas it hadn't traded in before. NYMEX's reputation was severely damaged, because, as future chairman Michel Marks told Goodman in her book, "The essence of an exchange is the sanctity of it's contract".
Oil
After the potato ban, NYMEX's existence was in doubt. Most of the trading volume had been in potatoes. Without a good commodity, the traders had trouble making money. Eventually the new chairman, Michel Marks (son of commodities icon Francis Q Marks), along with economist Arnold Safer, figured out that NYMEX could revamp an old heating oilHeating oil
Heating oil, or oil heat, is a low viscosity, flammable liquid petroleum product used as a fuel for furnaces or boilers in buildings. Home heating oil is often abbreviated as HHO...
futures contract. When the government deregulated heating oil, the contract had a chance of becoming a good object of trade on the floor. A new futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
was carefully drawn up and trading began on a tiny scale in 1978. Some of the first users of NYMEX heating oil deliveries were small scale suppliers of people in the Northern United States.
NYMEX's business threatened some entrenched interests like big oil and government groups like Opec that had traditionally controlled oil prices. NYMEX provided an 'open market' and thus transparent pricing for heating oil, and, eventually, crude oil, gasoline, and natural gas. NYMEX's oil futures contracts were standardized for the delivery of West Texas Intermediate
West Texas Intermediate
West Texas Intermediate , also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. It is a light and sweet crude oil...
light, sweet crude oil to Cushing, Oklahoma
Cushing, Oklahoma
Cushing is a city in Payne County, Oklahoma, United States. The population was 8,371 at the 2000 census.The city was established after the Land Run of 1891 by Billy Rae Little. It was named for Marshall Cushing, private secretary to U.S. Postmaster General John Wanamaker...
.
Growth
The energy trading business took off, and NYMEX boomed. The open outcryOpen outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
floor became a cacophony of shouting traders and pit cards. The 1980s film Trading Places
Trading Places
Trading Places is a 1983 American comedy film, of the satire genre, directed by John Landis, starring Dan Aykroyd and Eddie Murphy. It tells the story of an upper class commodities broker and a homeless street hustler whose lives cross paths when they are unknowingly made part of an elaborate bet...
used NYMEX as a setting, with actual NYMEX people as extras. The pits became a place where many people without much education or ability to fit in to Wall Street could have a chance at being rich. Many traders and executives became millionaires. They threw lavish parties and went on exotic vacations. Many of these people also became heavily involved in drugs and prostitution, with drugs being traded right on the floor of the exchange. Goodman's book tells the stories of many of the personalities that built the exchange in this era.
COMEX (Commodity Exchange, Inc), one of the exchanges that shared 4 World Trade Center with NYMEX, had traditionally looked down on NYMEX for being smaller and for having the toxic reputation from the potato bust. With NYMEX's energy trading boom, it became much larger and wealtheir than COMEX. On August 3, 1994, the NYMEX and COMEX finally merged under the NYMEX name. By the late 1990s, there were more people working on the NYMEX floor than there was space for them. In 1997, the NYMEX moved to a new building on the Southwestern portion of Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
, part of a complex called the World Financial Center
World Financial Center
The World Financial Center is a complex of buildings across West Street from the World Trade Center site in Lower Manhattan in New York City, overlooking the Hudson River. This complex is home to offices of companies including Merrill Lynch, RBC Capital Markets, Nomura Group, the Wall Street...
.
9/11
NYMEX maintained a close relationship with many organizations and people at World Trade Center, and several NYMEX people were lost in the tragedy, even though the NYMEX building itself was mostly undamaged. Despite the devastation, the exchange's management and staff had the exchange back up and running in very short order. After the attacks, the NYMEX built a $12 million trading floor backup facility outside of New York City with 700 traders' booths, 2,000 telephoneTelephone
The telephone , colloquially referred to as a phone, is a telecommunications device that transmits and receives sounds, usually the human voice. Telephones are a point-to-point communication system whose most basic function is to allow two people separated by large distances to talk to each other...
s, and a backup computer system. This backup was in case of another terrorist attack or natural disaster
Natural disaster
A natural disaster is the effect of a natural hazard . It leads to financial, environmental or human losses...
in Lower Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
.
On February 26, 2003, the New York Board of Trade
New York Board of Trade
The New York Board of Trade , renamed ICE Futures US in September of 2007, is a wholly owned subsidiary of IntercontinentalExchange . It is a physical commodity futures exchange located in New York City. It originated in 1870 as the New York Cotton Exchange...
(NYBOT) signed a lease agreement with the NYMEX to move into its World Financial Center headquarters and trading facility after the NYBOT's original headquarters and trading floor was destroyed in the September 11, 2001 terrorist attacks
September 11, 2001 attacks
The September 11 attacks The September 11 attacks The September 11 attacks (also referred to as September 11, September 11th or 9/119/11 is pronounced "nine eleven". The slash is not part of the pronunciation...
on the World Trade Center
World Trade Center
The original World Trade Center was a complex with seven buildings featuring landmark twin towers in Lower Manhattan, New York City, United States. The complex opened on April 4, 1973, and was destroyed in 2001 during the September 11 attacks. The site is currently being rebuilt with five new...
