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New York Mercantile Exchange 2003 Annual Report
Table of Contents
Letter from the Chairman and President
2
Door to Liquidity
6
Door to Opportunity
10
Door to Efficiency
12
Door to Innovation
16
Door to Security
20
Door to Distinction
24
Door to the Future
28
Board of Directors, Senior Staff, and
New York Mercantile Exchange Clearing Members
30
NYMEX Division Member Firms
31
COMEX Division Member Firms
32
Market Performance Charts
5, 9, 15, 19, 27, 31, and 32
Financial Information
Inside Back Cover
Welcome
The New York Mercantile Exchange, Inc., and NYMEX Holdings, Inc., made a grand
entrance into 2003, launching the NYMEX ClearPortsm trading and clearing
platform, reentering the power markets, and seeing metals activity cross
thresholds of unprecedented activity - all of which combined with day-to-day
market activity to build a portal to the Exchange's most successful year.
Exchange volume for the year reached a record of more than 139 million contracts
marking the 17th record in 22 years.
The door of irrevocable change opened for the energy markets this year. Our
arrival with a slate of futures contracts for basis and outright transactions in
natural gas, crude oil, refined products, and electricity, along with the
versatile NYMEX ClearPortsm trading and clearing platform, struck a chord with
an energy trading sector that was still picking up the pieces from the financial
devastation triggered by the Enron Corp. collapse two years ago. Participation
in the new slate of electronic, financially settled products is robust and
growing, showing that the market's flight to the liquidity, transparency, and
financial security of the Exchange is not over by a long shot. The NYMEX
ClearPortsm system enables buyers and sellers of energy to engage in competitive
trading or allows them to conduct their transactions off of the Exchange and
then submit them to the Exchange for clearing.
While the platform offers a reliable, secure method of clearing off-Exchange
trades electronically, the new product slate is tightly bound to the trading
floor because the settlements of the open outcry markets are used as a reference
to settle most of the electronic markets.
Open outcry trading remains the heart and soul of the Exchange's energy and
metals markets. New open outcry energy contracts were launched for electricity
futures and a suite of average price options contracts. Gasoline futures,
heating oil futures, and calendar spread options set records. The Exchange
metals complex saw levels of interest unparalleled in its history as total COMEX
Division futures and options contracts and COMEX Division futures surpassed
records that had stood for 16 years, and gold futures volume broke the record
that was set in 1982. Other COMEX Division records set in 2003 included total
COMEX Division options, copper futures, aluminum futures, and gold options.
NYMEX Division seat values reached a high of $1.625 million during the year,
setting five records along the way, and the price of a COMEX Division seat,
adjusted for the 1981 split, represented a record-high valuation.
The year also saw periods of extreme market volatility that resulted from the
preparations for war in Iraq along with a sudden deepening of winter weather
late in the 2002/2003 season, and again early in the 2003/2004 season. The extra
volume and the volatility were handled smoothly by both the clearing and
compliance departments, reaffirming the strength of the Exchange systems in
place as well as the excellent reliability and deep liquidity of this market
forum.
The stockholders and entire membership should be proud of an extremely
productive and successful year. Stockholders of record during 2003 received two
dividend distributions - the first time a distribution was made since the
demutualization of the Exchange - and a third dividend was announced at the end
of the year.
We were also pleased to welcome the New York Board of Trade (NYBOT) to its new
permanent home in the Exchange building. Since its trading floor and offices
were destroyed in the atrocity of September 11, 2001, NYBOT had been trading
from its back-up facility in Queens, New York. Consolidating the New York
futures exchanges in a single facility made sense in the 1970s when we all moved
to the World Trade Center, and the idea holds even greater potential for
efficiency today.
It is also appropriate at this point to pause and take a look back. Twenty-five
years ago, on November 14, 1978, a heating oil futures contract opened on the
Exchange's new trading floor at the World Trade Center. A grand total of 22
contracts had traded by the closing bell. Little did any of those pioneers dream
that contract would become the world's first successful energy futures contract
and that they had opened a door for the energy industry that over time would
reveal the way to some of the most profound developments in business strategy,
price risk management, and market analysis in any market.
This year, the Exchange unlocked achievements greater than anything envisioned
that day - record volume, new products and venues, streamlined systems, new
methods of concentrating risk management, and unprecedented financial security.
No better evidence could stand as a testament to the hard work and leadership of
the Exchange community and the hard-earned confidence of our customers and the
markets at large.
Vincent J. Viola J. Robert Collins, Jr.
Chairman of the Board President
Door to Liquidity
Entering the doors of the trading floors of the New York Mercantile Exchange,
Inc., in 2003, one could sense the intensity in the marketplace.
This was the most active year in Exchange history, with a total cleared volume
of 139,037,043 contracts breaking the record of 134,223,757 contracts cleared on
the Exchange in the previous year. It was an amazing performance which reflected
a vigorous expansion of the Exchange's product base as it built on the 30%
volume increase recorded during 2002.
Total volume included more than 6 million energy futures contracts cleared on
the NYMEX ClearPortsm technology platform, opening a door to liquidity for the
merchant energy sector as well as other segments of the energy market. The new
clearing venue broke the credit logjam that had all but brought activity to a
halt in merchant electricity and natural gas trading in the aftermath of the
Enron Corp. collapse.
The electronic platform gives market participants the opportunity to conduct
outright trades, or submit for clearing bilateral trades, in a slate of
financially settled futures contracts that replicate the core specifications of
popular over-the-counter (OTC) transactions.
Market participants can enter off-exchange transactions through NYMEX
ClearPortsm without having to worry about first vetting the credit ratings of
potential counterparties.
