Nymex dealing

SHALL WE DANCE?

Timing is everything, and as Futures heads to press, one date stands out: March 15. which is the last jay of the annual International Futures Industry Conference in Boca Raton, Fla., and also the last day of the extended exclusive negotiation period for the acquisition of Nymex Holdings Inc. by CME Group Inc.

Last year, the Intercontinental Exchange Inc. (ICE) stole the show when it placed a higher bid for CBOT, temporarily derailing the Chicago Mercantile Exchange's definitive agreement with the CBOT. This year, the question is whether the CME Group will announce the Nymex agreement, or will the deal told in front of an audience.

Based on the technical integration issues, the deal was seemingly a slam dunk. But the Department of Justice (DoJ), which would need to review and authorize a CME Group/Nymex merger from an anti-trust standpoint, may not rubberstamp the deal, as became clear in a comment letter it submitted to the Treasury Department, when Treasury requested comments on U.S. market regulatory structure. In that letter, the DoJ blasted integrated execution and clearing, citing it as a barrier to entry for financial futures. And that was before the CME and Nymex failed to come to agreement during their initial exclusive 30-day negotiation period, and before a group of Nymex members raised the issue of an existing Nymex bylaw entitling members to 10% of revenues generated by contracts that trade 90% electronically.

Then Nymex and LCH.Clearnet Ltd signed a "Heads of Terms," a non-binding agreement, to launch new global energy products. According to Nymex, it would offer OTC and futures contracts, including WTI. Brent, gasoil, natural gas and electricity. They would trade on CME Globex and clear on LCH.Cleamet. Nymex says the agreement would "improve capital and operational efficiencies through wider execution capabilities, broader credit intermediation and margining benefits tor customers and market participants."

By Chris McMahon

Copyright Futures Magazine Group Apr 2008
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