.
Electronic trading
NYMEX held a virtual monopoly on 'open market' oil futures trading (as opposed to the dark marketOver-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....
or 'over the counter' market). However in the early 2000s the electronically based exchanges started taking away the business of the open outcry
Open outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
markets like NYMEX. Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
's online energy trading system was part of this trend. Jeff Sprecher's IntercontinentalExchange
IntercontinentalExchange
IntercontinentalExchange, Inc., known as ICE, is an American financial company that operates Internet-based marketplaces which trade futures and over-the-counter energy and commodity contracts as well as derivative financial products...
, or ICE, was another example. ICE eventually began trading oil contracts
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
that were extremely similar to NYMEX's, taking away market share almost immediately.
The open outcry NYMEX pit traders had always been against electronic trading because it threatened their income and their lifestyle. The executives at NYMEX felt that electronic trading was the only way to keep the exchange competitive. NYMEX teamed up with the Chicago Mercantile Exchange to use Globex in 2006. The trading pits emptied out as many traders quit. Banks, hedge funds, and huge oil companies stopped making telephone calls to the pits and started trading directly for themselves over screens.
- "Commodity Exchange" redirects here. For other uses, see Commodity exchange (disambiguation); "COMEX" redirects here. For other uses, see Comex (disambiguation)
The New York Mercantile Exchange (NYMEX) is the world
World
World is a common name for the whole of human civilization, specifically human experience, history, or the human condition in general, worldwide, i.e. anywhere on Earth....
's largest physical commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
futures exchange
Futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
. It is located at One North End Avenue in the World Financial Center
World Financial Center
The World Financial Center is a complex of buildings across West Street from the World Trade Center site in Lower Manhattan in New York City, overlooking the Hudson River. This complex is home to offices of companies including Merrill Lynch, RBC Capital Markets, Nomura Group, the Wall Street...
in the Battery Park City section of Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
, New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
. Additional offices are located in Boston
Boston
Boston is the capital of and largest city in Massachusetts, and is one of the oldest cities in the United States. The largest city in New England, Boston is regarded as the unofficial "Capital of New England" for its economic and cultural impact on the entire New England region. The city proper had...
, Washington, D.C.
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
, Atlanta, San Francisco, Dubai
Dubai
Dubai is a city and emirate in the United Arab Emirates . The emirate is located south of the Persian Gulf on the Arabian Peninsula and has the largest population with the second-largest land territory by area of all the emirates, after Abu Dhabi...
, London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, and Tokyo
Tokyo
, ; officially , is one of the 47 prefectures of Japan. Tokyo is the capital of Japan, the center of the Greater Tokyo Area, and the largest metropolitan area of Japan. It is the seat of the Japanese government and the Imperial Palace, and the home of the Japanese Imperial Family...
.
The company's two principal divisions are the New York Mercantile Exchange and Commodity Exchange, Inc (COMEX), once separately owned exchanges. NYMEX Holdings, Inc., the former parent company of the New York Mercantile Exchange and COMEX, became listed on the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
on November 17, 2006, under the ticker symbol NMX. On March 17, 2008, Chicago based CME Group
CME Group
The CME Group bases prices for US gasoline on Brent Crude rather than West Texas Intermediate Crude , which many believe is responsible for artificially high gas prices for US consumers...
signed a definitive agreement to acquire NYMEX Holdings, Inc. for $11.2 billion in cash and stock and the takeover was completed in August 2008. Both NYMEX and COMEX now operate as designated contract markets (DCM) of the CME Group.http://www.cmegroup.com The other two designated contract markets in the CME Group are the Chicago Mercantile Exchange
Chicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
and the Chicago Board of Trade
Chicago Board of Trade
The Chicago Board of Trade , established in 1848, is the world's oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading. Volumes at the exchange in 2003 were a record breaking 454 million...
.
The New York Mercantile Exchange handles billions of dollars worth of energy products
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
, metals, and other commodities being bought
Buy
Buy may refer to:*Trade, exchange of goods and services*BUY , Burlington, North Carolina*Buy.com, a shopping website*Buy , a 1979 album by James White and the Contortions...
and sold
Sell
Sell can refer to:*A verb relating to sales*Sell *One of several people named Edward Sell *Mary Elizabeth Sell, New York City Ballet dancer*Friedrich L...
on the trading floor and the overnight electronic trading
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
computer systems
Computer
A computer is a programmable machine designed to sequentially and automatically carry out a sequence of arithmetic or logical operations. The particular sequence of operations can be changed readily, allowing the computer to solve more than one kind of problem...
for future delivery. The prices quoted for transactions
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
on the exchange are the basis for prices that people pay for various commodities throughout the world
World
World is a common name for the whole of human civilization, specifically human experience, history, or the human condition in general, worldwide, i.e. anywhere on Earth....
.