The steady growth of activity on the system demonstrates that issues of credit
ratings and counterparty credit risk continued to be a major concern throughout
the energy markets in 2003.
Metals activity shone in 2003 and several venerable trading records fell in the
onslaught of trading. COMEX Division futures and options volume increased 39% to
a total of 24.5 million contracts, surpassing the 16-year volume record of 21.5
million contracts set in 1987. COMEX Division futures volume was up 30% to 19.5
million contracts, breaking the record of 17.9 million contracts, also set in
1987, and COMEX Division options volume grew 96% to 4.9 million contracts,
surpassing the record of 3.7 million contracts set in 1999.
Gold futures, one of the most widely watched economic indicators in the world,
saw volume rise 36% to 12.2 million contracts, topping the record of 12.1
million contracts that had stood since 1982.
Metals trading records also included copper futures volume of 3.1 million
contracts, exceeding the 2001 record of 2.9 million contracts; aluminum futures
set a volume record of 107,490 contracts, breaking the record 74,000 contracts
traded in 2002; gold options volume of 4.3 million contracts shattered the 1999
record of 2.8 million contracts; and aluminum options volume set a record of
2,679 contracts, exceeding the previous record of 642 contracts set in 1999.
The liquidity of the energy complex was also strengthened by the reintroduction
of electricity futures to the trading floor with the launch of the monthly PJM
Interconnection electricity futures contract in April. Electronically traded
weekly and daily PJM contracts were introduced in June on NYMEX ClearPortsm.
The trio of PJM electricity contracts provides customers with unique
opportunities for managing market risk. The contracts represent the first time
that a physical commodity futures market has been divided into successively
smaller blocks of time and allows market participants to slice their risk into
ever finer increments.
The new electricity futures contracts hit a responsive chord with customers. The
PJM monthly electricity futures contract traded and cleared or cleared a total
of 141,623 contracts by the end of the year. Combined open interest in the PJM
contracts and the three New York Independent System Operator zone contracts that
were introduced in late 2002, and also trade on NYMEX ClearPortsm, totaled more
than 40,000 contracts at year-end, confirming the solid demand for standardized
and cleared electricity risk management instruments and the significant role
that open outcry trade execution can play in that market.
Average price options were also introduced on the floor for crude oil, heating
oil, and gasoline, offering an effective way to smooth market volatility.
Other Exchange-wide records included total futures volume of 113.6 million
contracts breaking the record of 107.8 million futures contracts set in 2002.
Total futures volume on NYMEX ACCESS(r) set a record of 5.9 million contracts,
breaking the previous record of 4.9 million contracts set in 2002.
Annual volume records were also set in several energy markets, including:
* Heating oil futures set a record of 11.6 million contracts, exceeding the
record of 10.7 million contracts set in 2002.
* Gasoline futures volume was a record 11.2 million contracts, breaking the
record of 10.9 million contracts for 2002.
* e-miNYsm energy futures trading was a record 392,913 contracts compared
to 278,209 contracts traded during 2002, the first year of trading in the new
contracts.
* Calendar spread energy options volume set a record of 185,630 contracts,
topping the 103,683 contracts traded in 2002, its first year of trading.
Seat values for the New York Mercantile Exchange continued to set records during
the year. Five records were broken for NYMEX Division seats, culminating in the
year high of $1.625 million in September.
A COMEX Division seat was sold on August 27 for $220,000, exceeding the previous
record of $200,000 set on Feb 13, 1984. The all time record of a seat on the
Commodity Exchange, Inc., was $350,000 on September 22, 1980. Since those seats
were split into two shortly afterward, on February 4, 1981, the August 2003 sale
marks a greater valuation.
The rising value of a COMEX Division seat is the acknowledgement by the
marketplace of the liquidity and opportunity that resides in this metals trading
forum, making it the world benchmark for precious metals, and the North American
pricing indicator for base metals.
January:
* Exchange hosts Copper Club Reception
* Children's Holiday Party at Toys 'R Us
* Launch of NYMEX ClearPortsm
* Exchange of futures for swaps transactions reach 1 million
February:
* Big Apple Circus features act depicting the Exchange
* Exchange of options for options program made permanent
Door to Opportunity
Technology was a key to opportunity for the Exchange, its members, and customers
this year, and the Exchange's capability in this area has come to be regarded as
a core competency and key asset.
The NYMEX ClearPortsm platform, launched in January, lies at the core of the
Exchange's systems plans.
The internet-based system played a central role in drawing business to the
Exchange that a little more than a year earlier belonged almost exclusively to
the over-the-counter (OTC) markets. The migration of business has had a
significant impact on Exchange performance; cleared volume for the year was
6,004,276 contracts.
The collapse of Enron Corp. just before the turn of 2002, and the implosion of
the merchant energy sector last year finally drove home to many OTC traders the
potentially deep pitfalls of counterparty credit risk and the importance of
cleared, liquid markets.
NYMEX ClearPortsm provides a trading interface for an extensive slate of
approximately 60 futures contracts. The slate consists of basis and outright
futures for natural gas, crude oil, refined products, coal, and electricity,
many of which relate back to the Exchange's core open outcry energy futures
markets. The price transparency and market integrity of the Exchange's open
outcry futures contracts extends to the NYMEX ClearPortsm slate because the
final prices of most of these new contracts are settled in whole or in part
against the open outcry contracts.
Activity on the system gained solid traction during the year. Initially, the
trading volume was concentrated in the natural gas outright and basis contracts,
spreading to electricity, and then the petroleum contracts, particularly the
West Texas Intermediate crude oil calendar swap futures and the crack spread
swap futures.
