Executives
Keil Decker - VP, Corporate Communications & IR
Richard Schaeffer - Chairman
James Newsome - President & CEO
Kenneth Shifrin - CFO
Samuel Gaer - EVP & CIO
Analysts
Rich Repetto - Sandler O'Neil
Chris Allen - Banc of America Securities
Ken Worthington - JP Morgan
Michael Vinciquerra - BMO Capital Markets
Niamh Alexander - Keefe, Bruyette & Woods
Jonathan Casteleyn - Wachovia Securities
Rob Rutschow - Deutsche Bank
Dan Fannon - Jeffries & Co
Gary Glass - DEG Capital
NYMEX Holdings, Inc. (NMX) Q3 2007 Earnings Call November 1, 2007 8:00 AM ET
Operator
Good morning ladies and gentlemen, and welcome to the NYMEX Holdings Incorporated 2007 Third Quarter Financial Result Conference Call. My name is Shiquana and I will be your operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be question-and-answer period. It is now pleasure to turn the floor over Keil Decker, Vice President of Corporate Communications and Investor Relations. Please proceed sir.
Keil Decker - Vice President, Corporate Communications & Investor Relations
Thank you operator. Good morning and welcome to the NYMEX Holdings 2007 third quarter earnings conference call. To obtain a copy of the earnings release issued this morning, please visit our website at nymex.com.
Before we begin the formal remarks this morning, you should be aware that statements made on this call that are not historical facts are forward-looking statements. These statements are not guarantees of future performance that involve risks, uncertainties and assumptions that are pretty difficult to predict. Therefore actual outcomes of the results may differ materially from what is expressed or implied in forward-looking statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, including our most recent Annual Report on Form 10-K and 10-Q which are available on our website.
With us this morning to discuss the highlights of our third quarter, are NYMEX Chairman, Richard Schaeffer; President and CEO, James Newsome; and CFO, Ken Shifrin. At the conclusion of their formal remarks, we will open up the call for your questions. Now I will turn the call over to our Chairman, Rick Schaeffer.
Richard Schaeffer - Chairman
Thank you Carl. Good morning and thank you for joining us today. We have a lot to cover this morning. So many positives we got in the continued progress we are making. We are very excited to speak with you today about our strong third quarter operating results, and how we have been able to continue to generate even greater top line revenues and bottom line profits each year.
For the third quarter '07, total operating revenues were up 25% to a record $173.2 million and our net income was up 54% to a record $62.6 million or $0.66 per diluted share. Our pretax margin was a record 71% for the third quarter compared to 60% over the IPOs. That's a good indication of how focused we have been on reducing our expenses. But just as important, we are very excited to speak to you today about the $72 million in Enterprise Efficiency Initiative that we are about to deliver to our shareholders. This brand will help us become leader and more profitable. We will discuss this plan in greater detail in a moment.
In addition to these positive initiatives, we are declaring a $100 million special dividend to our shareholders, in addition to our regularly quarterly dividends of $0.10 cents. For the continuing strength of our business and cash flow, the cash on our balance sheet and our unused borrowing capacity, we are pleased to be able to return cash to our shareholders. Finally, we are very excited that we will be partnering with the most respected market participants towards a broad suite of new emissions related products to be launched in a few months. Jim will talk about this shortly. These products will ship up [ph] between with our energy contracts of fossil fuel contracts giving the large market players the ability to effectively manage risk and gain direct exposure to the emissions markets. We are very excited about this and we will implement it shortly. We are tremendously well-positioned strategically and are executing on all cylinders. We continue to explore strategic opportunities, domestically and internationally, and look forward to providing more information as soon as we are able. We remain committed to serving the energy and metals industries as well as our investors, as the leading global exchange for commodity based derivatives. Jim?
James Newsome - President & Chief Executive Officer
Thank you Mr. Chairman. During the third quarter we set numerous daily electronic volume records on CME Globex, as well as a number of open-interest records in our benchmark, energy and metals contracts such as gold, which recently surpassed the 500,000 milestone for open interest. Also during the third quarter we finalized the launch of electronics options contracts on all of our core energy and metals contracts on CME Globex, as well over NYMEX ClearPort clearing platform, including of about, gasoline, heating oil and copper options.
We continue to see expanding interest and electronic trading of options as evidenced by days is one as much as 20% over natural gas options are trading electronically. We also just launched a user-defined and exchange-define spreads which will aid us in terms of functionality and ability to execute electronic option strategies. These types of enhancements will further facilitate greater options volume on Globex. As for our Dubai strategic venture, we have basically set our Dubai Mercantile Exchange Dubai Mercantile Exchange Oman sour crude contract has continued to show consistent growth in both volume and open interest and now commands virtually 100% of all trading volumes and open interest from Middle Eastern-based crude oil contracts. The industry's strong and intense interest in becoming involved in the DME, only reinforces our belief that the DME Oman contract is becoming the global sour crude benchmark.