The floor of the NYMEX is regulated by the Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
, an independent agency of the United States government. Each individual company that trades on the exchange must send its own independent brokers. Therefore, a few employees on the floor of the exchange represent a big corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
and the exchange employees only record the transactions and have nothing to do with the actual trade.
Although mostly electronic since 2006, the NYMEX maintains a small venue that still practices the open outcry
Open outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
trading system, in which traders employ shouting and complex hand gestures on the physical trading floor. A project to preserve the hand signals used at NYMEX has been published.
Early history
Commodity exchanges began in the middle of the 19th century, when businessmen began organizing market forums to make buying and selling of commodities easier. These marketplaces provided a place for buyers and sellers to set the quality, standards, and establish rules of business. By the late 19th century about 1,600 marketplaces had sprung up at portPort
A port is a location on a coast or shore containing one or more harbors where ships can dock and transfer people or cargo to or from land....
s and railroad stations
Train station
A train station, also called a railroad station or railway station and often shortened to just station,"Station" is commonly understood to mean "train station" unless otherwise qualified. This is evident from dictionary entries e.g...
. In 1872, a group of Manhattan dairy
Dairy
A dairy is a business enterprise established for the harvesting of animal milk—mostly from cows or goats, but also from buffalo, sheep, horses or camels —for human consumption. A dairy is typically located on a dedicated dairy farm or section of a multi-purpose farm that is concerned...
merchants got together and created the Butter
Butter
Butter is a dairy product made by churning fresh or fermented cream or milk. It is generally used as a spread and a condiment, as well as in cooking applications, such as baking, sauce making, and pan frying...
and Cheese
Cheese
Cheese is a generic term for a diverse group of milk-based food products. Cheese is produced throughout the world in wide-ranging flavors, textures, and forms....
Exchange of New York. Soon, egg
Egg (food)
Eggs are laid by females of many different species, including birds, reptiles, amphibians, and fish, and have probably been eaten by mankind for millennia. Bird and reptile eggs consist of a protective eggshell, albumen , and vitellus , contained within various thin membranes...
trade became part of the business conducted on the exchange and the name was modified to the Butter, Cheese, and Egg Exchange. In 1882, the name finally changed to the New York Mercantile Exchange when opening trade to dried fruit
Fruit
In broad terms, a fruit is a structure of a plant that contains its seeds.The term has different meanings dependent on context. In non-technical usage, such as food preparation, fruit normally means the fleshy seed-associated structures of certain plants that are sweet and edible in the raw state,...
s, canned goods, and poultry
Poultry
Poultry are domesticated birds kept by humans for the purpose of producing eggs, meat, and/or feathers. These most typically are members of the superorder Galloanserae , especially the order Galliformes and the family Anatidae , commonly known as "waterfowl"...
.
As centralized warehouses were built into principal market centers such as New York and Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
in the early 20th century, exchanges in smaller cities began to disappear giving more business to the exchanges such as the NYMEX in bigger cities. In 1933, the COMEX was established through the merger of four smaller exchanges; the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange. In the 1970s, COMEX, NYMEX, and other exchanges shared a single trading floorGoodman in 4 World Trade Center.
Potatoes
For years, the NYMEX traders had done a large business trading futures of the Maine PotatoPotato
The potato is a starchy, tuberous crop from the perennial Solanum tuberosum of the Solanaceae family . The word potato may refer to the plant itself as well as the edible tuber. In the region of the Andes, there are some other closely related cultivated potato species...
crop. According to Leah McGrath Goodman's 2011 book The Asylum, manipulation in this market was commonplace, performed by various parties including potato inspectors and NYMEX traders. The worst incident was the 1970s potato bust, when Idaho potato magnate J. R. Simplot
J. R. Simplot
John Richard Simplot was the founder of the J. R. Simplot Company, an agricultural supplier specializing in potato products, based in Boise, Idaho. In 2007 he was estimated to be the 89th-richest person in America, at $3.6 billion...
allegedly went short in huge numbers, leaving a large amount of contracts unsettled at the expiration date, resulting in a large number of defaulted delivery contracts. A public outcry followed, and the newly created Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
held hearings. NYMEX was barred from trading not only potatoes futures, but from entering new areas it hadn't traded in before. NYMEX's reputation was severely damaged, because, as future chairman Michel Marks told Goodman in her book, "The essence of an exchange is the sanctity of it's contract". Goodman, p 51
Oil
After the potato ban, NYMEX's existence was in doubt. Most of the trading volume had been in potatoes. Without a good commodity, the traders had trouble making money. Eventually the new chairman, Michel Marks (son of commodities icon Francis Q Marks), along with economist Arnold Safer, figured out that NYMEX could revamp an old heating oilHeating oil
Heating oil, or oil heat, is a low viscosity, flammable liquid petroleum product used as a fuel for furnaces or boilers in buildings. Home heating oil is often abbreviated as HHO...
