The New York Mercantile Exchange looks set to become the next beneficiary of strong investor demand for financial exchanges after shareholders approved the
purchase by General Atlantic, the US private equity group, of 10 per cent of Nymex for up to $170m.
Although the transaction values Nymex at $1.7bn, the market value is expected to be far higher by the time Nymex, the world’s largest energy futures exchange and owner of Comex, the metals futures exchange, comes to its initial public offering, scheduled for the end of the year.
A better guide for the valuation of the exchange, which is 134 years old, is the sale price of its seats. Each of the 816 seats gives the owner equity in the exchange and exclusive rights to trade on the exchange floor, where the price of West Texas Intermediate, the world’s most closely watched oil benchmark, is set.
On Monday – the day that 93 per cent of Nymex shareholders who voted approved the General Atlantic deal – a seat was sold for a record $3.9m, surpassing the previous record of $3.8m set last Friday. This would value Nymex at almost $3.2bn, closer to its probable IPO valuation if current share prices for futures and stock exchanges are a guide.
Nymex’s seats represent the entire equity of the exchange. As of Tuesday, seat owners now view the value of their seats split between the equity and the trading component.
Bill Ford, GA president, said the size of the vote gave a clear mandate for change. “We see a lot of potential for Nymex, with the introduction of side by side electronic trading and new product innovation,” he said. The Intercontinental Exchange (ICE), Nymex’s smaller but faster growing competitor, is valued at more than $4bn. Shares in ICE have risen more than 170 per cent since it listed in November, and is worth more than its older rival in spite of having about 40 per cent of the US and European energy futures market compared with Nymex’s 60 per cent.
Before Nymex lists, it has work to do. It has to shrink the size of its board from 25 to 15 members, one of the conditions for the GA deal.
The exchange’s membership subcommittee meets on Wednesday to accept recommendations for the new board ahead of a vote in May on the board changes.
Nymex has received more than 50 board nominations, including applications from Michel Marks and Danny Rappaport, former chairmen. At present, the board is dominated by traders and has no independent directors, leading to accusations that it has been managed as a private members’ club.
Mr Ford will join the Nymex board, while the private equity group’s say in the boardroom is expected to be aided by Richard Schaeffer, Nymex vice-chairman, who is expected to oust Mitchell Steinhause as the chairman in the May vote. Mr Schaeffer brought the GA deal to the Nymex board last year.
Potential investors in Nymex will be looking for the exchange to provide more clarity on its plans to implement electronic trading side by side with pit trading. The average daily turnover of ICE energy futures has doubled since it switched to a fully electronic exchange last April.
Mr Ford said Nymex was likely to copy the Chicago Mercantile Exchange, where the floor and electronic trading co-exist.
One Nymex shareholder said Nymex had the technology to handle more electronically generated trades but lacked the distribution of its terminals to customers. He said that left the prospect open for Nymex to partner another exchange such as Eurex or Euronext.Liffe where Nymex futures contracts could be traded on the systems of other exchanges.
Get alerts on Commodities when a new story is published