US Exchanges Consolidate Their Futures

FOLLOWING rapid growth in the late 1980s, the United States commodities and futures exchanges are taking a hard look at their day-to-day operations. They are exploring new products, cutting costs, seeking to be more competitive against overseas exchanges, and expanding their customer base.

These exchanges have ``done quite well in recent years,'' reflecting in part large price movements in such commodities as oil and gold, says Hans Stoll, director of the Financial Markets Research Center at Vanderbilt University in Nashville. ``But now the exchanges are at a bit of a crossroads as they scan the future.''

Few totally new futures investment instruments have been introduced in the past few years, Mr. Stoll says. A number of exchanges are seeking to consolidate staff and trading operations, move to more modern offices, and offer other products, such as indexes on foreign equities.

Futures contracts, traded on futures exchanges, are contracts for the sale and delivery of a specified amount of a commodity at some future time, but not immediately. Several of the best-known US exchanges are located in Chicago, Minneapolis, and Kansas City, Mo.

New York is home to five major exchanges: the New York Mercantile Exchange, called the Merc, or Nymex; the Commodity Exchange, called Comex; the New York Cotton Exchange; the New York Future's Exchange, called NYFE; and the Coffee, Sugar, and Cocoa Exchange.

Now, the two largest New York exchanges - Nymex, which is the main exchange for oil and gas futures, and Comex, the leading exchange for gold futures - are talking of merging. Nymex is also considering a major financial restructuring, including a public stock offering, which would bring new revenues to exchange members. Member seats on Nymex have shot up in value as trading volume moved from 2.6 million contracts 10 years ago to more than 47 million in 1992. Seats are now worth more than $250,000, up from $35,000 two decades ago. The exchange is highly profitable.

Comex seats are worth about $80,000, up from $40,000 earlier this year.

Last month Nymex offered to buy Comex, which has reportedly had financial difficulties, for $50 million. The boards of the two exchanges have approved the plan. A final vote by members of the two organizations is ``expected in late October,'' says a spokeswoman for Nymex. But she adds, ``Approval cannot be considered a certainty at this juncture.''

Nymex has 816 seats, of which about 750 members could participate in the final voting. The plan must win approval from two-thirds of the voting members in both exchanges. Comex has about 772 seats, with 630 seat-holders eligible to vote, says Alan Hanson, a spokesman for Comex.

A merger would ``make good sense,'' Stoll says. The Commodity Exchange would still function as a separate institution, although owned by Nymex. But staff would probably be consolidated; moreover, gold and silver contracts could be traded on the Nymex after-hours electronic trading system, called Nymex Access. The system now operates between 5 p.m. and 8 a.m.

One challenge facing the New York futures exchanges is whether to continue to operate out of the cramped quarters the exchanges share in the World Trade Center. Nymex has not wanted to join the other exchanges in building new quarters in lower Manhattan. But with a Nymex-Comex merger, a shared location is held likely. Options include moving to New Jersey, where several financial institutions have established back-office sites; finding a new location in the Wall Street area; or expanding facilities at the World Trade Center.

Perhaps the most important area for the exchanges to address is what Stoll calls ``reputation and legitimacy.'' The futures market has been sullied by several scandals. Indeed, the ``potato'' scandal of the late 1970s helped prod Nymex into shifting its focus from agricultural futures to energy contracts. Moreover, overseas competition is growing, Stoll says, such as from London's International Petroleum Exchange.

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