To further expand the liquidity and market opportunities for this slate of
contracts, the Exchange applied for and received permission from the Commodity
Futures Trading Commission (CFTC) to allow independent floor traders to become
eligible contract market participants for certain OTC energy markets.
The CFTC issued an order in February that granted independent floor traders
permission to conduct OTC energy transactions for their own account as long as
they have the appropriate guarantee from a clearing member to clear that
transaction through the Exchange. Traders have taken the opportunity to
participate and provide liquidity, resulting in a more efficient market.
Commercial participants are benefiting from the additional liquidity these
traders bring, enabling them to find counterparties to complete transactions.
March:
* New York Mercantile Exchange and New York Board of Trade hold lease signing
ceremony
* Exchange featured in Mercedes ad
* 20th anniversary of crude oil contract
* War breaks out in Iraq
* Exchange extends NYMEX ACCESS(r) energy trading by a half hour
Door to Efficiency
The Exchange entered 2003 with the stated mission of becoming the most efficient
marketplace for the energy and metals industries to do business, with a full
range of services under a single umbrella - both to enhance its own competitive
position and to add value for its customers.
The Exchange technology development efforts over the past year have all pointed
toward the broader goal of consolidating all core applications onto a single
platform, leading to greater efficiency for members, member firms, and
customers, as well as the Exchange itself.
As part of NYMEX ClearPortsm, the Exchange is in the process of integrating the
trade management system, price reporting system, and Clearing 21(r) on to the
same Windows-based platform. The project required a rewrite and modernization of
every major trading system application, but costs will be dramatically reduced
for the outlays for equipment, maintenance, and daily operations. This
functionality was undergoing quality assurance testing late in the year for a
launch in February 2004.
The Exchange also began making available on a pilot basis a universal trade
blotter which, for the first time, will give any trader, clearing member, or
account owner a real-time view of the trades in his account from any Exchange
venue - the floor, NYMEX ACCESS(r), or NYMEX ClearPortsm - consolidated on a
single screen. The universal trade blotter is the first major step towards the
long-sought goal of straight-through-processing, seamlessly moving trade and
market data from the trading floor to the clearing systems and to the clearing
members, and enhancing the operational efficiency of the Exchange's clearing
firms.
The universal trade blotter screen will be a little less crowded during the
coming year when NYMEX ACCESS(r), which was originally introduced in 1993 as an
after-hours extension of the trading floor, will also be folded into NYMEX
ClearPortsm, unifying all electronic trading functions as well as the back
office tasks on a single technology platform.
In addition, the Exchange is moving forward on its development of a long-sought
handheld wireless device for trade entry on the floor. During 2003, the Exchange
developed a prototype, and has conducted pilot tests with live trades. When
introduced commercially, the devices will be used in the NYMEX and COMEX
Division trading rings to streamline data entry, allow instantaneous checking of
out-trades, and eventually allow electronic order routing and a seamless
interface for open outcry and electronically traded markets.
In another consolidation that has already led to efficiency for the trading
community, all New York commodity markets were reunited under the same roof on
September 2, when the New York Board of Trade (NYBOT) commenced trading on its
new floor on the seventh floor of One North End Avenue. The location of both
exchanges in a single facility has already begun to add to market liquidity and
efficiency particularly for the many members and member firms that belong to
both exchanges, which also share a number of joint customers.
NYBOT had been trading out of its backup facility in Long Island City, Queens,
since September 2001, when its trading floor and offices were destroyed in the
World Trade Center attack.
Bringing an entirely separate exchange with more than 1,000 trading floor
personnel to the Exchange's facility was a monumental task. The planning and
execution of the move involved more than a year of intensive work by the board,
executive committee, and nearly every operational department. The job also
entailed building entirely new booths and trading rings for the COMEX Division
on its remaining half of the seventh floor.
Reuniting New York's commodity markets was a high profile event with New York
Gov. George Pataki, New York City Mayor Michael Bloomberg, and other ranking
government officials attending a ceremonial lease signing in February. In
September, a press conference was conducted at the Exchange's facility with
former Mayor Rudolph Giuliani, CFTC Chairman James Newsome; Empire State
Development Corp. Chairman Charles Gargano; and New York City Economic
Development Corp. President Andy Alper in attendance.
April:
* New York Board of Trade moves in staff
* After-hours propane trading extended to overnight
* Shanghai Futures Exchange visits
* Exchange launches PJM electricity futures contract
* Coal futures trading moves from open outcry to NYMEX ClearPortsm
* Exchange assigned AA+ rating by S&P
May:
* New York Mercantile Exchange Charitable Foundation hosts WFAN Radiothon
* Exchange holds first Derivatives Symposium
* NYMEX and COMEX Divisions clearinghouse consolidation finalized
Door to Innovation
The universe of energy price risk management is built around a group of
standardized futures and options contracts with specifications that meet the
needs of the broadest possible segment of the energy industry. The deep
liquidity and excellent transparency of these markets forms the basis for all
manner of specialized derivatives that have developed over the years in the OTC
markets as well as on the Exchange, such as crack spread and calendar spread
options contracts.
Development of these original contracts required a great deal of imagination and
innovation, starting with the heating oil futures contract which celebrated its
25th anniversary in 2003. The same pioneering spirit that developed the market
that traded 22 contracts on its first day is what has kept that contract
sufficiently fresh and innovative to the point where heating oil futures set
another annual record this year, when 11,581,670 contracts were traded.
The perpetuation of the innovative financial engineering capabilities of the
Exchange was especially evident this past year as it took creative approaches to
two new sets of energy contracts: the suite of PJM electricity futures contracts
launched in April and June, and the series of average price options contracts
introduced in November.