futures contract. When the government deregulated heating oil, the contract had a chance of becoming a good object of trade on the floor. A new futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
was carefully drawn up and trading began on a tiny scale in 1978. Some of the first users of NYMEX heating oil deliveries were small scale suppliers of people in the Northern United States. Goodman, p 68-69
NYMEX's business threatened some entrenched interests like big oil and government groups like Opec that had traditionally controlled oil prices. NYMEX provided an 'open market' and thus transparent pricing for heating oil, and, eventually, crude oil, gasoline, and natural gas. NYMEX's oil futures contracts were standardized for the delivery of West Texas Intermediate
West Texas Intermediate
West Texas Intermediate , also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. It is a light and sweet crude oil...
light, sweet crude oil to Cushing, Oklahoma
Cushing, Oklahoma
Cushing is a city in Payne County, Oklahoma, United States. The population was 8,371 at the 2000 census.The city was established after the Land Run of 1891 by Billy Rae Little. It was named for Marshall Cushing, private secretary to U.S. Postmaster General John Wanamaker...
.Goodman, p 68, 69, 91
Growth
The energy trading business took off, and NYMEX boomed. The open outcryOpen outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
floor became a cacophony of shouting traders and pit cards. The 1980s film Trading Places
Trading Places
Trading Places is a 1983 American comedy film, of the satire genre, directed by John Landis, starring Dan Aykroyd and Eddie Murphy. It tells the story of an upper class commodities broker and a homeless street hustler whose lives cross paths when they are unknowingly made part of an elaborate bet...
used NYMEX as a setting, with actual NYMEX people as extras. The pits became a place where many people without much education or ability to fit in to Wall Street could have a chance at being rich. Many traders and executives became millionaires. They threw lavish parties and went on exotic vacations. Many of these people also became heavily involved in drugs and prostitution, with drugs being traded right on the floor of the exchange. Goodman's book tells the stories of many of the personalities that built the exchange in this era.
COMEX (Commodity Exchange, Inc), one of the exchanges that shared 4 World Trade Center with NYMEX, had traditionally looked down on NYMEX for being smaller and for having the toxic reputation from the potato bust. With NYMEX's energy trading boom, it became much larger and wealtheir than COMEX. On August 3, 1994, the NYMEX and COMEX finally merged under the NYMEX name. By the late 1990s, there were more people working on the NYMEX floor than there was space for them. In 1997, the NYMEX moved to a new building on the Southwestern portion of Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
, part of a complex called the World Financial Center
World Financial Center
The World Financial Center is a complex of buildings across West Street from the World Trade Center site in Lower Manhattan in New York City, overlooking the Hudson River. This complex is home to offices of companies including Merrill Lynch, RBC Capital Markets, Nomura Group, the Wall Street...
.CME websiteCME website press releasehttp://www.nymexbuilding.com/http://info.goldavenue.com/Info_site/in_mark/in_ma_ny_c.htm
9/11
NYMEX maintained a close relationship with many organizations and people at World Trade Center, and several NYMEX people were lost in the tragedy, even though the NYMEX building itself was mostly undamaged. Despite the devastation, the exchange's management and staff had the exchange back up and running in very short order.Goodman After the attacks, the NYMEX built a $12 million trading floor backup facility outside of New York City with 700 traders' booths, 2,000 telephoneTelephone
The telephone , colloquially referred to as a phone, is a telecommunications device that transmits and receives sounds, usually the human voice. Telephones are a point-to-point communication system whose most basic function is to allow two people separated by large distances to talk to each other...
s, and a backup computer system. This backup was in case of another terrorist attack or natural disaster
Natural disaster
A natural disaster is the effect of a natural hazard . It leads to financial, environmental or human losses...
in Lower Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
.NYCP website
On February 26, 2003, the New York Board of Trade
New York Board of Trade
The New York Board of Trade , renamed ICE Futures US in September of 2007, is a wholly owned subsidiary of IntercontinentalExchange . It is a physical commodity futures exchange located in New York City. It originated in 1870 as the New York Cotton Exchange...
(NYBOT) signed a lease agreement with the NYMEX to move into its World Financial Center headquarters and trading facility after the NYBOT's original headquarters and trading floor was destroyed in the September 11, 2001 terrorist attacks
September 11, 2001 attacks
The September 11 attacks The September 11 attacks The September 11 attacks (also referred to as September 11, September 11th or 9/119/11 is pronounced "nine eleven". The slash is not part of the pronunciation...
on the World Trade Center
World Trade Center
The original World Trade Center was a complex with seven buildings featuring landmark twin towers in Lower Manhattan, New York City, United States. The complex opened on April 4, 1973, and was destroyed in 2001 during the September 11 attacks. The site is currently being rebuilt with five new...
.NYBOT press release
Electronic trading
NYMEX held a virtual monopoly on 'open market' oil futures trading (as opposed to the dark marketOver-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....
or 'over the counter' market). However in the early 2000s the electronically based exchanges started taking away the business of the open outcry
Open outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
markets like NYMEX. Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
's online energy trading system was part of this trend. Jeff Sprecher's IntercontinentalExchange
IntercontinentalExchange
IntercontinentalExchange, Inc., known as ICE, is an American financial company that operates Internet-based marketplaces which trade futures and over-the-counter energy and commodity contracts as well as derivative financial products...
