What Is the New York Mercantile Exchange?

The New York Mercantile Exchange (NYMEX) is the world's largest physical commodity futures exchange. Today, NYMEX is part of the Chicago Mercantile Exchange Group (CME Group). The CME Group is the world’s leading and most diverse derivatives marketplace, made up of four exchanges, CME, Chicago Board of Trade (CBOT), NYMEX, and Commodity Exchange, Inc. (COMEX). Each exchange offers a wide range of global benchmarks across major asset classes. CME Group acquired NYMEX in 2008, adding an expansive selection of energy products as well as metals and agricultural contracts to the existing product offering.

Understanding the New York Mercantile Exchange

An early version of NYMEX started in 1872 when a group of dairy merchants founded The Butter and Cheese Exchange of New York. In 1994, NYMEX merged with COMEX to become the largest physical commodity exchange at that time. By 2008, NYMEX was not able to commercially survive on its own in the wake of the global financial crisis and merged with the CME Group of Chicago.

Futures and options on energy and precious metals have become great tools when companies try to manage risk by hedging their positions. The ease with which these instruments are traded is vital to hedging activities and gauging futures prices, making NYMEX a vital part of the trading and hedging worlds. Daily exchange volume of the CME Group is around 30 million contracts with NYMEX making up about 10% of that amount because of the physical commodities that are traded on that exchange. Much larger volumes are traded in interest rate futures, options, and forward contracts that trade on the Chicago Board of Trade (CBOT).

NYMEX is regulated by the Commodity Futures Trading Commission (CFTC), which is an independent agency of the United States government tasked with the promotion of competitive and efficient futures markets and the protection of investors against manipulation, abusive trade practices, and fraud.

Limitations of the NYMEX

The NYMEX is an open-outcry trading platform, where human traders meet to haggle and agree on a market price for a commodity. Given that stock and commodity trading predates the invention of the telegraph, telephone, or computer by hundreds of years, it is fairly obvious that face-to-face human trading was the standard way of doing business for a long time. Today, open-outcry trading is on the decline, and NYMEX has increasingly introduced electronic trading systems since 2006. Given the cost benefits of the electronic systems and clients' preference for them, a very large percentage of the world's exchanges have already converted to this method. At this point, the United States is more or less alone in maintaining open-outcry exchanges.