Commodity exchanges began in the middle of the 19th century, when businessmen began organizing market forums to make buying and selling of commodities easier. These marketplaces provided a place for buyers and sellers to set the quality, standards, and establish rules of business. By the late 19th century there were about 1,600 marketplaces at
ports and
railroad stations. In 1872, a group of Manhattan
dairy merchants got together and created the
Butter and
Cheese Exchange of New York. They were trying to bring order and standardization to the chaotic conditions that existed in their industry. Soon,
egg trade became part of the business conducted on the exchange and the name was modified to the Butter, Cheese, and Egg Exchange. In 1882, the name finally changed to the New York Mercantile Exchange when opening trade to dried
fruits, canned goods, and
poultry. As centralized warehouses were built into principal market centers such as New York and
Chicago in the early 20th century, exchanges in smaller cities began to disappear giving more business to the exchanges such as the NYMEX in bigger cities. In 1933, the COMEX was established through the merger of four smaller exchanges; the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange. Through the 1970s, 80's and 90's COMEX, NYMEX, and other exchanges shared a single trading floor in
4 World Trade Center.
Goods For years, the NYMEX traders had done a large business trading futures of
Maine's
potato crop. According to
Leah McGrath Goodman's 2011 book
The Asylum, When the potato ban came into effect, NYMEX's platinum, palladium and heating oil markets were not significantly affected. However, NYMEX's reputation suffered in Washington, D.C., especially with the regulations in the Commodity Futures Trading Commission (CFTC), the president of the exchange, Richard Leone brought in John Elting Treat, White House energy adviser to Presidents Carter and Reagan to help restore the credibility of NYMEX and to help the exchange explore the possibility of entering the petroleum market recognizing the great potential for moving well beyond the limited size of the New York Heating Oil market. When Leone left NYMEX in 1981 as a result of a strong disagreement with the NYMEX board, John Elting Treat was asked to replace him as president. The launching of the WTI crude oil contract was championed by Treat, who, with difficulty, convinced the board and the two Marks family members, veteran and highly respected floor trader Francis Marks and his son, Michael, who had just become chairman of the board, to take a chance on trading crude oil. Arnold Safir was one of the members of an advisory committee formed by Treat to help design the new contract. Treat, with Board Chairman Marks and the support of the rest of the NYMEX board, eventually chose West Texas Intermediate (WTI) as the traded product and
Cushing,
Oklahoma, as the delivery point. Robin Woodhead, who later became the first chairman of the International Petroleum Exchange (IPE) in London started an active dialogue with Treat about whether they could start a Brent Crude oil contracts. Treat was very supportive and gave Woodhead strong support and a lot of advice. Shortly thereafter, after substantial conversations, The IPE was formally launched and started trading Brent. Treat and his research staff then began looking for other oil products to trade. Gasoline was clearly next on the product list but there was a lot of debate about where the delivery point should be. The Gulf Coast was the easiest, but the exchange also looked at California markets, but decided they wouldn't work. Treat then started looking simultaneously at launching crude and later products options contracts. He found that the existing NYMEX floor traders didn't have the mathematical skills necessary to trade options, so the exchange offered financial inducements to get members of the American Stock Exchange's options traders to come over and trade options on petroleum futures. Under Treat's leadership, NYMEX also began to research the potential for trading natural gas and electricity, but focused first on natural gas. Product quality of natural gas was not an issue in that market, but the delivery point was a more difficult choice. After launching the original crude oil futures contract, Treat began an aggressive marketing campaign to first bring in the large US and British oil companies and then moved on to pull in the large Middle East producers. It took almost a year to get the first US "majors" to start trading, but several "majors" did not start for almost 5 years. The initial resistance from the OPEC producers was almost impossible to break through, although some finally gave in, among the first being Venezuela. The rumors on the floor at that time were the Arab producers would trade gold futures as a proxy for oil prices (since the Arabs were major purchasers of gold and would buy more when their pockets were filled by rising oil prices, and conversely sell when oil revenues fell and reduced their ability to buy gold). After the potato ban, NYMEX's existence was in doubt. Most of the trading volume had been in potatoes. Without a good commodity, the traders had trouble making money. Eventually, the new chairman, Michel Marks – the son of commodities icon Francis Q. Marks – along with economist Arnold Safer, figured out that NYMEX could revamp an old
heating oil futures contract. When the government
deregulated heating oil, the contract had a chance of becoming a good object of trade on the floor. A new
futures contract was carefully drawn up and trading began on a tiny scale in 1978. Some of the first users of NYMEX heating oil deliveries were small scale suppliers of people in the Northern United States. NYMEX's business threatened some entrenched interests like
big oil and government groups like
OPEC that had traditionally controlled oil prices. NYMEX provided an "open market" and thus transparent pricing for heating oil, and, eventually, crude oil, gasoline, and natural gas. NYMEX's oil
futures contracts were standardized for the delivery of
West Texas Intermediate light, sweet crude oil to Cushing.
Growth The energy trading business took off, and NYMEX boomed. The
open outcry floor became a cacophony of shouting traders and
pit cards. The pits became a place where many people without much education or ability to fit into Wall Street could have a chance at being rich. Goodman's book tells the stories of many of the personalities that built the exchange in this era. In 2014 the buildings were renamed to Brookfield Place. ==Later history==