, or ICE, was another example. ICE eventually began trading oil contracts
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
that were extremely similar to NYMEX's, taking away market share almost immediately.
The open outcry NYMEX pit traders had always been against electronic trading because it threatened their income and their lifestyle. The executives at NYMEX felt that electronic trading was the only way to keep the exchange competitive. NYMEX teamed up with the Chicago Mercantile Exchange to use Globex in 2006. The trading pits emptied out as many traders quit. Banks, hedge funds, and huge oil companies stopped making telephone calls to the pits and started trading directly for themselves over screens.
- "Commodity Exchange" redirects here. For other uses, see Commodity exchange (disambiguation); "COMEX" redirects here. For other uses, see Comex (disambiguation)
The New York Mercantile Exchange (NYMEX) is the world
World
World is a common name for the whole of human civilization, specifically human experience, history, or the human condition in general, worldwide, i.e. anywhere on Earth....
's largest physical commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
futures exchange
Futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
. It is located at One North End Avenue in the World Financial Center
World Financial Center
The World Financial Center is a complex of buildings across West Street from the World Trade Center site in Lower Manhattan in New York City, overlooking the Hudson River. This complex is home to offices of companies including Merrill Lynch, RBC Capital Markets, Nomura Group, the Wall Street...
in the Battery Park City section of Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
, New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
. Additional offices are located in Boston
Boston
Boston is the capital of and largest city in Massachusetts, and is one of the oldest cities in the United States. The largest city in New England, Boston is regarded as the unofficial "Capital of New England" for its economic and cultural impact on the entire New England region. The city proper had...
, Washington, D.C.
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
, Atlanta, San Francisco, Dubai
Dubai
Dubai is a city and emirate in the United Arab Emirates . The emirate is located south of the Persian Gulf on the Arabian Peninsula and has the largest population with the second-largest land territory by area of all the emirates, after Abu Dhabi...
, London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, and Tokyo
Tokyo
, ; officially , is one of the 47 prefectures of Japan. Tokyo is the capital of Japan, the center of the Greater Tokyo Area, and the largest metropolitan area of Japan. It is the seat of the Japanese government and the Imperial Palace, and the home of the Japanese Imperial Family...
.
The company's two principal divisions are the New York Mercantile Exchange and Commodity Exchange, Inc (COMEX), once separately owned exchanges. NYMEX Holdings, Inc., the former parent company of the New York Mercantile Exchange and COMEX, became listed on the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
on November 17, 2006, under the ticker symbol NMX. On March 17, 2008, Chicago based CME Group
CME Group
The CME Group bases prices for US gasoline on Brent Crude rather than West Texas Intermediate Crude , which many believe is responsible for artificially high gas prices for US consumers...
signed a definitive agreement to acquire NYMEX Holdings, Inc. for $11.2 billion in cash and stock and the takeover was completed in August 2008. Both NYMEX and COMEX now operate as designated contract markets (DCM) of the CME Group.http://www.cmegroup.com The other two designated contract markets in the CME Group are the Chicago Mercantile Exchange
Chicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
and the Chicago Board of Trade
Chicago Board of Trade
The Chicago Board of Trade , established in 1848, is the world's oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading. Volumes at the exchange in 2003 were a record breaking 454 million...
.
The New York Mercantile Exchange handles billions of dollars worth of energy products
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
, metals, and other commodities being bought
Buy
Buy may refer to:*Trade, exchange of goods and services*BUY , Burlington, North Carolina*Buy.com, a shopping website*Buy , a 1979 album by James White and the Contortions...
and sold
Sell
Sell can refer to:*A verb relating to sales*Sell *One of several people named Edward Sell *Mary Elizabeth Sell, New York City Ballet dancer*Friedrich L...
on the trading floor and the overnight electronic trading
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
computer systems
Computer
A computer is a programmable machine designed to sequentially and automatically carry out a sequence of arithmetic or logical operations. The particular sequence of operations can be changed readily, allowing the computer to solve more than one kind of problem...
for future delivery. The prices quoted for transactions
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
on the exchange are the basis for prices that people pay for various commodities throughout the world
World
World is a common name for the whole of human civilization, specifically human experience, history, or the human condition in general, worldwide, i.e. anywhere on Earth....
.
The floor of the NYMEX is regulated by the Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
, an independent agency of the United States government. Each individual company that trades on the exchange must send its own independent brokers. Therefore, a few employees on the floor of the exchange represent a big corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
and the exchange employees only record the transactions and have nothing to do with the actual trade.
Although mostly electronic since 2006, the NYMEX maintains a small venue that still practices the open outcry
Open outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
trading system, in which traders employ shouting and complex hand gestures on the physical trading floor. A project to preserve the hand signals used at NYMEX has been published.
