The court battle between the energy industry’s two trading exchange giants, IntercontinentalExchange (ICE) and the New York Mercantile Exchange (Nymex), reached the boiling point last week with ICE, the energy industry’s largest over-the-counter (OTC) trading platform operator, filing an answer and a counterclaim to a Nymex lawsuit in November.

The Nymex lawsuit was designed to block ICE from using Nymex settlement prices in its OTC contracts. ICE is charging Nymex, the world’s largest commodity futures exchange, with abuse of monopoly power for claiming copyright protection over its settlement prices and for its recent efforts to launch an OTC trading platform similar to the one ICE currently operates.

The ICE countersuit, filed in the U.S. District Court for the Southern District of New York, said that Nymex’s efforts to prevent ICE from using the settlement prices by claiming that the prices are copyrightable works of “authorship” represent an illegal restraint of trade and are intended solely to restrict competition.

“We believe these counterclaims are baseless,” Nymex said in a statement. “Most of the defendant’s shareholders are long-time members, customers, and shareholders of our exchange and none have previously complained to us about the competitive practices of the New York Mercantile Exchange.”

Nymex said it has “applied considerable expertise and invested a great deal of effort to develop its contracts and contract marketplace. That includes a settlement price process that has earned the respect of the energy industry for its reliability and integrity.

“Copycat marketplaces seeking commercial gain should not be permitted to misuse or misappropriate the hard won credibility and goodwill of the New York Mercantile Exchange,” Nymex added.

In its lawsuit, Nymex said the settlement prices incorporate the “originality” and “creativity” of Nymex’s settlement committees and therefore demand copyright protection (see NGI, Nov. 25). But ICE said that contradicts the repeated claims by Nymex officials that the settlement prices are public benchmarks used worldwide in contracts and other business exchanges.

“We believe that Nymex’s contention that its market prices are entitled to copyright protection as original works of authorship and therefore cannot be used by [ICE] is simply unsupportable,” said ICE co-counsel and former U.S. Attorney Dan Webb of Winston & Strawn.

ICE claims the Commodity Exchange Act and the Rules of the Commodity Futures Trading Commission require that Nymex settlement prices be made publicly available. “If Nymex were to prevail in its attempt to selectively prevent one market participant from obtaining access to its publicly available prices, all market participants that rely on these prices would be at risk,” ICE said.

ICE further charges that Nymex is forcing its futures customers to conduct their OTC trading through Nymex by levying higher margin costs on those who choose to conduct trading on ICE. Webb called it “the very type of conduct that the antitrust laws are designed to protect against.”

According to the ICE counterclaim, Nymex is charging 34 cents per 2,500 MMBtu to clear OTC transactions (21 cents for Nymex members) compared to 3 cents charged by the London Clearing House for clearing the same amount of gas traded on ICE. “This substantial price gap is an example of the profits Nymex is able to extract with its monopoly power,” ICE said.

In addition, ICE said that Nymex has used a variety of other illegal tactics, such as making “false and damaging assertions” that the ICE platform “facilitates or encourages illegal activity,” including wash or roundtrip trading which enable companies to create the appearance of large trading volumes.

The timing of Nymex’s lawsuit, ICE added, “confirms that its real intent is to stifle competition and not to redress any actual injury. Nymex has had a record year in energy trading,” and the company now is preparing to launch its own OTC platform to compete against ICE (see NGI, Dec. 26). The Nymex OTC trading system began beta testing last month and is expected to be launched this month.

Nymex said last week that it set an annual volume record of 133.7 million futures and options contracts in 2002, smashing its previous record of 109.5 million contracts set in 1999. The 2002 volume also represented a 30% increase over the 103.1 million contracts traded in 2001. Records were also set for electronic trading on the Nymex Access system with an annual volume of 4.9 million futures contracts, up from 2.6 million in 2001. Light, sweet crude oil futures established a record of 45.7 million contracts, exceeding the previous record of 37.9 million contracts set in 1999. Natural gas futures volume of 24.4 million contracts broke the previous record of 19.2 million set in 1999. The total included 1.1 million traded on Access. Natural gas options trading totaled 11 million contracts, compared to the previous record of 6 million contracts set in 2001.

“By seeking to prevent its principal competitor, [ICE], from using published settlement prices, Nymex is attempting to maintain its existing monopoly over energy futures trading and expand that monopoly into the OTC arena” said ICE Chairman Jeffrey C. Sprecher. “This self-serving practice, along with other abusive practices, including the tying of trade execution and clearing, enables Nymex to extend its market power and extract monopoly fees on clearing. Fair competition requires that Nymex be forced to end its anticompetitive behavior, which is what our claim seeks to accomplish.” The full text of the counterclaim is available on ICE’s web site at www.theice.com.

Based in Atlanta, with offices in Chicago, Houston, London, New York and Singapore, ICE also owns the International Petroleum Exchange of London

(IPE), Europe’s leading energy futures and options exchange. The ICE electronic platform offers more than 600 listed commodity and derivative contract types around the world, including crude oil and refined products, natural gas, power, precious metals, weather derivatives and emissions allowances. For information on the Nymex OTC trading platform, call (800) 438-8616.

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