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The New York Mercantile Exchange, Inc. is the largest physical commodity futures exchange in the world. Its suite of metals futures and options contracts are cleared financial instruments that allow market participants to mitigate price risk in a transparent, liquid, financially secure marketplace.Metals trading on the Exchange is conducted through the COMEX Division on which futures and options contracts for gold, silver, copper, and aluminum are listed; and through the NYMEX Division, which lists platinum futures and options and palladium futures. The NYMEX Division also lists an extensive slate of energy futures and options contracts.The metals represented on the Exchange include the oldest metals known to mankind. Gold, silver, and copper were first used approximately 10,000 years ago. Some of the most sophisticated early metallurgical techniques evolved around the use of copper, the first industrial metal.Platinum was discovered in South America in the early 18th century during the search for gold and silver, although it had been used even before the voyages of Christopher Columbus. Originally known as “little silver,” silver that hadn’t “grown up,” or “unripened gold,” platinum was thrown back into the streams that held the alluvial deposits. For many years it was used for counterfeiting gold coins in the New World and Spain.All Transactions are ClearedAll transactions on the Exchange are processed through its clearinghouse, which mitigates counterparty credit risk by ultimately acting in effect as the buyer to every seller and the seller to every buyer. Transactions are backed by an extensive financial safety net including a guarantee fund of approximately $135 million and a $100 million default insurance policy. For the last several years, NYMEX Holdings, Inc., the parent company of the Exchange, has received and maintained an AA+ long-term counterparty credit rating from Standard & Poor’s. A list of the Exchange’s clearing members can be found on its website, www.nymex.com.Costs to market participants are reduced because margin requirements are netted against cleared positions of economically related contracts on the Exchange. In the metals markets for example, this could involve a purchase of gold futures contracts and the simultaneous sale of platinum futures representing the same quantity of the underlying physical product.Customer funds are segregated from those of brokers, clearing members, and the Exchange itself. Futures contracts cleared on U.S. exchanges have a level of legal protection that is not available to participants in over-the-counter swaps transactions in the event of a bankruptcy by one of the parties to the trade.The Exchange owns its clearinghouse, which gives it great flexibility and leeway in introducing new contracts, as well as close control over margin levels and market and financial compliance. All transactions are subject to the regulations of the Exchange, which operates as a self-regulatory organization serving as an additional layer of regulatory protection beyond the direct regulation of markets by the Commodity Futures Trading Commission, a U.S. government agency, which also maintains regulatory oversight of exchange markets.Market Transparency Aids Price DiscoveryMarket transparency is one of the hallmarks of trading on the Exchange. Prices are continuously reported during the trading day and trading volume, open interest, inventories of metal held in Exchange-licensed depositories or warehouses, and physical deliveries under the futures contracts are reported daily.The prices quoted are used as global benchmarks for the underlying markets for precious metals and, in North America, copper and aluminum. This is an indication of the confidence that the market places in the integrity of these transactions. The Exchange maintains a vigorous regimen of trade, market, and financial surveillance to assure that business is conducted fairly and competitively among creditworthy market participants. Given these resources, a decision not to manage price risk is made as deliberately as a decision to manage it.What are Futures Contracts?Futures contracts trade in standardized units in a highly visible, extremely competitive, continuous open auction. For a futures contract to be an effective financial instrument, the underlying market must meet three broad criteria: The prices of the underlying commodities must be volatile; the physical or financially settled contracts must be fungible; and there must be a diverse, reasonably large universe of buyers and sellers.
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