The PJM futures contracts divide the market for the same specific commodity into
discrete blocks of time: The monthly contract trades via open outcry during the
day and electronically on NYMEX ClearPortsm after hours, while weekly and daily
segments are each represented by separate futures contracts which trade on NYMEX
ClearPortsm. All three contracts can also be submitted solely for clearing. The
monthly contract converts to a self-liquidating balance-of-month contract during
the delivery month, a process that is unique among futures markets (other than
the weekly PJM futures contract). At the end of the month prior to the delivery
month, the PJM monthly contract ceases open outcry trading and the
balance-of-month is traded electronically. Each subsequent trading day, a block
of 40 megawatt hours is subtracted from the quantity of the contract and the
daily settlement is based on the remaining days of the month. Likewise, the
weekly contract converts to a balance-of-week contract during the contract week.
The PJM monthly futures contract is also unique in that the contract does not
necessarily represent the same volume of electricity month to month. While each
futures contract specifies a quantity of 40 megawatt hours per peak day, the
total monthly electricity volume is predicated on the number of peak days per
month, which means that the quantity of physical power represented by each
futures contract will vary between 760 megawatt hours and 920 megawatt hours. In
the case of the weekly contract, it too is adjusted for holiday weeks.
Average price, or Asian-style, options, introduced on November 7, offer an
economical way to smooth out the effects of market volatility, and are primarily
considered a hedger's tool. The new contracts trade via open outcry for crude
oil, heating oil, and gasoline, and are cash-settled at expiration based on the
average price of the front month of the underlying contract. The contracts
underlying the APOs are the WTI crude oil calendar swap futures, New York harbor
heating oil calendar swap futures, and the New York harbor unleaded gasoline
calendar swap futures, which all trade on NYMEX ClearPortsm through the end of
each calendar month. The swap futures, in turn, financially settle against the
open outcry contracts for these commodities.
The world metals markets are highly competitive, and, in January 2004, the
Exchange began allowing exchange of futures for swap (EFS) transactions in the
13th through 24th months of the copper futures contract as a three-year pilot
program. As with the EFS transactions permitted for natural gas futures, the
NYMEX ClearPortsm energy slate, and aluminum futures, EFS transactions will give
market participants greater flexibility in managing positions while still
enjoying the protection of the clearinghouse.
In an effort to offer increased flexibility while maintaining the integrity of
the market, the Exchange took an innovative approach to monitoring activity in
the copper and aluminum futures contracts.
The spot month position limits in the aluminum and copper futures contracts were
increased with the condition that both limits would be automatically reduced if
the price differential of the spot month contract and the next most active
nearby month went into backwardation for three consecutive days. About two weeks
later, the copper market went into backwardation and, after three days, the
position limits were reduced. The backwardation of approximately 0.3-cent per
pound lasted only for a few days. Prior position limits are only reinstated,
however, after a review of market conditions.
The Exchange can also reduce the position limits for the copper and aluminum
futures contracts if Exchange-warehouse stocks fall below certain levels.
The creativity demonstrated in designing this rule change is an example of the
need for ongoing innovation in established products as part of the Exchange's
market stewardship. In addition to the development of new financial products,
the Exchange must continually be alert to the changes and challenges that arise
in ensuring market integrity in a business environment which the markets for the
underlying physical commodities are increasingly competitive and volatile.
June:
* Owners of Funny Cide visit Exchange
* Exchange finalizes MOU with Tokyo Commodity Exchange
* Senator Thad Cochran visits Exchange
* PAC event at the American Museum of Natural History raises more than $600,000
* Exchange launches daily and weekly PJM electricity futures
* Exchange holds inaugural base metals conference
July:
* NYMEX Holdings, Inc., distributes second dividend
* Quilt of Angels displayed at Exchange
* Exchange issues white papers supporting effort by Federal Energy Regulatory
Commission to eliminate price reporting abuse
Door to Security
The Exchange has long been known throughout the energy and metals industries as
the forum where the market price is always available and trading partners must
meet certain standards of financial integrity.
The value of cleared transactions backed by a strong clearinghouse was
forcefully reinforced to the energy industry during the collapse of the merchant
trading sector. During the year, the Exchange took steps to further strengthen
its highly respected clearing organization.
The financial strength of the clearinghouse and the Exchange's internal
standards and safeguards were recognized by Standard & Poor's when it assigned
the Exchange a long-term AA+, short-term A-1+ counterparty credit rating in
April. The financial depth of the clearing members which gives them the ability
to handle most market fluctuations were cited by S&P.
Shortly after the Exchange achieved this credit rating, a long-sought goal came
to fruition in May when the NYMEX Division and COMEX Division clearing
associations were consolidated into a single clearing organization,
substantially strengthening the Exchange's financial guarantees.
The separate guarantee funds for each division were combined, approximately
doubling to $130 million the reserve available in the event of a default by a
clearing member on either division of the Exchange. This development, plus the
rating from S&P, also enabled the Exchange to obtain a $100 million default
insurance policy, adding yet another layer of protection. The insurance policy
would come into play in the unlikely event of a default by a clearing member
that depleted the entire guarantee fund.
The company took a proactive stance in the area of corporate governance by
establishing a dedicated corporate governance department during the second half
of 2002 and the creation of a corporate governance committee of the board in
2003.
The accomplishments of the corporate governance department in its first
full-year of operation included facilitating the implementation of the
legislative mandates of the Sarbanes-Oxley Act of 2002. This included
designating an audit committee financial expert and adopting a code of ethics
for the principal executive officer and the senior financial officers. The audit
and compensation committees were structured the year before as independent
committees, solely composed of public members of the board. The corporate
governance committee consists of both public and non-public board members.
In addition, the compensation committee of the board adopted a charter which
delineates procedures for independent public directors to determine the salary
and bonus of board members and executive staff.
