- Patrick Young
- CME-Nymex: Good Deal?
- online.wsj.com
Summary
CME deal value is related not just to exchange growth but also the state of commodity prices. Nevertheless, CME is best placed to acquire CME for approximately 40 key reasons
Analysis
CME has made a fairly aggressive move in attempting to acquire NYMEX and indeed Jeff Carter is absolutely correct: CME had a window to compete a couple of years back.
The cost given the current high oil price may be an issue. If commodity prices prove less frothy in the future, volume will likely tail off a bit too.
NYMEX has made great strides in many parts of its business but the core floor remains and it remains a liability. Sooner or later CME needs to really rationalise its existing floor businesses (let alone a new one) – at which stage it will become an even more incredible payment processor than it is today.
There are 40 simple reasons why CME is ideally poised to buy NYMEX now and that is the 40 remaining months for the current NYMEX electronic trading contract using CME GLOBEX. Buying CBOT when the clearing agreement was close to expiry allowed ICE to enter the bidding war. This time it’s tricky for a competitor to enter the market.
Moreover, acquiring NYMEX means CME owns the other main global US-based clearing network for derivatives. NYMEX Clearport added to the CME’s own clearing offerings is a great global concept for all manner of products.
However, the challenges going forward will hinge on not just the extant floor and commodity prices but also just how much ongoing leverage the US marketplace has in defining commodity prices.
The commodity marketplace is expanding in sync with growing markets world-wide and NYMEX has made many attempts to create new ventures in the rest of the world. This has interesting implications for the company if the merger can be effected. However, there is also always the possibility that maybe, just maybe, more and more er, “liquidity” in 5 or perhaps 10 years time in oil and gas for instance may be made in contracts closer to just where the oil is being produced, or used… NYMEX needs to make sure it can succeed with its strategy to create benchmark beyond light sweet crude oil for instance.
CME/NYMEX is a very interesting deal with great potential…of course that won’t preclude a lot of third party debate about the price being paid!
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