Early history
Commodity exchanges began in the middle of the 19th century, when businessmen began organizing market forums to make buying and selling of commodities easier. These marketplaces provided a place for buyers and sellers to set the quality, standards, and establish rules of business. By the late 19th century about 1,600 marketplaces had sprung up at portPort
A port is a location on a coast or shore containing one or more harbors where ships can dock and transfer people or cargo to or from land....
s and railroad stations
Train station
A train station, also called a railroad station or railway station and often shortened to just station,"Station" is commonly understood to mean "train station" unless otherwise qualified. This is evident from dictionary entries e.g...
. In 1872, a group of Manhattan dairy
Dairy
A dairy is a business enterprise established for the harvesting of animal milk—mostly from cows or goats, but also from buffalo, sheep, horses or camels —for human consumption. A dairy is typically located on a dedicated dairy farm or section of a multi-purpose farm that is concerned...
merchants got together and created the Butter
Butter
Butter is a dairy product made by churning fresh or fermented cream or milk. It is generally used as a spread and a condiment, as well as in cooking applications, such as baking, sauce making, and pan frying...
and Cheese
Cheese
Cheese is a generic term for a diverse group of milk-based food products. Cheese is produced throughout the world in wide-ranging flavors, textures, and forms....
Exchange of New York. Soon, egg
Egg (food)
Eggs are laid by females of many different species, including birds, reptiles, amphibians, and fish, and have probably been eaten by mankind for millennia. Bird and reptile eggs consist of a protective eggshell, albumen , and vitellus , contained within various thin membranes...
trade became part of the business conducted on the exchange and the name was modified to the Butter, Cheese, and Egg Exchange. In 1882, the name finally changed to the New York Mercantile Exchange when opening trade to dried fruit
Fruit
In broad terms, a fruit is a structure of a plant that contains its seeds.The term has different meanings dependent on context. In non-technical usage, such as food preparation, fruit normally means the fleshy seed-associated structures of certain plants that are sweet and edible in the raw state,...
s, canned goods, and poultry
Poultry
Poultry are domesticated birds kept by humans for the purpose of producing eggs, meat, and/or feathers. These most typically are members of the superorder Galloanserae , especially the order Galliformes and the family Anatidae , commonly known as "waterfowl"...
.
As centralized warehouses were built into principal market centers such as New York and Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
in the early 20th century, exchanges in smaller cities began to disappear giving more business to the exchanges such as the NYMEX in bigger cities. In 1933, the COMEX was established through the merger of four smaller exchanges; the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange. In the 1970s, COMEX, NYMEX, and other exchanges shared a single trading floorGoodman in 4 World Trade Center.
Potatoes
For years, the NYMEX traders had done a large business trading futures of the Maine PotatoPotato
The potato is a starchy, tuberous crop from the perennial Solanum tuberosum of the Solanaceae family . The word potato may refer to the plant itself as well as the edible tuber. In the region of the Andes, there are some other closely related cultivated potato species...
crop. According to Leah McGrath Goodman's 2011 book The Asylum, manipulation in this market was commonplace, performed by various parties including potato inspectors and NYMEX traders. The worst incident was the 1970s potato bust, when Idaho potato magnate J. R. Simplot
J. R. Simplot
John Richard Simplot was the founder of the J. R. Simplot Company, an agricultural supplier specializing in potato products, based in Boise, Idaho. In 2007 he was estimated to be the 89th-richest person in America, at $3.6 billion...
allegedly went short in huge numbers, leaving a large amount of contracts unsettled at the expiration date, resulting in a large number of defaulted delivery contracts. A public outcry followed, and the newly created Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
held hearings. NYMEX was barred from trading not only potatoes futures, but from entering new areas it hadn't traded in before. NYMEX's reputation was severely damaged, because, as future chairman Michel Marks told Goodman in her book, "The essence of an exchange is the sanctity of it's contract". Goodman, p 51
Oil
After the potato ban, NYMEX's existence was in doubt. Most of the trading volume had been in potatoes. Without a good commodity, the traders had trouble making money. Eventually the new chairman, Michel Marks (son of commodities icon Francis Q Marks), along with economist Arnold Safer, figured out that NYMEX could revamp an old heating oilHeating oil
Heating oil, or oil heat, is a low viscosity, flammable liquid petroleum product used as a fuel for furnaces or boilers in buildings. Home heating oil is often abbreviated as HHO...
futures contract. When the government deregulated heating oil, the contract had a chance of becoming a good object of trade on the floor. A new futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
was carefully drawn up and trading began on a tiny scale in 1978. Some of the first users of NYMEX heating oil deliveries were small scale suppliers of people in the Northern United States. Goodman, p 68-69
NYMEX's business threatened some entrenched interests like big oil and government groups like Opec that had traditionally controlled oil prices. NYMEX provided an 'open market' and thus transparent pricing for heating oil, and, eventually, crude oil, gasoline, and natural gas. NYMEX's oil futures contracts were standardized for the delivery of West Texas Intermediate
West Texas Intermediate
West Texas Intermediate , also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. It is a light and sweet crude oil...
light, sweet crude oil to Cushing, Oklahoma
Cushing, Oklahoma
Cushing is a city in Payne County, Oklahoma, United States. The population was 8,371 at the 2000 census.The city was established after the Land Run of 1891 by Billy Rae Little. It was named for Marshall Cushing, private secretary to U.S. Postmaster General John Wanamaker...
