Recently, we added a section on our website about the New York Mercantile Exchange (NYMEX)—a little on what it is and how it works. This week, we wanted to compliment that with a bit on how this ever-important commodity exchange got its start. So, read on to find out more about the history of the NYMEX.
Early U.S. Exchanges
In the U.S., trade markets first started in Chicago. The city, founded in 1830, was built on a water transit hub—Lake Michigan—and was (and is) close to America’s agricultural heartlands. It also had a strong network of railroads. Chicago quickly established itself as the primary center of trade in the U.S.
In 1848, The Chicago Board of Trade (CBOT) opened its doors for business. It was the nation’s first exchange and, in the beginning, dealt almost entirely in agricultural products and livestock. By 1865, it formalized grain trading with the creation of the world’s first futures contracts.
Throughout the later 1800s and early 1900s, more than 1,600 commodity marketplaces sprang us across the U.S.—from California to New York and everywhere in between.
Birth of the NYMEX
In 1872, in an effort to create standards for dairy products, a group of New York dairy merchants created the Butter and Cheese Exchange of New York. Not long afterward, eggs were added to the list, and the exchange was renamed the Butter, Cheese and Egg Exchange.
By 1882, as these merchants saw the need to add more items to the list of commodities, the exchange was renamed the New York Mercantile Exchange.
The NYMEX Says Goodbye to Potatoes
For a long time, potatoes made up a huge part of NYMEX trading. But that changed in the late 1970s as Maine potato baron J.R. Simplot and a few NYMEX traders—both working to scam and manipulate the potato market—went head to head in what’s now known as the Great Maine Potato War.
In the end, as Simplot and traders all plotted against each other, 100 million pounds’ worth of contracted potatoes went undelivered. The contracts went into default, and many investors lost out big. The NYMEX suffered a hard blow to its reputation—not that it was all that sparkling in those days—and it got out of the potato trading business and shifted its attention to the energy market.
It was slow going at first. But by 1978, the NYMEX had successfully ventured into trading heating oil, crude oil, gasoline and natural gas.
The NYMEX Merges and Goes Electronic
Holding onto tradition, the NYMEX functioned as an open outcry trade exchange until the early 2000s. Under this type of setup, traders would meet on an open floor—or pit—and make exchanges with a system of shouting and elaborate gestures. But as other commodity exchanges began turning to electronic trading, the NYMEX began to lose business.
In 2006, the NYMEX teamed up with the Chicago Mercantile Exchange (CME) and began transitioning toward electronic trading—two years later, CME Group acquired NYMEX’s holdings when NYMEX went public and was listed on the New York Stock Exchange.
By 2016, under the CME Group umbrella, which also includes CBOT and COMEX, the NYMEX went completely electronic.