Exchanges Merge to Aid Competitive Edge

THE merger of the two largest futures exchanges for oil and gold aims at helping the United States maintain its competitive position against overseas futures markets.

This week the New York Mercantile Exchange (Nymex), the world's largest market for oil and gas futures, and the New York Commodity Exchange (Comex), the leading market for gold and precious metals futures, finally agreed to merge their trading operations. The merger will save millions of dollars by combining computer and clerical operations, and enable the New York exchanges to compete more efficiently in domestic and global markets.

``The move ... improves the financial position of both exchanges,'' says William O'Neill, chief futures strategist at Merrill Lynch & Company.

Case in point: Nymex announced that following the merger it plans to add Comex metals trades to its after hours electronic trading system, called Nymex Access. The system currently operates between 5 p.m. and 8 a.m. Adding Comex trades is a potentially profitable step for both exchanges, Mr. O'Neill says.

O'Neill says the Nymex-Comex merger helps prepare the way for an eventual consolidation of all four New York futures exchanges. In addition to Nymex and Comex, there is the New York Cotton Exchange and the Coffee, Sugar & Cocoa Exchange. Late last year the Cotton Exchange acquired the smaller New York Futures Exchange; NYFE, however, has continued to use its own name for its trading operations.

The Nymex/Comex merger is ``highly significant'' for US futures markets, says Hans Stoll, director of the Financial Markets Research Center at Vanderbilt University in Nashville. ``The US still has the largest futures exchanges; but growth in trading volume within the US is climbing very slowly, whereas it is increasing substantially abroad.''

One half of the volume of all futures contracts are now written outside the United States, Mr. Stoll says. Just five years ago ``roughly 75 percent of all volume'' occurred in the US, he adds.

Futures contracts are contracts for the sale and delivery of a specified amount of a particular commodity, but not immediately. The contracts are traded on exchanges. In addition to New York, major US futures exchanges are located in Chicago, Minneapolis, and Kansas City, Mo.

In the past decade, Nymex and Comex have reversed positions in terms of market clout, Stoll says. Ten years ago, Comex ``was considered the larger exchange.'' Now, given the growing importance of oil in international trade and the reduced role of gold, Nymex has become the dominant market. Indeed, opposition to the merger was greatest within Comex.

Under terms of the merger, Nymex will pay Comex some $66 million, part now, the rest spread out over four years. Comex, which will retain its own name, will become a division of Nymex.

The merger must win approval of the Commodity Futures Trading Commission, a federal agency. But that approval, which will probably take about six months, should be forthcoming, O'Neill says.