Furthermore, the Middle Eastern delivery mechanism continues to set the standard, with roughly 4000 contracts going to delivery for November and average daily volumes per month to-date in October is 2700, with open interest of almost 9000. We are seeing open interest spread out the curve away from the spud which is indicative of growing adoptions. We believe that commercial, sovereign and other participants will continue to enter this market, because they realize the benefits of participating in the dynamic price discovery process of the DME contract. Within this context, we continue to work with the DME to look at new contracts, to enhance the ability of traders to effectively hedge their positions.
Regarding new contracts, we look closely of what will drive volumes to our core layer products as well as what we will call new sector research and development for the future. New products are crucial to our business, not only because they may be successful in their own right, but because they drive business to our core products, which helps grow our primary franchise of energy and metals contracts. During the third quarter, we launched a number of new contracts on CME Globex or NYMEX ClearPort including 24 new crude oil swap sutures contract, ethanol swap futures, a new alternative energy index futures contract, and a new brand crude oil last day futures contract which has been very well received.
Looking forward, our new venture into environmental markets contract is very exciting. As Rick said, we are partnering with the leading market participants to launch a broad suite of new emissions-related products including European Carbon Instruments restructured U.S.-emissions compliance products and new product for the U.S. carbon markets. NYMEX has worked extensively with the most influential utilities, hedge funds, investment banks, environmental brokers and environmental groups since March of earlier this year, to establish the wide set of contracts that market participants need and want to effectively manage risk our gain exposure to the emissions markets. We intend to look this new suite of contracts on the CME Globex electronic trading platform and the NYMEX ClearPort clearing platform by the end of the first quarter 2008.
Finally from a regulatory perspective we have very enthusiastic about recent events regarding regulation of the energy markets. We applied the recommendations contained in the CFTC's report last week to Congress regarding new oversight of exempt commercial markets. The contract will trade on exempt commercial market to serve a significant price discovery function trading a number of public policy concerns and we warrant the higher degree of CFTC regulation and oversight, as we said for the last number of months. NYMEX agrees with the CFTC's conclusion that these contracts should be subject for large trade reporting for this limits our accountability, self-regulatory oversight obligations and emergency authority for both the CFTV and the ECM itself. These mechanisms have enabled NYMEX to provide market integrity and stability to the energy markets. We continue to believe that these change are benefit to the broader energy market and to NYMEX as the primarily energy marketplace.
Ken will now discuss our strong good quarter financial performance by the numbers. Ken?
Kenneth Shifrin - Chief Financial Officer
Thank you Jim. We had another record quarter driven by strong average daily volumes. But our results were also driven by continued improvement in our operating expenses net of transaction costs. Let me recap. Total operating revenues for the third quarter, ended September 30th, 2007 rose 25% to record $173.2 million compared to $138.3 million to third quarter of 2006. Net income for the third quarter 2007 increased 54% to a record $52.6 million compared to $40.7 million for the third quarter of 2006. Dilutive earnings per share for the third quarter 2007 were $0.66 based on 94.9 million shares outstanding compared to $0.47 based on 81.6 million shares outstanding for the third quarter of 2006.
For the nine months ended September 30, 2007, NYMEX reported total operating revenues of $501 million, a 35% increase from $372.5 million for the first nine months of 2006. Net income rose 43% to a $160.5 million versus a $112.5 million in the fist nine months of 2006. Excluding the charge for optionables, net income was a $175.2 million for the nine months period. Diluted earnings per share for the first nine months of 2007 was $1.69 versus a $1.35 diluted share in the 2006 period, based on 94.8 million and 79.4 million shares outstanding respectively.
Excluding the optionables, diluted EPS was a $1.85. The effective tax rate for the nine months was 43.5% compared to 45.5% for the nine months of 2006. The third quarter 2007 gross average rate per contract across all venues was a $1.55 while the net rate per contract net of transaction cost was $1.28. Against last year's third quarter, OPC [ph] is up from the gross average rate of the $1.45 per contract and a net average of a $1.25 per contact. The third quarter clearing and transaction fees rose 22% to a $145.3 million, market gain of revenues increased 56% to $24.9 million for the third quarter of 2007, primarily driven by an increase in number of units and revenue per unit $135,500 and $50 respectively during the third quarter of 2007 as compared to a $120,577 and $40 respectively during the third quarter of 2006.
