GOLD DIGGERS! – TRADERS SWEAT OVER GOLDMAN’S TIES TO NYMEX DEAL

Goldman Sachs Group’s ties to an investment firm slated to purchase a stake in the New York Mercantile Exchange has some members worried the 132 year-old trading pits are doomed to extinction.

Traders and seat owners are concerned Goldman’s relationship with General Atlantic, which struck a deal last week to purchase a 10 percent stake in the Nymex for $135 million, will push the exchange toward electronic trading.

Goldman has a huge electronic energy trading operation and investments in several all-electronic stock and futures exchanges, not the least of which is a big stake in New York Stock Exchange merger partner, Archipelago.

Nymex traders aren’t the only ones concerned about Goldman’s influence.

At least two members of the Nymex’s board of directors have questioned the connection between General Atlantic and Goldman, according to two sources who spoke to the board members. It’s unclear whether those members voted against the deal with General Atlantic.

A Nymex spokeswoman declined to comment on Goldman or the board members vote on the General Atlantic deal.

Some members have criticized the Nymex board for running a secretive sale process and approving the deal with General Atlantic after a higher offer from investment firm Battery Ventures and former Nymex Chairman Michael Marks.

Any deal must be approved by a majority of the exchange’s 816 seatholders. A shareholder meeting to discuss the deal is scheduled for today.

“I don’t understand how this deal is a better strategic fit than Battery, who is not involved with Goldman Sachs,” said one member, whose family owns seats on the exchange worth roughly $25 million.

Nymex seatowners and others in the private equity community point to several ties between Goldman and General Atlantic including their joint ownership of all- electronic stock exchange Archipelago Holdings Inc.

At the time of the NYSE- Archipelago deal, Goldman drew criticism from Big Board members for advising both parties in the deal while also being a large investor in Archipelago.

General Atlantic’s President William Ford plans to take a seat on the boards of both the Nymex and the NYSE should the two mergers be approved.

What’s more, two of General Atlantic’s main dealmakers, Mark Dzialga and Marc McMorris, came to the firm from Goldman’s High Technology M&A Group.

Supporters of the deal with General Atlantic say traders’ fears are unfounded.

“General Atlantic has relationships with nearly every investment bank on Wall Street,” said one source close to the firm.

“I don’t think you can draw any conclusions from a partnership with Goldman on past deals.”

Goldman Sachs says it takes no position with respect to how trades are executed on the nation’s stock exchanges. “We always seek the best price for our customers,” a Goldman spokesman said.

The deal with General Atlantic also includes provisions to protect the trading pits so long as they generate revenue, according to sources.

Both General Atlantic and Nymex declined to comment.

In the second quarter, electronic trading and clearing accounted for more than 30 percent of the Nymex’s profits, up from 20 percent a year earlier, according to public filings.

Nymex’s attempt to set up an exchange in London to compete with the electronic International Petroleum Exchange has not gone well.

The IPE’s parent company, IntercontinentalExchange Inc., also is partially owned by Goldman.

Large concerns

After its controversial role in the NYSE-Archipelago merger, Goldman Sachs is stirring worries at the New York Mercantile Exchange.