In the beginning of 2003, the compliance and clearing departments flawlessly
handled the dramatic energy market volatility seen throughout the first quarter
- for example, light, sweet crude oil futures prices closed higher for 10 of the
first 12 trading sessions in February. The reverse was evident in March when
prices closed lower during nine of the 10 sessions leading up to the start of
hostilities in Iraq on March 20 and for the following day. From March 18 to
March 21, closing crude oil futures prices fell by a total of $8 per barrel.
There was also a renewed burst of winter in late February, and natural gas
prices spiked over three days towards the end of the month, peaking at a record
high futures price of $11.899 per mmBtu on February 25.
The high volatility and trading volume in the energy complex required heightened
trade practice surveillance of trading floor activity for proper procedures and
timely reporting of trade data, market surveillance of speculative and
commercial activity and the relationship of futures to cash markets, and
financial surveillance to ensure compliance with capital-based position limits
and margin requirements. Numerous margin changes for energy futures contracts
were made during the period, sometimes on consecutive business days.
In addition to maintaining the integrity of the market, particularly during
highly volatile periods, the Exchange has a responsibility to its customers and
the global marketplace as a whole to ensure the availability and reliability of
its markets and pricing references. For the nearly four days that the Exchange
was closed following the attack on the World Trade Center, for example, there
was a noticeable contraction of liquidity in the cash energy markets because the
transparency provided by the Exchange was absent. To prevent another extended
closure of the markets, the Exchange has constructed a disaster recovery
facility located outside the city that essentially reproduces the Exchange
trading rings. The project was completed within four months by late 2002, and
can support full trading operations should the Exchange building in lower
Manhattan become inaccessible or operations there are otherwise disrupted. The
facility has 10 trading rings, 625 trading booths, and approximately 2,500
telephone lines that would enable the Exchange to keep the markets open. The
Exchange also consolidated its back up data-center operations at the facility,
realizing a significant reduction in costs. The data centers are linked by
high-capacity fiber connectivity, allowing fully synchronous communications
between main and back-up systems. The massive undertaking was accomplished on
schedule and under budget.
The disaster recovery site ultimately was not needed when a power outage
crippled a vast area of the northeastern United States, including New York City,
on August 14th and 15th, but the Exchange's business continuity plan that was
expanded after the September 11 catastrophe, successfully met its first test.
The plan reflects an aggressive attitude towards business continuity, an
approach that takes into account not just information systems and infrastructure
but the entire operations of the Exchange, and that prepares every aspect of
Exchange operations to continue to function. The Exchange is divided into 30
specific business units which each has its own continuity plans that can be
deployed independently or in unison.
When the lights and computers briefly shutdown at One North End Avenue at 4:09
pm on August 14, and came back on less than a minute later, the transition was
so seamless that many of those in the building did not realize that power from
the grid had been lost and the facility was operating solely on its emergency
generators, which can support the full electrical load of the Exchange for three
or four days without refueling, and that period could be extended by eliminating
power to non-essential areas.
When the magnitude of the power outage was realized, a decision was made not to
resume electronic trading on NYMEX ACCESS(r) or NYMEX ClearPortsm until it could
be determined that a significant number of participants would have the ability
to trade on the systems. Both reopened at 10:30 PM that night, while the rest of
the city was still dark, after contact had been made with a large number of
individual participants and most of the larger trading firms, and ensured that
they either had access to facilities with back-up generation or to trading desks
outside the blacked out area. The NYMEX ClearPortsm clearing website opened
earlier in the evening because it is designed to clear bilateral trades.
The crisis management team met hourly until 11 PM the night of August 14, and
reconvened at 7 AM the next morning. Cots, blankets, and pillows were provided
to members and staff who spent the night of August 14 at the building because
they were necessary for the recovery plan or the functioning of the market, or
because they had no way of getting home that night.
The caterer for the Exchange building prepared meals for hundreds of people -
for dinner on the evening of August 14, and breakfast and lunch the following
day.
The members and staff worked diligently on August 15 to resume open outcry
trading, and to alleviate a shortage of personnel, many assisted in areas that
were not their normal jobs.
On August 15, still running on back-up power, the Exchange was able to open the
NYMEX and COMEX Division trading floors for abbreviated open outcry sessions in
the morning. Power was not restored to the building until 3 PM that day.
The experiences of September 11, 2001, the buildup to the war with Iraq, and the
blackout shows that the Exchange is the ultimate safe harbor. The marketplace
relies on us for the liquidity and safeguards that instill the confidence to
conduct business, and depends on the Exchange at the very least to be available
to provide the transparency that makes efficient markets possible at all.
August:
* Blackout
* Stanley Cup on Exchange floor
* Blood drive
* Senator George Allen visits the Exchange
* Connecticut House Majority Leader James Amann visits the Exchange
September:
* New York Board of Trade begins trading in Exchange building
* September 11 anniversary
* Linux ad photographed on floor
* CFTC Commissioner Sharon Brown-Hruska, Nassau County Executive Tom Suozzi,
and New York State Assemblyman Thomas DiNapoli visits the Exchange
* Exchange hosts Platinum Dinner
Door to Distinction
The Exchange has always played an active role in its community, both as a local
business organization that helps support numerous charitable endeavors and as an
integral member of the national financial services industry in the forefront of
the debate regarding national and state legislation and regulatory matters.
Events of the past year, including the war in Iraq, the impact of severe weather
on energy prices, and the strengthening of the metals markets, gave the Exchange
additional prominence in Washington and in the media, as it added its voice in a
meaningful way to the debate on various issues.