As I mentioned, where we made the biggest difference in our results this quarter was in total operating expenses, excluding direct transaction costs, which were down 15% to $40.5 million for the 2007 third quarter as compared to $47.5 million in the third quarter of 2006 and $41.8 million last quarter. Compensation expenses were total of $19.5 million for the third quarter of 2007 down 13% from $22.6 million for the same period last year. Non-compensation expenses excluding direct transaction costs were down 16% to $20.9 million for the third quarter 2007. Again this is a direct result of our ongoing cost-cutting initiatives.
Let me move on to non-operating income expenses; investment income was $4.9 million for the third quarter, our losses from unconsolidated subsidiaries were $2 million which relates primarily to our Dubai and Tatweer [ph] ventures. The increased volumes growth increased in RPC year-over-year and ongoing cost-cutting initiatives all contributed to increase in pretax income of 47% to $110.4 million compared to $75.3 million in the third quarter 2006. Pretax margin excluding direct transaction costs was a record 71% for the third quarter of 2007 compared to 60% in the third quarter of 2006 at the time of our IPO. It's a substantial progress.
Let me touch on a couple of items from our balance sheet as of September 30th. At end of the third quarter, we had approximately $540 million in cash and marketable securities. Our working capital was $564 million and capital expenditures were $6.2 million for the third quarter of 2007. With that I'll turn it back to Rich.
Richard Schaeffer - Chairman
Thanks Ken. Now the plan. As you've seen we continue to show strong performance in our quarterly numbers. Now I would like to speak with you about how we are taking NYMEX to thenext level of performance and profitability. The prime new execute over the next 14 months represents this twin approach to our process of capturing the benefits of our migration from open house trading to electronic trading and we'll position NYMEX as one of the more profitable and efficient exchanges.
This plan is the next phase of revenue and cost improvements which we have been working on continuously as evidence by our increase profitability and increased gross-margins. It is a comprehensive approach that will deliver substantial savings across the entire company with combined revenue enhancements and cost savings of at least $72 million. The key revenue enhancements that made up of a new fee schedule for NYMEX and COMEX divisions and an increase in our market data fees, modest increase in both of those and competitive.
From the cost point of view, we have been issued a broad reduction in force, which will be given immediately with 55 positions, but will continue into '08. We are actively in exploring the sales of our building and have retained the real estate broker Cushman and Wakefield, to run the process for us. We will also constantly view our options in regards to the locations of our existing staff and requirements trading for its space. Based on the results of this enterprise efficiency process, we could achieve substantial tax benefits as well. NYMEX is carefully considering up options in light of our financial priorities. However we do enjoy our vocation in New York City and if possible if we can make it work, we prefer to keep a presence in lower Manhattan. We reiterate our commitment to continuing to work with the mayor's office on a solution which addresses our needs. We believe these initiatives will put us in an even stronger position in terms of efficiency and profitability. Jim?
James Newsome - President & Chief Executive Officer
Thank you Rich. NYMEX is committed to doing whatever is necessary to streamline operations and improve its performance for its customers and shareholders. The plan we are implementing arises from the transforming of year that we have had at NYMEX and as a result of management's continuing drive to create additional shareholder value. As you see in the press release, NYMEX will implement revenue enhancements of approximately $50 million, based upon a new fee schedule to each of the NYMEX and COMEX divisions applied to the September 2000 average daily volume as well as an increase in this market data fees from $50 per unit to $55 effective, February 1 2008, based on the average market data units of 135,508 from September 2007.
The breakdown for projected enhancement is approximately $32 million for the new fee schedule and $8 million for the market data increase. In terms of the cost reductions, we will be immediately implementing a substantial reduction in the current cost structure. We expect the cost side of these components of the plan to reduce our current operating expense base by approximately $22 million on an annual basis. We will reduce our workforce by a 120 positions over the next five quarters, or $10 million on an annual basis, beginning immediately and continue through 2008. But in conjunction with these reductions we incurred severance expenses of approximately $1.4 million in the fourth quarter and approximately $2.6 million in 2008.
NYMEX will retain leading real estate broker Cushman and Wakefield as Rich mentioned to evaluate the sale of our headquarters located at 1 North End Avenue in lower Manhattan. In the event the company concludes the sale of its building, NYMEX expects to save approximately $12 million on an annual basis based on elimination of expenses related to that facility. NYMEX also will closely review its options with regards to the location of our existing staff and requirements for trading for its square footage. While the timing for this process is difficult to predict the company expects to conclude this process during the third and fourth quarters of 2008.
Rich, back to you.
Richard Schaeffer - Chairman
Thanks Jim. In conclusion we are tremendously excited about the future of NYMEX. In this quarter we demonstrate what makes us the leader in providing risk management tools to the energy and metals industries. Through execution of our plan and achievement of our goals in efficiency and growth, we look forward to an exciting year ahead. Thank you for your continued support. We will take question now. Operator please.
