The news that the New York Board of Trade (Nybot) was going into a good faith purchase agreement with the Intercontinental Exchange (ICE) was yet another chapter in the strange and twisting relationships of this industry. What makes this relationship even stranger is Nybot is housed on the New York Mercantile Exchange (Nymex) floor, and Nymex is in a battle with ICE for its product leadership. ICE launched electronic energy contracts on Nymex’s flagship WTI crude oil contact earlier this year, which prompted Nymex to finally make the move to side-by-side-electronic trading. In that move, Nymex worked out an agreement with the Chicago Mercantile Exchange to trade its contracts on Globex. Meantime, Nybot, the exchange that trades coffee, cocoa, sugar, cotton, the U.S. Dollar Index and some other smaller contracts, had agreed to a deal with the Chicago Board of Trade (CBOT) a while ago to place its financials on the CBOT’s electronic system, which actually is the Liffe Connect system. Bringing it full circle: ICE is the parent of the former International Petroleum Exchange, which is housed in London.
The truth is this isn’t a done deal with ICE/Nybot, as Nybot membership still has to approve it. Further, who knows what action this will prompt from Nymex, as it and Nybot have been flirting with a merger for years. Nybot moving to the Nymex floor seemed to have been a step in the right direction toward a merger. But traders being traders, nothing is done until, well, it is cleared. Hell, the fact that the Comex, which is a part of Nymex, still isn’t fully merged into the energy exchange highlights the diversified interests thwarting a single New York front.
Nor are the U.S. exchanges alone in this regard, as we wrote last month on the continued wheeling and dealing in the purchase of the Euronext-Liffe exchange. What makes the Nybot/ICE merger stranger is Nybot’s proximity to Nymex. I asked one Nybot insider, if the ICE deal goes through, how Nymex could continue to allow them to stay there, as they would be a competitor. He noted that the people making the deal must have taken that into consideration, but bottom line: if it is a good enough deal, moving won’t be a big issue. But he added, who knows if this might prompt some kind of counter offer from Nymex, which actually has its hands full with Comex. And what does the CBOT think, having its software offering dumped for the ICE platform?
In many ways, these thrusts and parries mirror what is happening on the geopolitical scene, which has prompted even more volatility in the energy markets. In “Where are energy markets headed?” by analyst Dominick A. Chirichella, he outlines how all the woes and worries going on in and beyond the Middle East are contributing to energy’s volatility. The August/September dip in crude oil prices, despite some major upheavals, including British Petroleum’s pipeline problem in Alaska curbing supplies from the North Slope, the escalating Iraq war, sword rattling with Iran and threats from Venezuela’s President Hugo Chávez, it seems to be a short-term move. Demand is still high. Geopolitical events are still unstable at best. Alternative energy growth isn’t moving fast enough to be a major factor anytime soon in weaning us off petroleum. Chances are discord won’t end anytime soon. Expect energy prices to keep rising, turmoil to keep increasing and for exchanges to continue to be enterprising about price discovery, whether it’s on their products, or themselves.