NYMEX Inches Closer to For-Profit Demutualization
The New York Mercantile Exchange (NYMEX) is evaluating a demutualization proposal that calls for the exchange to convert its members' seats into two classes of stock and create a for-profit, Delaware incorporated holdings company. The plan would also give NYMEX's board of directors the power to select the trading venue for any new products the exchange rolls out. NYMEX's board is scheduled to meet to evaluate that plan-and possibly other proposals-on January 5.
One source close to NYMEX says that as part of one proposal, the exchange is thinking about divvying up members' seats into Class A and Class B stock. Class A shareholders would retain all of their current trading privileges and have the right to elect a minority number of NYMEX board members. Class B stockholders would have the right to elect the majority of NYMEX's board members and be granted ownership of NYMEX's assets-including its Access electronic trading platform.
The source says that the plan also stipulates that Class A shareholders who want to trade new products launched by the NYMEX would have to be granted permission to do so by the board. Additionally, the board would have the right to determine whether a new product gets traded via the Access platform or in open outcry trading pits-but a NYMEX spokesperson says the current board also wields that power.
The spokesperson declines to confirm any of the details of the plan the source alludes to, but says that the exchange's for-profit proposals are in constant flux. "There is no such thing as a proposal currently existing that was presented to the board at the last board meeting and is still in the same form," says the spokesperson.
That said, the source says NYMEX is indeed eyeing a proposal in which a parent holdings company-dubbed NYMEX Holdings-would be created. One-third of the board of NYMEX Holdings, says the source, would be subject to yearly re-election. Moreover, post-demutualization, NYMEX Holdings would be responsible for appointing 13 of NYMEX's directors. The rest of NYMEX's board would consist of a combination of public directors and Class A shareholder-elected directors, the source says.
The NYMEX has also constructed a tentative timetable of events. If the board approves a for-profit plan at its Jan. 5 meeting, it will then hold preliminary talks with the Internal Revenue Service to determine whether a NYMEX demutualization would be a taxable event, the source says. Then, in early February, the NYMEX would file a demutualization plan with the SEC and complete drafts of the proxy and prospectus for the new exchange.
Once those steps are completed, NYMEX, in early March, would obtain SEC comments on its for-profit plan and file the required amendments. Later that month, NYMEX hopes to receive SEC clearance and then mail the proxy and prospectus for demutualization to its members, says the source. Finally, in May, NYMEX's members would cast their ballots on demutualization-with a two-thirds majority vote required.
The NYMEX spokesperson confirms that the aforementioned timetable depicts the "natural order of events," but says that the timing of each event will be contingent upon what happens at the Jan. 5 board meeting.
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