Question And Answer
Operator
[Operator Instructions]. Your first question comes from the line of Rich Repetto with Sandler O'Neil. Please proceed.
Richard Schaeffer - Chairman
Good morning Rich.
Rich Repetto - Sandler O'Neil
Good morning guys. First question which is it's the obvious question, great quarter but its been out in public domain about discussions about potential mergers. How would any other things you are doing today is certainly a plot how does that impact if at all potential transition?
Richard Schaeffer - Chairman
We believe it can only impact the transaction in the positive way. Our potential part is that people that are looking at us and talking to us expect us to run the business in a disciplined manner to continue to generate profits. Any thing we do as we are doing now can only be an indication to both our investors who are putting the money on it and our potential partners and how we are going to run the business, should we become a partner to them.
Rich Repetto - Sandler O'Neil
Great and just trying to understand, maybe this is a question for Ken, but on the dividend how does cash like where is the ending? I can see the marketable securities on the balance sheet looks like almost half a billion. So can you go through... I've might missed it in the prepared remarks but the cash situation at the end of the quarter?
Kenneth Shifrin - Chief Financial Officer
We have over half a billion in cash in the quarter. A majority of it obviously is a marketable securities.
Rich Repetto - Sandler O'Neil
Okay. I guess that answers that. And then Rich, your fixed expenses continue to come down. I get them as 27% of your net revenues when you net out the direct transaction costs and you're talking about taking out more than half. I guess no other exchange operates at sort of operating. I am just trying to see what I am missing here. Your fixed operating will be below $20 million when you achieve these expense reductions you are talking about.
Richard Schaeffer - Chairman
Rich, we are in a very unique situation because we are only public a year. We talk at the time when we were going public about low hanging fruit. Now if we pluck the low hanging fruit by paying attention to our core business. You are not missing anything. There is a lot there as a non-public entity that probably that wouldn't be there in a public entity and we are addressing all those issues now and I don't think you are missing anything. I think you will see our brand to be a continued disciplined cost cutting revenues growing exchange.
Rich Repetto - Sandler O'Neil
Great, congrats on a great quarter.
Richard Schaeffer - Chairman
Thank you Ed.
Operator
Your next question comes from the line of Chris Allen with Bank of America Securities. Please proceed.
Richard Schaeffer - Chairman
Good morning Chris.
Chris Allen - Banc of America Securities
Morning guys. Nice quarter.
Richard Schaeffer - Chairman
Thank you.
Chris Allen - Banc of America Securities
Just, Ken just looking back at the cash on hand, can you just give us an idea of how much cash you need to kind of run the business and how we should think about the usage of the cash moving forward?
Kenneth Shifrin - Chief Financial Officer
The actual cash required to run the business is probably between, somewhere between $75 million and a $100 million. So obviously we have a lot of excess cash on hand and we clearly have enough cash to do exactly what we have to do. We are not leveraged at all, the only debt we have in the books is the bonds against the buildings that we feel were in good position where we are, even with the $100 million dividend.
Richard Schaeffer - Chairman
Chris, there's a few points, it's Rick Schaeffer. Number one, its important to know that we are going to continue along the path of exploring, and not only exploring but we are talking about a number of initiatives, both in the United States and in Europe as well and elsewhere. We do not feel uncomfortable by a lot of cash as Ken said, $540 million. Keep in mind, every 4 to 5 months we are netting another, at least another $100 million. So we are in a tremendous position also, it's substantial to the building. So if add the value of the building to our cash on hand of $540 million and our $250 plus million net per year, I think it keeps us at a very competitive to continue our goal of our growing through both acquisitions and internal growth.
Chris Allen - Banc of America Securities
Sounds good and then just on the building you kind of mentioned that talking to the mayor's office about that possible tax efficient so to speak. Are there any recent examples of company to negotiate that professional fees and how should we kind of think about that?
Richard Schaeffer - Chairman
For competitive reasons we don't really want to get into the real estate other than say we are putting our building up for sale because it has wide ramifications from competitors to potential partners to other things so I'd rather stay off the building and the Governor's office. Although we have a great relationship with the Mayor's office and we continue to see what we can do to support our downtown in hand.
Chris Allen - Banc of America Securities
Very well thank you
Richard Schaeffer - Chairman
but we will have to leave it out for now.
Chris Allen - Banc of America Securities
Thanks guys.
Operator
Your next question again from the line of Ken Worthington with JP Morgan. Please proceed
Ken Worthington - JP Morgan
Hi good morning.
Richard Schaeffer - Chairman
Hi Ken?
