Nymex goes public — bigtime

Lisa Napoli Nov 17, 2006

KAI RYSSDAL: The New York Mercantile Exchange is, in fact, the world’s biggest energy market. Today it managed to pull of the year’s biggest initial public offering. Marketplace’s Amy Scott has more from New York.

AMY SCOTT: Six months ago few would have believed Nymex could pull off an IPO like this. The exchange still traded its energy futures contracts the old fashioned way, with brokers screaming at each other in crowded pits. And the electronic Intercontinental Exchange was starting to siphon off its business.

But then Nymex teamed up with the Chicago Mercantile Exchange to offer its customers both electronic and floor-based trading. George Orwel with Energy Intelligence says that’s when Nymex’s fortunes turned around.

GEORGE ORWEL: That was a tipping point, because people began to realize that Nymex was very serious with regard to transforming its own business. And not being backward-looking the way they used to be.

Still, few expected the company’s shares to more than double today. Analysts credit a boom in the Exchange business overall. Orwel says public ownership could push Nymex even further into the future. Because electronic trading is so much cheaper, he says profit-driven shareholders may push Nymex to close the physical trading floor — though the seat holders would have to approve that. University of Houston finance professor Craig Pirrong says ultimately the customers will decide.

CRAIG PIRRONG: There’ll come a point if volume bleeds over substantially and the floor does less and less business that they’ll come to that fork in the road but they’re not there yet.

They may be close. Last quarter for the first time, Nymex made more money from electronic trading than it did from the floor.

In New York, I’m Amy Scott for Marketplace.

RYSSDAL: Raise your hand if you got left out of that Nymex IPO today. Yeah, that’s most of us. But anyone who did get in early made out. The private equity firm General Atlantic bought 10 percent of Nymex earlier this year for $160 million. As of the close today those shares are worth more than a billion.

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