IRS Gives Nymex Favorable Private Letter Ruling On Demutualization Transaction

The Internal Revenue Service yesterday gave the New York Mercantile Exchange a favorable private letter ruling notifying the Exchange that there would be no tax consequences to it or any of its members as a result of its demutualization.

This ruling was the final approval required for the demutualization of the Exchange to take effect. The plan was previously approved by the Securities and Exchange Commission, the Commodity Futures Trading Commission, and a 97.5% majority of the Exchange members.

The demutualization plan, which calls for the equity in the Exchange to remain with the seat-owners of its NYMEX Division, will make the Exchange the first in New York to convert from a not-for-profit membership structure to a for-profit organization.

Exchange Chairman Daniel Rappaport said, "The board of this Exchange embarked on an progressive and innovative road last December when it approved this plan. Yesterday's approval is the final step in repositioning the Exchange as a 21st century business enterprise that will create and pursue profitable new opportunities, react rapidly and decisively in an increasingly competitive marketplace, and explore interest by outside investors."

Mr. Rappaport said that the Exchange expects to announce an effective date for the transaction shortly.

Once the demutualization is effective, the Exchange, a not-for-profit membership corporation under New York law, will be reorganized as a for-profit membership corporation under Delaware law and will be renamed New York Mercantile Exchange, Inc. A new stock-holding company named NYMEX Holdings, Inc., will be formed to own all of the economic interests and most of the voting control in the for-profit membership corporation. Each existing NYMEX Division membership will be converted into one share of common stock in NYMEX Holdings, representing equity in the overall organization, and one membership in the Exchange representing trading privileges.

The common stock and trading privileges will not be separable until a majority of stockholders vote to permit separate trading of the common stock and trading rights.

The Exchange is the largest physical commodity exchange in the world, with volume reaching close to 110 million contracts in 1999. On average, approximately $14 billion worth of transactions occur on the Exchange on a daily basis, with $3.3 trillion changing hands last year. The futures and options contracts traded at the Exchange are based on such strategic commodities as oil, gold, silver, natural gas, electricity, copper, and aluminum.