Ken Worthington - JP Morgan
First in the building, I think you said $12 million of cost savings if you were able to leave the building; is that net because you only pay about $20 million, 22 million in occupancy and equipment anyway. Does the 12 million take into consideration the rent that you will pay at some place else?
Richard Schaeffer - Chairman
Absolutely
Ken Worthington - JP Morgan
Okay just wanted answer for that. And then I think the Battery Park City authority and maybe that city as well, gave NYMEX special tax break to stay in the building through 2012. What is the cost of leaving the building or what kind of penalties would you have?
Richard Schaeffer - Chairman
Although I won't get into the details of it, I will tell you the arrangement hold for $25 million close to should we pull that early. But there are a lot more details it. Obviously for competitive reasons tenants in the building etcetera, we choose not to discuss. But it is not a significant cost to what to relative to the value of building.
Ken Worthington - JP Morgan
Okay perfect. Yes I just wanted to clarify that. And then any detail you can give us on price increases at NYMEX and COMEX. You mentioned that you treat prices, any flavor order of magnitude anything like that you can give us on the --
Richard Schaeffer - Chairman
The only flavor I will give you is that for the increased prices, we saw substantially that's of our competitive, for competitive reasons we are not going to oppose what those rates are at this point in time. The customers will know before the investors know, for competitive reasons. But again they are modest but generate substantial income and we feel it will continue to keep up and remain competitive. Keep in mind, since we have gone electronic, we have actually cut the costs to our trading members and non-members significantly. They don't have poor brokerage anymore and a substantial saving. So we make sure we carefully go to our investors -- not our investors, our market users before we make these decisions. Ken in the near future, we will disclose but not at this point of night.
Ken Worthington - JP Morgan
Thanks. ClearPort is growing really nicely but the kind of core energy franchise is growing much faster. Why is that what is the dynamics that are playing out there.
Richard Schaeffer - Chairman
Well Ken, if you look at the make up of our ClearPort slide, it's primarily natural gas. We had lot less volatility in the natural gas markets over the last quarter and we have had higher volatility in other energy products such as crude so I think that's primarily the reason that you see growth differences that you just mentioned
Ken Worthington - JP Morgan
Thank you very much
Richard Schaeffer - Chairman
Thank you too
Operator
Your next question comes from the line of Mike Vinciquerra BMO Capital Markets. Please proceed.
Michael Vinciquerra - BMO Capital Markets
Thanks Good Morning guys
Richard Schaeffer - Chairman
Good Morning
Michael Vinciquerra - BMO Capital Markets
I don't know if you can answer this in the building in don't know that much about downtown Manhattan real estate prices, but I have heard numbers turnaround and it could be this much that's half a billion dollars. Is that number where I feel for what you might potentially reconstruct sale?
Richard Schaeffer - Chairman
Well my worry to you right across looking to... no I am not going to comment on numbers.
Michael Vinciquerra - BMO Capital Markets
Okay alright. Faire enough a couple of questions. Housekeeping for Ken. The market data jumped sequentially in the quarter much higher than we expected, were there some order gains during the quarter that drove the increase
Kenneth Shifrin - Chief Financial Officer
Yes there was we had order gains upwards to about 800,000.
Michael Vinciquerra - BMO Capital Markets
Very good, okay thank you. And also your market expenditure has dropped very substantially. Is that something that we would expect to rebound in coming quarters as you roll up --
Kenneth Shifrin - Chief Financial Officer
I didn't catch them. What?
Michael Vinciquerra - BMO Capital Markets
The marketing expenditures looks like they dropped pretty meaningfully I am just curious that they are going to be coming back up the next couple of quarter as you rollout these new products.
Kenneth Shifrin - Chief Financial Officer
That's cyclical is well. I mean you could have higher cost... you are referring to the second quarter we had a lot of cost in the second quarter is that what you are comparing to but, its cyclical those costs.
James Newsome - President & Chief Executive Officer
And I also want to mention that in terms of marketing we are strongly committed to marketing and yes you can expect that number to go up. You can also expect that the higher, even though already a 120 people go, we would be hiring people in areas that will drive more business to our share, in particular marketing as one of them. New businesses new products those are the areas there would be additional marketing to us and some modest additional step as well
Michael Vinciquerra - BMO Capital Markets
Okay thank you and then just one question on the $50 million in revenue synergies. Is that simple if we look at this you are basing it on September volume levels, it is simple as if we are assuming to mean 25% volume growth for next year that we will be looking at $62.5 million in revenues instead of $50 million, is that simple to look at?
Richard Schaeffer - Chairman
I am not going to project live you know that you've dealt with me long enough, but relative to your question it would be a [ph] for me if you believe volume would be x and you would believe that it would be I number, but we are commenting on it.
