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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the Quarterly Period Ended September 30, 2004



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the Transition Period from            to



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NYMEX Holdings, Inc.



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|                         |  |                          |  |                                        
|------------------------ |  | ------------------------ |  | ---------------------------------------
|Delaware                 |  | 333-30332                |  | 13-4098266                             
|(State of Incorporation) |  | (Commission File Number) |  | (I.R.S. Employer Identification Number)



One North End Avenue

World Financial Center

New York, New York 10282-1101

(212) 299-2000



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Securities registered pursuant to Section 12(b) of the Act:

None



Securities registered pursuant to Section 12(g) of the Act:

Common Stock



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Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark
whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)    Yes  x    No ̈



The number of shares of NYMEX Holdings, Inc. capital stock outstanding as of December 28, 2004 was 816. The aggregate market value of NYMEX Holdings, Inc. capital stock held by stockholders of NYMEX Holdings, Inc., as of December 17, 2004
was $1,448,400,000 based upon the average of the bid and ask price for a NYMEX Holdings, Inc. share as of December 17, 2004.



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##### Table of Contents

TABLE OF CONTENTS



|        |  |                                                                                                                                                   |  |     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                                                                   |  | Page
|        |  | PART I: FINANCIAL INFORMATION                                                                                                                     |  |     
|        |  |                                                                                                                                                  
|Item 1. |  | Financial Statements                                                                                                                              |  |     
|        |  |                                                                                                                                                  
|        |  | Consolidated Statements of Income for the three and nine months ended September 30, 2004 and 2003 (Unaudited)                                     |  | 3   
|        |  |                                                                                                                                                  
|        |  | Consolidated Balance Sheets as of September 30, 2004 (Unaudited) and December 31, 2003                                                            |  | 4   
|        |  |                                                                                                                                                  
|        |  | Consolidated Statements of Stockholders Equity for the nine months ended September 30, 2004 (Unaudited) and for the year ended December 31, 2003 |  | 5   
|        |  |                                                                                                                                                  
|        |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 (Unaudited)                                           |  | 6   
|        |  |                                                                                                                                                  
|        |  | Notes to the Unaudited Consolidated Financial Statements                                                                                          |  | 7   
|        |  |                                                                                                                                                  
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                             |  | 17  
|        |  |                                                                                                                                                  
|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                        |  | 37  
|        |  |                                                                                                                                                  
|Item 4. |  | Controls and Procedures                                                                                                                           |  | 38  
|        |  |                                                                                                                                                  
|        |  | PART II: OTHER INFORMATION                                                                                                                        |  |     
|        |  |                                                                                                                                                  
|Item 1. |  | Legal Proceedings                                                                                                                                 |  | 39  
|        |  |                                                                                                                                                  
|Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                       |  | 40  
|        |  |                                                                                                                                                  
|Item 3. |  | Defaults upon Senior Securities                                                                                                                   |  | 40  
|        |  |                                                                                                                                                  
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                                               |  | 40  
|        |  |                                                                                                                                                  
|Item 5. |  | Other Information                                                                                                                                 |  | 40  
|        |  |                                                                                                                                                  
|Item 6. |  | Exhibits                                                                                                                                          |  | 41  
|        |  |                                                                                                                                                  
|        |  | Signatures                                                                                                                                        |  | 42  



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PART I: FINANCIAL INFORMATION



Item 1.Financial Statements



NYMEX HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except for share data)



