As Part of its Electricity Strategy, NYMEX Eyes Creation of an OTC ECN
The New York Mercantile Exchange (NYMEX) is considering a proposal that would divide its planned all-electronic electricity market into three separate units: a holding company, an electricity exchange and an over-the-counter (OTC) electronic communications network (ECN). The for-profit holding company would be incorporated in Delaware and would act as parent of both the electricity exchange-which would initially trade NYMEX's six electricity futures and options contracts-and the ECN-which would match orders for spot and forward commodities contracts.
A source familiar with NYMEX says that the proposal calls for the ECN to operate as a "contract market" under the watchful eye of the Commodity Futures Trading Commission (CFTC). If NYMEX's board and members approve this proposal, the source says, the exchange will in February file an application with the SEC to run a contract market.
In terms of technology, NYMEX has already publicly stated that the electricity exchange will use Access, its next-generation automated trading platform (ETW, 11/15/99). But the source says this proposal also stipulates that NYMEX will provide the contract market with its ECN technology. The source declines to get more specific, but says NYMEX would support the ECN's "order matching activity."
According to the proposal, trading privileges for the electricity exchange will be made available to NYMEX members on a "non-exclusive" basis, and the distribution of additional trading rights for that market would be determined by the board of the holding company, says the source.
A NYMEX spokesperson declines to confirm specific details about the electricity strategy outlined by the source, but says it is merely one of several proposals the exchange's board is considering. "There are other structures being discussed and nothing has been determined yet by our board," says the spokesperson.
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