Michael Vinciquerra - BMO Capital Markets
No that's all I was looking for Richard. I appreciate that.
Richard Schaeffer - Chairman
Okay
Michael Vinciquerra - BMO Capital Markets
Okay that's it, guys. Thanks very much.
Operator
And your next question comes from the line of Niamh Alexander with KPW. please proceed.
Niamh Alexander - Keefe, Bruyette & Woods
Thanks for taking my question. I am wondering if electronic trading has grown relatively unsuccessfully how I should think about the member agreement where wouldn't NYMEX out 10 of gross revenue from key contracts if you get over that trigger like level of 90%
Richard Schaeffer - Chairman
If we do, there's certain things that help to trigger. The Board will have to vote to close those contracts if they are point in touch and agree to pay. But at some point in time, if we and when we exceed 90%, there will be a 10% fee paid to the membership. There are alternatives that I cannot to discuss today to the benefit of the investors that we will address it at the time. But we have that plan we have it in our budgets and have that accounted for
Niamh Alexander - Keefe, Bruyette & Woods
Okay and are you pretty close to that trigger then?
Richard Schaeffer - Chairman
I would say about 80% roughly. The Board gets about 18% and a number of them between 70% and 82% something like that. But the rest 10 is always the hardest, they are extremely robust in our options business, and option fees, we give you the great number the 20% of natural gas has gone electronic, the other 80% is going to be very slow in doing in that. The screens are just very far way late from being advanced enough from capturing the type of business we do here. So well I think it will be quite a while before we hit that 90% mark.
Niamh Alexander - Keefe, Bruyette & Woods
Okay that's very helpful. And then just a question on international clearing and with the real changes in Europe in interoperability. Isn't there are enough opportunities for NYMEX to do something over there and how shall I think about maybe for you are in discussion --
Richard Schaeffer - Chairman
Yes, there is strong opportunity for to growth doing something over there and we are actively and aggressively seeking right situation over there and had been working on that daily. So, yes with the new regulations going in place, we recognize strongly that we need to be clearing in Europe as well as here, and we are going to act on that we just can't say what is our plan at this point.
Niamh Alexander - Keefe, Bruyette & Woods
Okay that's helpful. Thanks for taking up my questions.
Operator
Your next question comes from the line of Jonathan Casteleyn with Wachovia Securities. Please proceed.
Jonathan Casteleyn - Wachovia Securities
Hi Good morning.
Richard Schaeffer - Chairman
Good morning Jon.
Jonathan Casteleyn - Wachovia Securities
I am just curious about how the management change things about pricing and its any potential impact on volume. Is there kind of algorithm that you think about X amount of pricing would slightly decrease volume but potentially increase profits. Is that somewhere to think about the stepped up formula?
James Newsome - President & Chief Executive Officer
We think about everyday. There's no set formula that will tell you at what point your price itself added the market, except when will continuously price itself versus your competitors, you can feel assured that you are not going to loose business through your competitors. If you are not going to loose it your competitors that there is no where elsewhere for it to go. But we do consider our clients as very precious asset and we are very careful when we make these changes and consult them when we do it
Jonathan Casteleyn - Wachovia Securities
Okay and then sort of timing of the fees schedule when that will come out?
James Newsome - President & Chief Executive Officer
Sorry what's that?
Jonathan Casteleyn - Wachovia Securities
The timing of the fees schedule you are saying --
James Newsome - President & Chief Executive Officer
The fee changes will go into play January 1st.
Jonathan Casteleyn - Wachovia Securities
January 1, '08.
James Newsome - President & Chief Executive Officer
Market data, February 1, January 1 is for the fee and market data February 1st.
Jonathan Casteleyn - Wachovia Securities
Okay great and then can you update on the CAREX. I am just wondering is it possible to fund that venture with some of your existing contracts and if so, does the trading do you get better economics because I think character is running on ClearPort correct
Richard Schaeffer - Chairman
CAREX is running on its own system. In one hand you would get better economics but on the other hand they are 50% partners. So we are going to build that business out with very comfortable, they have great relationship with our group there. We very much believe in the leadership there and we are going to build good products and it's probably going to be in the next 3 to 5 months that we have the whole business rolled out
Jonathan Casteleyn - Wachovia Securities
So you think it comes on stream in 3 to 5 months
Richard Schaeffer - Chairman
Yes
Jonathan Casteleyn - Wachovia Securities
Okay and then lastly, technology is such a great asset in your business I am just wondering as you basically lease some of your systems from the CME. I mean is there technology development going on underneath that I mean are you developing priority systems
Richard Schaeffer - Chairman
We have strong technology but I am going to let Samuel Gear our Executive Vice President and CIO who is sitting here, tell you about what we are doing to build our own system and the answer, the generic answer is absolutely we are doing it daily, but I am going to let Sam take you through that.