The membership's activist tradition in philanthropic endeavors and in government
affairs reached new heights this year. The NYMEX Charitable Foundation's annual
live and silent auction, its principal fund-raising event, exceeded all
expectations when the fourth annual event raised a record $740,000 through
individual contributions to help send children to summer camp and to fund other
children's programs. Combining private contributions with the Exchange
contribution of $1.25 million, the Foundation distributed nearly $2 million in
2003 to programs for the homeless, children, the elderly, and others in need.
The spring fund-raising effort by the Exchange political action committee netted
a record $674,500, far exceeding the previous contribution record of $150,000.
As the Exchange strengthened its relationships with principal regulatory
agencies and took an active role in the legislative process surrounding the
federal energy bill, the final version of which awaited Senate passage at
year-end, an increasing number of ranking members of Congress and influential
politicians visited the Exchange in 2003, including Speaker of the House of
Representatives J. Dennis Hastert (R-Illinois); House Minority Leader Nancy
Pelosi (D-California); Sen. George Allen (R-Virginia), chairman of the National
Republican Senatorial Campaign Committee; Sen. Evan Bayh (D-Indiana); Sen.
Michael Crapo (R-Indiana); Sen. Jim Bunning (R-Kentucky); Rep. Jerold Nadler
(D-New York); Rep. Tom Reynolds (R-New York); New York Assemblyman Thomas
DiNapoli; New York State Senator Michael Balboni; Connecticut House of
Representatives Majority Leader James Amann; and Nassau County (N.Y.) Executive
Tom Suozzi.
Among the Exchange's accomplishments in government relations during the year,
the Department of Energy's Energy Information Administration agreed to release
key oil and natural gas inventory data during regular trading hours when all
market participants would have an equal opportunity to act upon it. The U.S.
Department of Interior's Minerals Management Service officially adopted the
NYMEX Division light, sweet crude oil and natural gas futures contracts as the
index for the collection of royalties from federal and Native American lands.
The Exchange was also successful in helping convince members of Congress to
remove from the federal budget legislation the proposed transaction tax on
futures and options trading, and not to repeal the 60/40 tax treatment for
futures and options traders, both of which would have substantially raised taxes
for Exchange members.
The Exchange hosted several visits and simulated trading sessions for staff
members of key Congressional committees and members of Congress to educate them
about the nature and purpose of the Exchange's markets. The first-hand look at
trading helped the Congressional staff better understand the functioning of
commodity markets and the Exchange's role.
As the Exchange saw a substantial increase in press coverage during the year
primarily driven by preparations for the war in Iraq, surges of winter weather
in early and late 2003, and the strength of metals trading, the Exchange floor
increasingly became a key backdrop for regular daily and weekly broadcasts from
the trading floor gallery by Bloomberg TV, CNN-fn, and CNBC. These networks and
others frequently sent their own reporters to do stand-ups as market activity
warranted, but also came to rely on a core group of Exchange traders to provide
market analysis using an Exchange-operated camera.
Early in the year, as preparations for war were underway, the Exchange was
featured in approximately a dozen TV reports a day for weeks, with print
photographers and radio reporters also in the press gallery nearly every day for
much of the first quarter. The media visiting regularly included German,
Japanese, and Spanish outlets, with a broad range of press coverage in major
international newspapers and broadcast media.
The Exchange and its products were also the subject of a feature that appeared
on Continental Airlines' in-flight video news magazine shown on international
and domestic flights between September and December. The two-minute segment
discussed the range of products traded on the Exchange, its role as a source of
market stability, and investment opportunities in the e-miNYsm energy futures
contracts.
The Exchange also reached out to the public in a more fundamental way with its
first educational derivatives symposium held in the spring. A diverse audience
of more than 600 ran the gamut from individual investors to representatives of
the automobile, chemical, and software industries as well as more traditional
potential market participants. The three-day program featured 35 experts
speaking on a wide range of topics including futures and options basics, energy
and metals fundamentals, the role of the clearinghouse, and energy market
regulation. Some of the more prominent speakers included renowned money manager
and commodity trader Paul Tudor Jones II; legendary oil entrepreneur and
corporate raider T. Boone Pickens; Dr. Ari Kiev, the psychiatrist who authored
numerous best sellers including Trading in the Zone: Maximizing Performance with
Focus and Discipline; and Dr. Mark S. Rzepczynski, president and chief
investment officer of John W. Henry & Co., Inc.
Through its philanthropic community work, its participation in the debates on
market issues of national importance, and the recognition of its role as the
leading forum for the commodities traded by its membership and customers, the
Exchange has achieved a reputation for thoughtful participation in a variety of
issues that gives its views a particular credibility that extend far beyond the
trading floor.
October:
* Exchange hosts Houston energy reception
* Spike Lee and Woody Harrelson visit the Exchange and film movie
* Exchange participates in CultureFest in Battery Park
* Traders pose for Exchange print ads
* Exchange loses one of its own in tragic Staten Island Ferry accident
November:
* 25th anniversary of heating oil futures
* Introduction of average price options
* Gold week
* 30 Five Towns ninth graders hold simulated trading session on weekend
* New York Mercantile Exchange Charitable Foundation auction raises
record $740,000
Door to the Future
The performance of the Exchange during 2003 reflects the new realities of the
marketplace, whether it is the flight of energy traders to the quality of
cleared markets, the development of new contracts that bring ever more
sophisticated risk management strategies to the Exchange and the safety of the
clearinghouse, or even the development of a comprehensive disaster recovery plan
because an unthinkable catastrophe actually occurred on our doorstep.
Many of the issues in the forefront of the news today are not going away.
Corporate governance, market oversight, foreign competition, the strength of the
economy, the volatility of energy and metals prices all have the power to
profoundly affect our business in the coming year and for the longer-term.
