Nymex in sale talks

Following months of speculation, the New York Mercantile Exchange (Nymex) confirmed last month it had been in "preliminary" talks with "certain parties" to be purchased, a move that will make seat-holders millionaires, observers say.

Nymex shares surged $5.86 to $125.72 in early trading the day after the announcement. The exchange noted that a potential "combination" with another party could result in cost savings of up to $250 million as well as "potential revenue synergies from better distribution in Europe".

The exchange also confirmed recent speculation that it had been in talks to sell its headquarters, while adding that further savings could be made by cutting up to 150 staff and "excess trading floor capacity".

Nymex did not disclose who the potential suitor might be, although contenders include the CME Group - the parent of the Chicago Mercantile Exchange - and Deutsche Börse.

Yet there is growing consensus that the New York Stock Exchange (NYSE) Euronext exchange will emerge as a favourite. NYSE Group's purchase of Paris-based Euronext created the first transatlantic equity market and boosted NYSE's reach into trading futures contracts in Europe for commodities and interest rates through its London-based Liffe market. NYSE director John Thain has made no secret of wanting to expand the exchange's derivatives business, while Nymex boasts its own clearing house, guaranteeing all the trades made on the exchange.

"It's a natural move for NYSE Euronext, which has the necessary capital to make this happen," said a source close to Nymex. "Given the culture at Nymex, a combination with NYSE would make a great fit compared with some of the other alternatives."

This is despite the fact that in the event of a combination with NYSE, Nymex would be involved in a potentially messy extrication from the CME's digital Globex platform, which carries electronic versions of key Nymex contracts. "It would be messy," noted the source. "But a Nymex combination with the CME could create various anti-trust issues, so it's messy either way."

Observers say the chances of an agreement being reached within the next 18 months are high, meaning that a bidding war is likely that could potentially eclipse that recently seen between IntercontinentalExchange (ICE) and the CME for the Chicago Board of Trade (Cbot). Nymex stock and seat-holders are likely to become millionaires in the process.

"The prices exchanges are generating are crazy," noted another well-placed source. "Once this era of cheap money is over and higher volume trading becomes history, these prices will be fondly remembered by those insiders who cashed out," he said.

"Many argue that this era of high liquidity and low interest rates will continue for a long time, but everything comes to an end. If I were running an exchange I'd sell myself as quickly as I could," he added.