.Goodman, p 68, 69, 91
Growth
The energy trading business took off, and NYMEX boomed. The open outcryOpen outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
floor became a cacophony of shouting traders and pit cards. The 1980s film Trading Places
Trading Places
Trading Places is a 1983 American comedy film, of the satire genre, directed by John Landis, starring Dan Aykroyd and Eddie Murphy. It tells the story of an upper class commodities broker and a homeless street hustler whose lives cross paths when they are unknowingly made part of an elaborate bet...
used NYMEX as a setting, with actual NYMEX people as extras. The pits became a place where many people without much education or ability to fit in to Wall Street could have a chance at being rich. Many traders and executives became millionaires. They threw lavish parties and went on exotic vacations. Many of these people also became heavily involved in drugs and prostitution, with drugs being traded right on the floor of the exchange. Goodman's book tells the stories of many of the personalities that built the exchange in this era.
COMEX (Commodity Exchange, Inc), one of the exchanges that shared 4 World Trade Center with NYMEX, had traditionally looked down on NYMEX for being smaller and for having the toxic reputation from the potato bust. With NYMEX's energy trading boom, it became much larger and wealtheir than COMEX. On August 3, 1994, the NYMEX and COMEX finally merged under the NYMEX name. By the late 1990s, there were more people working on the NYMEX floor than there was space for them. In 1997, the NYMEX moved to a new building on the Southwestern portion of Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
, part of a complex called the World Financial Center
World Financial Center
The World Financial Center is a complex of buildings across West Street from the World Trade Center site in Lower Manhattan in New York City, overlooking the Hudson River. This complex is home to offices of companies including Merrill Lynch, RBC Capital Markets, Nomura Group, the Wall Street...
.CME websiteCME website press releasehttp://www.nymexbuilding.com/http://info.goldavenue.com/Info_site/in_mark/in_ma_ny_c.htm
9/11
NYMEX maintained a close relationship with many organizations and people at World Trade Center, and several NYMEX people were lost in the tragedy, even though the NYMEX building itself was mostly undamaged. Despite the devastation, the exchange's management and staff had the exchange back up and running in very short order.Goodman After the attacks, the NYMEX built a $12 million trading floor backup facility outside of New York City with 700 traders' booths, 2,000 telephoneTelephone
The telephone , colloquially referred to as a phone, is a telecommunications device that transmits and receives sounds, usually the human voice. Telephones are a point-to-point communication system whose most basic function is to allow two people separated by large distances to talk to each other...
s, and a backup computer system. This backup was in case of another terrorist attack or natural disaster
Natural disaster
A natural disaster is the effect of a natural hazard . It leads to financial, environmental or human losses...
in Lower Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
.NYCP website
On February 26, 2003, the New York Board of Trade
New York Board of Trade
The New York Board of Trade , renamed ICE Futures US in September of 2007, is a wholly owned subsidiary of IntercontinentalExchange . It is a physical commodity futures exchange located in New York City. It originated in 1870 as the New York Cotton Exchange...
(NYBOT) signed a lease agreement with the NYMEX to move into its World Financial Center headquarters and trading facility after the NYBOT's original headquarters and trading floor was destroyed in the September 11, 2001 terrorist attacks
September 11, 2001 attacks
The September 11 attacks The September 11 attacks The September 11 attacks (also referred to as September 11, September 11th or 9/119/11 is pronounced "nine eleven". The slash is not part of the pronunciation...
on the World Trade Center
World Trade Center
The original World Trade Center was a complex with seven buildings featuring landmark twin towers in Lower Manhattan, New York City, United States. The complex opened on April 4, 1973, and was destroyed in 2001 during the September 11 attacks. The site is currently being rebuilt with five new...
.NYBOT press release
Electronic trading
NYMEX held a virtual monopoly on 'open market' oil futures trading (as opposed to the dark marketOver-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....
or 'over the counter' market). However in the early 2000s the electronically based exchanges started taking away the business of the open outcry
Open outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
markets like NYMEX. Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
's online energy trading system was part of this trend. Jeff Sprecher's IntercontinentalExchange
IntercontinentalExchange
IntercontinentalExchange, Inc., known as ICE, is an American financial company that operates Internet-based marketplaces which trade futures and over-the-counter energy and commodity contracts as well as derivative financial products...
, or ICE, was another example. ICE eventually began trading oil contracts
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
that were extremely similar to NYMEX's, taking away market share almost immediately.