Issues that are not even on the radar screen now are sure to arise as well and
the Exchange stands well prepared to respond both in the marketplace of
commerce, and in the marketplace of ideas.
The tools that will enable the Exchange to meet any challenge from a position of
strength include:
* First-class market oversight that assures participants of the fairness
of our markets and pricing.
* Leadership in the development of financial derivatives that will
enable market participants to manage their risk ever more efficiently.
* Leadership in the development of trading and clearing technology,
making the processing of trades as efficient as possible even as volume
continues to grow.
* Liquidity that is representative of broad participation by the market
participants.
* Financial security that is represented by a clearinghouse is backed by
the strongest names in the energy, metals, and financial services industries.
* A strong voice in communal and public affairs.
Wherever these challenges lead, however sophisticated the markets become, the
core values of the Exchange and its services will remain an extension of open
outcry energy and metals futures and options markets. The trading floor provides
the market transparency and price discovery upon which the world has come to
rely.
As we step forward through the door to the future we can only guess where the
adventure will take us in the fields of technology, financial engineering, or
innovative means of managing risk. We can be assured, however, that the
foundations upon which the Exchange stands - market transparency, efficiency,
liquidity, integrity - will continue to provide the venue for participants in
our markets to take advantage of the opportunities that are sure to arise in
their wide-ranging and varied lines of business.
December:
* NYMEX Charitable Foundation dedicates Police Athletic League playroom and Jets
Academy after-school program
* Miss New Jersey Jennifer Farrell visits the Exchange to support Safe Haven
adoption
* Speaker of the House visits Exchange
* Senator Michael Crapo and Representative Tom Reynolds visit the Exchange
* Dr. Scholl's commercial shot on trading floor
Who's Who at the Exchange
Board of Directors
Vincent Viola, Chairman
Mitchell Steinhause , Vice Chairman
Stephen Ardizzone * Eric Bolling * Joseph Cicchetti * John Conheeney * Joel
Faber * Melvyn J. Falis * Stephen Forman * Kenneth Garland * George Gero * David
Greenberg * E. Bulkeley Griswold * Jesse Harte * Scott P. Hess * Steven
Karvellas * Harley Lippman * Michel Marks * Kevin McDonnell * John L. McNamara *
Gary Rizzi * Gordon Rutledge * Richard Schaeffer * Robert Steele * Michael
Devaney, COMEX Governors Committee Chairman * John Hanemann, COMEX Governors
Committee Vice Chairman
Senior Staff
J. Robert Collins, Jr., President * Christopher Bowen, General Counsel & Chief
Administrative Officer * Madeline Boyd, Senior Vice President, Government
Relations * Samuel Gaer, Chief Information Officer * Nachamah N. Jacobovits,
Senior Vice President, Corporate Communications * Thomas F. LaSala, Senior Vice
President, Compliance & Risk Management * Robert Levin, Senior Vice President,
Research * Lewis A. Raibley, III, Senior Vice President, Finance & Chief
Financial Officer * Stuart A. Smith, Senior Vice President, Operations * Charles
Bebel, Vice President, Clearing Operations * Michael Campanelli, Vice President,
COMEX Division Trading Floor Operations * Patrick Conti, Vice President,
Facilities * Suellen Galish, Vice President & Counsel * George Henderson, Vice
President, Floor Trade Data Entry & Systems * M. Dawn Lowe, Vice President,
Membership Services * Barry Loyal, Vice President, Human Resources * Michael E.
Lugo, Vice President, Internal Auditing * Arthur McCoy, Vice President,
Financial Surveillance & Risk Management * Nancy Minett, Vice President,
Compliance * Matthew Morano, Vice President, Technology Business Analysis *
Joseph Raia, Vice President, Marketing * Brian Regan, Vice President & Counsel *
Kenneth Shifrin, Vice President & Controller * Ellen Steuerer, Vice President,
Financial Commitments and Contract Administration * Robin Zablow, Vice
President, Corporate Governance
New York Mercantile Exchange Clearing Members
ABN AMRO, Inc. * Active Energy Traders, Inc. (N) * ADM Investor Services, Inc. *
A.G. Edwards & Sons, Inc. * AIG Clearing Corp. * Banc of America Futures, Inc. *
Banc One Capital Markets, Inc. * Barclays Capital, Inc. * Bear Stearns
Securities Corp. * BNP Paribas Commodity Futures, Inc. * BP Corporation North
America, Inc. (N) * BUCC Trading Corp. (N) (I) * Cargill Investor Services, Inc.
* Carr Futures, Inc. * Citigroup Global Markets Inc. * Credit Lyonnais Rouse
(USA), Ltd. *Deutsche Bank Securities, Inc. * FCStone, LLC * FIMAT USA, Inc. *
Goldman, Sachs & Co. * HSBC Securities (USA), Inc * J.P. Morgan Futures, Inc. *
Lehman Brothers, Inc. * Man Financial, Inc. * MBF Clearing Corp. * Merrill
Lynch, Pierce, Fenner & Smith (I) * Morgan Stanley & Co., Inc. * NIC Holding
Corp. (N) * Phibro Energy Clearing, Inc. * Pioneer Futures, Inc. * Prudential
Financial Derivatives, LLC * R. J. O'Brien & Associates, Inc. * Rand Financial
Services Inc. * Refco, LLC * Rosenthal Collins Group * SMW Trading Company, Inc.