Samuel Gaer - Executive Vice President & Chief Information Officer
Thank You Rich. Yes, we continue to ion vest in technology and further develop our technology I think you should note that even though we outsourced electronic trading and matching for our core products through the CME on a daily basis, we are processing every message that is coming through CME. So we have had increased capacity more than 10 fold in the last year as far as messaging is concerned, we rolled that out flawlessly and we continue to look for further expansion of capacity. At the same time, as you know we have launched the BME on June 1. That's on its own system the ClearPort trading system related version of which is capable of handling multiple millions of messages in a single session. We continue to build out that system that will facilitate the base for CAREX.
Richard Schaeffer - Chairman
Thank you Sam.
Jonathan Casteleyn - Wachovia Securities
Great. Thank you very much.
Operator
Your next question comes from the line of Rob Rutschow Deutsche Bank. Please proceed.
Rob Rutschow - Deutsche Bank
Good morning guys. I guess first question on the building sale assuming that happens is it still your intention to return net shareholders the professional dividend?
Richard Schaeffer - Chairman
No comments
Rob Rutschow - Deutsche Bank
Okay the ClearPort volumes in the third quarter they are still trending upwards but were down year-over-year and I am just wondering if what the factors were there. You mentioned lower volatility what if the only fall out from emissions and then I am also wondering if you can kind of remind us what sort of initiatives you have in place to increase the amount of ClearPort volume?
Richard Schaeffer - Chairman
I think if you look at the volume trends. Particularly more recently Rob it's simply due to the fact that natural gas has had less volatility. In terms of how we are addressing that we are adding new product to the ClearPorts slate everyday and expanding beyond just a natural gas slates. And we have got crude oil contracts going on, we've got a number of European products that we have and are going to and then some new contracts that are under developments that were not in detail to speak about right now but if you look at the crude oil slate including the ramp slate and the emissions contract we will be very happy with the new slate of contract that we have going on to ClearPort and think that will only enhance overall ClearPort value to go along with that natural gas
Rob Rutschow - Deutsche Bank
Okay could you just put some numbers around the new contract that you have launched this year what you expect to lunch in the next year
Richard Schaeffer - Chairman
Let me talk about I can talk about two that I have on my mind. The burn slate we currently have over a 100n000 contract of open interest. The latest contract is the last day brands which were currently trading of 4000 to 5000 contracts a day. We got almost 10000 open entries there and then the ethanol contract which has two of our newest we work at both the sugar and a corn base ethanol contract those obviously are competing a with the Chicago board of trade and the New York board of trade current ethanol contract we have gone past them both in terms of volume and open interest and its become clear to us that the NYMEX contracts are becoming the bench mark contracts for the ethanol industry. I was just handed a note that shows that we are trading 3.2 million gallons per day... 30.2 million gallons per day of ethanol, which is very substantial when you look at the fiscal ethanol market wise.
Rob Rutschow - Deutsche Bank
Okay that's great my last question is on professional fee they were up this quarter and just wondering if we should look for that to trend higher with the potential building sale and the cost saving plans?
Kenneth Shifrin - Chief Financial Officer
Professional fees for the buildings clearly are not as significant amount annual so I would not say that will be much higher relative to the building sales. We continue to work it on our professional fees that's a hard one to talk about because, if you are involved in transactions your professional fees are going to tend to go higher. So I would prefer not to comment on whether I think they are going higher.
Rob Rutschow - Deutsche Bank
I guess,my other question will just be, were they up this quarter because you'd retain people help to you figure out the cost savings.
Kenneth Shifrin - Chief Financial Officer
A lot of proficiencies were transaction based fees and things that we are working at we are talking to people about, but lets leave it that.
Rob Rutschow - Deutsche Bank
Okay, thanks a lot.
Operator
Your next question comes from the line of Dan Fannon with Jeffries. Please proceed.
Dan Fannon - Jeffries & Co
Good morning guys. Just in terms of volumes. A lot of long-term thesis here is the adoption of new users trading your products. Can you talk about those patterns versus the activity of so of your existing customers and how that's impacting volumes and may they impact going forward.
Richard Schaeffer - Chairman
Well the I talked about the two different... let's take them separately. Let's talk about new customers. One of the great things about our relationship with the CME is that they have a user base. How many screens are out there in CME?
Unidentified Company Representative
It's difficult to tell.
Richard Schaeffer - Chairman
How many users.
Unidentified Company Representative
It's difficult to tell how many users because of nature of --.
Richard Schaeffer - Chairman
Approximately, you have any idea.