The open outcry NYMEX pit traders had always been against electronic trading because it threatened their income and their lifestyle. The executives at NYMEX felt that electronic trading was the only way to keep the exchange competitive. NYMEX teamed up with the Chicago Mercantile Exchange to use Globex in 2006. The trading pits emptied out as many traders quit. Banks, hedge funds, and huge oil companies stopped making telephone calls to the pits and started trading directly for themselves over screens. Goodman
Sell off
The final executive management of NYMEX decided to sell it off in pieces, take golden parachuteGolden parachute
A golden parachute is an agreement between a company and an employee specifying that the employee will receive certain significant benefits if employment is terminated. Sometimes, certain conditions, typically a change in company ownership, must be met, but often the cause of termination is...
buyouts, and leave. In 2006 NYMEX underwent an Initial Public Offering
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
(IPO) and was listed on the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
. The executives and exchange members owning seats on the exchange saw their net worth increase by millions of dollars in a few hours - many of the pit traders, who leased their seats instead of owning, did not. Goodman, p 318-321. Other parts of NYMEX were sold to private equity
Private equity
Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....
investors and the Chicago Mercantile Exchange
Chicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
. The CME got ownership of the physical facilities and began scrubbing the NYMEX logo and name off of various artefacts and closed the NYMEX museum. NYMEX eventually became little more than a brand name used by CME.Goodman By 2011, NYMEX open outcry
Open outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
trading was relegated for the most part to a small number of people trading options
Option (finance)
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...
. Floor loses it's voice to electronics, Gregory Meyer, Financial Times, May 31 2011
Gold delivery problems
As of 2009, holders of COMEX goldGold as an investment
Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a hedge or harbor against economic, political, or social fiat currency crises...
futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
s have experienced problems taking delivery of their metal. Along with chronic delivery delays, some investors have received delivery of bars not matching their contract in serial number and weight. The delays cannot be easily explained by slow warehouse movements, as the daily reports of these movements show little activity. Because of these problems, there are concerns that COMEX may not have the gold inventory to back its existing warehouse receipts.
As a result of the CFTC's March 2010 Metals Hearings, position limits will likely be imposed on COMEX Precious Metals Futures Contracts, according to CFTC Commissioner Bart Chilton, in order to avoid continued charges of unfair concentration and manipulation.
Commodities traded
NYMEX DivisionList of Commodity Delivery Dates on Wikinvest- CoalCoalCoal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
- Crude oil
- ElectricityElectricityElectricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...
- GasolineGasolineGasoline , or petrol , is a toxic, translucent, petroleum-derived liquid that is primarily used as a fuel in internal combustion engines. It consists mostly of organic compounds obtained by the fractional distillation of petroleum, enhanced with a variety of additives. Some gasolines also contain...
- Heating oilHeating oilHeating oil, or oil heat, is a low viscosity, flammable liquid petroleum product used as a fuel for furnaces or boilers in buildings. Home heating oil is often abbreviated as HHO...
- Natural gasNatural gasNatural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
- PalladiumPalladiumPalladium is a chemical element with the chemical symbol Pd and an atomic number of 46. It is a rare and lustrous silvery-white metal discovered in 1803 by William Hyde Wollaston. He named it after the asteroid Pallas, which was itself named after the epithet of the Greek goddess Athena, acquired...
- PlatinumPlatinumPlatinum is a chemical element with the chemical symbol Pt and an atomic number of 78. Its name is derived from the Spanish term platina del Pinto, which is literally translated into "little silver of the Pinto River." It is a dense, malleable, ductile, precious, gray-white transition metal...
- PropanePropanePropane is a three-carbon alkane with the molecular formula , normally a gas, but compressible to a transportable liquid. A by-product of natural gas processing and petroleum refining, it is commonly used as a fuel for engines, oxy-gas torches, barbecues, portable stoves, and residential central...
- UraniumUraniumUranium is a silvery-white metallic chemical element in the actinide series of the periodic table, with atomic number 92. It is assigned the chemical symbol U. A uranium atom has 92 protons and 92 electrons, of which 6 are valence electrons...
COMEX Division
- AluminumAluminiumAluminium or aluminum is a silvery white member of the boron group of chemical elements. It has the symbol Al, and its atomic number is 13. It is not soluble in water under normal circumstances....
- CopperCopperCopper is a chemical element with the symbol Cu and atomic number 29. It is a ductile metal with very high thermal and electrical conductivity. Pure copper is soft and malleable; an exposed surface has a reddish-orange tarnish...
- GoldGoldGold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
- SilverSilverSilver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
See also
- Commodity Exchange ActCommodity Exchange ActCommodity Exchange Act is a federal act passed in 1936 by the U.S. Government ....
- Energy lawEnergy lawEnergy laws govern the use and taxation of energy, both renewable and non-renewable. These laws are the primary authorities related to energy...
- New York Cotton ExchangeNew York Cotton ExchangeThe New York Cotton Exchange was a commodities exchange founded in 1870 by a group of one hundred cotton brokers and merchants at 1 Hanover Square in New York City.- History :...
External links
- New York Mercantile Exchange official website
- COMEX website
- TradingPitHistory.com A website to preserve the hand signal language of open outcry trading