Sterling Commodities Corp. * Term Commodities, Inc. (N) * The Bank of Nova
Scotia (C) * Triland USA, Inc. * UBS Securities, LLC * Warren Corporation,
George E. (N)
(C) = COMEX Division Only; (I) = Inactive Clearing Member; (N) = NYMEX Division
Only
NYMEX Division Member Firms
AAA Capital Management, Inc. * AIG Energy, Inc. * AIG International, Inc. *
Amerada Hess Corp. * Banc of America, N.A. * Barclays Bank Plc. * Bluefin
Energy, L.L.C. * Britannic Trading Ltd. * Canadian Imperial Bank of Commerce *
Cargill, Inc. * Chevron, U.S.A., Inc. * CHS, Inc. * Cinergy Marketing & Trading,
L.P. * ConocoPhillips Company * Constellation Power Source, Inc. * Coral
Structuring, L.L.C. * Credit Lyonnais SA * Deutsche Bank, A.G. * DRW
Commodities, L.L.C. * Duke Energy Merchants, L.L.C. * Duke Energy Trading &
Marketing, L.L.C. * Dynegy Marketing and Trade * El Paso Merchant Energy, L.P. *
Engelhard Corp. * Entergy-Koch Trading, LP * ExxonMobil Oil Corp. * Fortum Oil &
Gas, Oy * Glencore Ltd. * Glencore Commodities, Ltd. * Global Companies, L.L.C.
* Hess Energy Trading Co., L.L.C. * JAM Capital Corporation * J. Aron & Company
* JPMorgan Chase Bank * Knight Financial Products, L.L.C. * Koch Supply &
Trading, LP * Kottke Associates, Inc. * Louis Dreyfus Corp. * Man Group Finance,
Inc. * Marathon Ashland Petroleum, L.L.C. * Mirant Americas Energy Marketing
L.P. * MIECO, Inc. * Morgan Stanley Capital Group Inc. * ONEOK Energy Marketing
and Trading, L.P. * OMG AG & Co. KG * Phibro, Inc. * Plains Marketing L.P. *
Reliant Energy Services, Inc. * Ronin Capital, L.L.C. * Sempra Energy Trading
Corp. * Shell Oil Company * Spear, Leeds & Kellogg (I) * StatOil Marketing &
Trading (US), Inc. * Sunoco, Inc. * Tewksbury Investment Fund, Ltd. * TOTSA
Total Oil Trading S.A. * Transmontaigne Product Services, Inc. * Transworld Oil
Ltd. * UBS AG * Valero Marketing & Supply Co. * Vitol Capital Management, Ltd. *
Vitol S.A. * Vitol Refining Capital Management S.A.
COMEX Division Member Firms
ABS Company * AIG International, Inc. * Asarco, Inc. * Barclays Bank Plc. *
Birch Brokerage Company, Inc. * Blue Capital Group L.L.C. * Bowery Capital,
L.L.C.* * BUCC Trading Corp. * Canadian Imperial Bank of Commerce * Capital
Management Execution Services, Inc. * CARR Futures, SNC * Chase Futures and
Options, Inc. * Commerzbank International, S.A. * Credit Lyonnais Rouse Ltd. *
Crown Commodities, Inc. * Deutsche Bank AG * Dresdner Bank AG * Emerald Trading
Group, L.L.C. * Engelhard Corp. * Gerald Metals, Inc. * Glencore Ltd. * Great
Lakes, Inc. * Great Lakes Trading Group, Inc. * Growth Management Capital Corp.
* H & M Trading Co. * * HSBC Bank USA * Hudson River Futures, L.P. * J. Aron &
Company * J.D. Trading Co. * JPMorgan Chase Bank * Kachel, Spiller & Co. * Koch
Supply and Trading, LP * Kottke Associates, Inc. * Legg Mason Wood Walker,
Incorporated * Millennium Futures Group, Inc. * Mintz & Co. * Mitsui Bussan
Commodities Ltd. * Mitsui & Co. Precious Metals, Inc. * MKS Finance S.A. *
Morgan Stanley Capital Group, Inc. * N.M. Rothschild & Sons Ltd. * NYAM L.L.C. *
Okato Shoji Co., Ltd. * Pan-Asia Futures Co., Ltd. * PB Financial Services, Inc.
* Phibro, Inc. * Prime International Trading, Ltd. * Sabin Commodities, Inc. *
Sabin Metal Corporation * SG Cowen Securities Corp. * Societe Generale * Spear,
Leeds, & Kellogg (I) * Standard Bank London * Sucden (UK) Limited * Sun Hung Kai
Commodities Limited * Tahoe Futures, LLC * Tewksbury Investment Fund Ltd. *
Tradelink L.L.C. * UBS AG * William J. O'Reilly, Inc. * York Commodities, Inc.
*Options Member Firm
Financial Information
This 10-K is also available electronically on the Exchange website at
www.nymex.com or in hard copy format by calling 212-299-2777.
The New York Mercantile Exchange, Inc., has attempted, wherever possible, to
make statements in good faith by using such words as anticipates, believes,
expects, and words and terms of similar substance in connection with any
discussion of its present and future operations within the industry. Any
forward-looking statements made by, or on behalf of, the Exchange involve a
number of risks, trends, uncertainties, and other factors which may cause actual
results to differ materially, including the Exchange's receipt of the necessary
Commodity Futures Trading Commission approval; timely performance and
cooperative effort of exchange and technology partners; and changes in financial
or business conditions at the Exchange.
The servicemarks NYMEX, NEW YORK MERCANTILE EXCHANGE, COMEX, and COMMODITY
EXCHANGE are registered in the United States Patent and Trademark Office. These
marks are owned directly or indirectly by the New York Mercantile Exchange, Inc.
e-miNY is a service mark of Chicago Mercantile Exchange and New York Mercantile
Exchange pursuant to agreement. GLOBEX is a registered trademark of Chicago
Mercantile Exchange Inc. E-mini is a service mark of CME.
New York
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