Unidentified Company Representative
I would say north of 10000.
Richard Schaeffer - Chairman
More then 10000. Where we first started we were only doing couple hundred of those or trading our products. As it goes on the number of users out of that 10000 base continues to increase from black boxes to proprietary trading groups to hedge funds that weren't that aware of us. So that is great resource for continued growth of our business. We still do only a small percentage of that total base of people trading here. But it's an ever increasing amount. Relative to our existing customers, that begins to run out of traders like companies just keep expanding left and right. We have seen two people companies become 20 people. 20 people becoming 50. With the onset of one of these new products that can be traded, just look at the ClearPort and all the other products we have, we have so many new customers and we have 140 new customers just in ethanol. So we continue to have new and more improving our all those stable customers continue to grow their operations.
Dan Fannon - Jeffries & Co
That's helpful and then you guys have rolled a lot of new products in the last couple of years. Can you maybe be a little bit more specific in ones that have really gained the most traction or are seeing the most volume?
Richard Schaeffer - Chairman
Jim you can tell better but I just want to mention that a lot of the products we roll out you may not see large volume in but we roll them out because our customers tell us they need to hedge those products. Its part of the whole energy pie. So you can't do 80% of what they need. You have to give them 100% of what they need. So even though you may see some why do you have that contract its only traded couple hundred to date. It provides you with service to our customers that's become invaluable to them.
James Newsome - President & Chief Executive Officer
So Rich is exactly right, and then in addition to that a lot of the smaller contracts that we roll out while they may do small volume I actually add additional volume to our core products. And that's the key component of what we look at, listing the customers what's the new product going to generate, what kind o business is it going to generate to the core products. And then we also have the new products that we just talked about. Brent, Ethanol, Propane, the DME contract that are all growing very, very nicely. We have the vast majority of the open share within those marketplaces and we continue to grow it. I think it's important to remember that NYMEX doesn't just take products from exchanges then and work to create arbitrage volume between the two. We create new contract we create new physical marketplaces and many times it's slower to grow that volume, but at the end of the day you have tremendous contracts, strong open interest and strong overall volume, and that's where we concentrate on
Dan Fannon - Jeffries & Co
Great. Thank you
Operator
As a reminder --
Richard Schaeffer - Chairman
We will just take a couple of more questions
Operator
As a reminder [Operator Instructions] you have a follow up question from the line of Chris Allen with Bank of America
Richard Schaeffer - Chairman
Let Chris we will get back to you in a minute. I want to try to cover everyone that has not spoken yet
Operator
your next question comes from the line of Gary Glass with DEG Capital. please proceed
Gary Glass - DEG Capital
Good morning. Thanks again for this special dividend. Keeps us old timers in the chips. I don't mean to put you on the spot but here it goes. Chicago week a two ago came out that the next merger for the CME would be the New York Merc. Local New York papers said that the next merger for the New York Stock Exchange would be the New York Merc. My question to you is are you talking to the CME, New York Merc, or any other exchanges on the merger?
Richard Schaeffer - Chairman
Next question. Gary, I am sorry I can't comment on that
Gary Glass - DEG Capital
Alright I appreciate thanks
Richard Schaeffer - Chairman
Okay
Operator
your next question is a follow up question from the line of Chris Allen with Bank of America Securities please proceed
Richard Schaeffer - Chairman
Go ahead Chris. Sorry.
Chris Allen - Banc of America Securities
No problem guys just want a quick follow up. I want to preface this. This is more of an industry question rather than for you guys, I just wanted to ask because your relationship was Dubai and the DME. What's your take in terms of the interest now in Middle Eastern investment fund and space in terms of investing in this space. Any comments on that?
Richard Schaeffer - Chairman
I am sorry. Could you repeat that Chris, it kind of broke up a little?
Chris Allen - Banc of America Securities
Sure, I just to ask because your relationship with Dubai and the partnership with DME. Kind of what your take on the investment by some of the Middle Eastern investment funds in the exchange space. I am thinking from an industry perspective not just NYMEX-specific perspective?
Richard Schaeffer - Chairman
Good you took that away from the NYMEX side. It appears to me that they are going to continue aggressively in investing in financial institutions here in the States and without talking about NYMEX, they're reaching all over the place to get involved in the commodity and stock exchanges.
Chris Allen - Banc of America Securities
Great. Thanks a lot guys.
Operator
I would like to turn call back over to Mr. Schaeffer for closing remarks.
Richard Schaeffer - Chairman
Okay. In conclusion, we are tremendously excited about the future of NYMEX. In this quarter, we demonstrated what makes us a leader. We thank you very much for being with us and look forward to positive things. Thank you very much.
Operator
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have good day.
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