The New York Mercantile Exchange (NYMEX) has approved a strategy to overhaul its information technology division and is drawing closer to implementing a plan to demutualize. Simultaneously, the NYMEX is spinning off its electricity unit into an all-electronic, wholly owned subsidiary.
Harley Lippman-a public director at the NYMEX and chief executive
officer of software development and technology consulting firm Genesis 10-says the exchange's board agreed to "shake up" NYMEX's technology department after seeing the results of an IT study performed by a consultant. "We did an IT evaluation of the NYMEX ... and there is a need for major changes and improvements," says Lippman. "But I believe NYMEX chairman Dan Rappaport has the vision ... to do what it takes to make sure NYMEX gets into the 21st century with the technology that's needed to give them a competitive advantage."
Lippman declines to specify which systems will be overhauled and refuses to say whether there will be major IT staff changes. That said, while the IT upgrade is a key issue, it is far from the only important item on the board's agenda.
A source familiar with the NYMEX says the exchange's board has "conceptually approved" a migration to a for-profit model. The source says the board has already received a preliminary report on the benefits of demutualization from Salomon Smith Barney, and expects to officially vote on a for-profit conversion no later than next March.
Reading from the study SSB crafted for the NYMEX, the source says that, among other things, SSB concluded that demutualization would "unlock the equity value of the exchange and provide members with greater financial flexibility; provide NYMEX with an acquisition currency; and better align NYMEX's interests with the economic interests of key market participants."
Noting that NYMEX seatholders share "similar concerns" to Chicago Mercantile Exchange members, the source says that-like the Merc-the NYMEX plans to incorporate some open outcry protections in its for-profit proposal. However, the source says that regardless of whatever open outcry promises the exchange makes, a NYMEX shift to an all-electronic environment is inevitable.
For electricity futures and options contracts, at least, the NYMEX has already concluded that screen-based trading is the only way to go. Last week, the exchange announced its intention to list all of its electricity contracts full-time on its Access electronic trading platform. As part of that decision, the exchange said it would create a wholly owned, for-profit subsidiary dedicated exclusively to electricity trading.