|                                                                                 |  |                                 |        |                                |   |        |  |      |         |  |   |        
|-------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------- |  | - | -------
|                                                                                 |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                                                                 |  | 2004                            |        | 2003                           |   | 2004   |  | 2003
|Revenues:                                                                        |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Clearing and transaction fees, net of member rebates                             |  | $                               | 50,151 |                                | $ | 33,337 |  | $    | 138,766 |  | $ | 102,093
|Market data fees, net                                                            |  |                                 | 8,210  |                                |   | 7,632  |  |      | 23,882  |  |   | 23,952 
|Other, net                                                                       |  |                                 | 3,592  |                                |   | 4,876  |  |      | 9,001   |  |   | 10,458 
|                                                                                 |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Total revenues                                                                   |  |                                 | 61,953 |                                |   | 45,845 |  |      | 171,649 |  |   | 136,503
|                                                                                 |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Expenses:                                                                        |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Salaries and employee benefits                                                   |  |                                 | 13,942 |                                |   | 14,353 |  |      | 42,944  |  |   | 40,922 
|Occupancy and equipment                                                          |  |                                 | 7,232  |                                |   | 7,128  |  |      | 19,453  |  |   | 21,029 
|Depreciation and amortization, net of deferred credit amortization               |  |                                 | 6,853  |                                |   | 4,895  |  |      | 17,397  |  |   | 14,360 
|General and administrative                                                       |  |                                 | 8,367  |                                |   | 7,195  |  |      | 21,494  |  |   | 17,062 
|Professional services                                                            |  |                                 | 6,532  |                                |   | 4,508  |  |      | 18,972  |  |   | 14,020 
|Telecommunications                                                               |  |                                 | 1,249  |                                |   | 1,719  |  |      | 4,162   |  |   | 4,365  
|Marketing                                                                        |  |                                 | 430    |                                |   | 520    |  |      | 1,667   |  |   | 1,868  
|Other expenses                                                                   |  |                                 | 2,519  |                                |   | 1,849  |  |      | 6,341   |  |   | 6,225  
|Asset impairment and disposition losses                                          |  |                                 | 4,848  |                                |   |       |  |      | 5,350   |  |   | 977    
|                                                                                 |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Total expenses                                                                   |  |                                 | 51,972 |                                |   | 42,167 |  |      | 137,780 |  |   | 120,828
|                                                                                 |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Income before investment income, interest expense and provision for income taxes |  |                                 | 9,981  |                                |   | 3,678  |  |      | 33,869  |  |   | 15,675 
|                                                                                 |  |                                 |        |                               
|Investment income and interest expense:                                          |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Investment income, net                                                           |  |                                 | 1,809  |                                |   | 643    |  |      | 2,225   |  |   | 3,393  
|Interest expense                                                                 |  |                                 | 1,770  |                                |   | 1,823  |  |      | 5,310   |  |   | 5,468  
|                                                                                 |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Income before provision for income taxes                                         |  |                                 | 10,020 |                                |   | 2,498  |  |      | 30,784  |  |   | 13,600 
|Provision for income taxes                                                       |  |                                 | 4,437  |                                |   | 960    |  |      | 13,637  |  |   | 6,130  
|                                                                                 |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Net income                                                                       |  | $                               | 5,583  |                                | $ | 1,538  |  | $    | 17,147  |  | $ | 7,470  
|                                                                                 |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Weighted average common shares outstanding, basic and diluted                    |  |                                 | 816    |                                |   | 816    |  |      | 816     |  |   | 816    
|                                                                                 |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Basic and diluted earnings per share                                             |  | $                               | 6,842  |                                | $ | 1,885  |  | $    | 21,013  |  | $ | 9,154  
|                                                                                 |  |                                 |        |                                |   |        |  |      |         |  |   |        



See accompanying notes
to the unaudited consolidated financial statements.



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NYMEX HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except for share data)



|                                                                                                                            |  |                               |         |                  |   |        
|--------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | ---------------- | - | -------
|                                                                                                                            |  | (Unaudited) September 30,2004 |         | December 31,2003
|                                                                                                                            | 
|Assets                                                                                                                      |  |                               |         |                  |   |        
|Current assets                                                                                                              |  |                               |         |                  |   |        
|Cash and cash equivalents                                                                                                   |  | $                             | 468     |                  | $ | 1,763  
|Securities purchased under agreements to resell                                                                             |  |                               | 21,500  |                  |   | 45,050 
|Marketable securities, at market value                                                                                      |  |                               | 129,118 |                  |   | 64,885 
|Clearing and transaction fees receivable, net of allowance for member credits                                               |  |                               | 18,512  |                  |   | 13,277 
|Prepaid expenses                                                                                                            |  |                               | 5,700   |                  |   | 4,115  
|Deferred tax assets                                                                                                         |  |                               | 4,970   |                  |   | 4,134  
|Margin deposits and guaranty funds                                                                                          |  |                               | 32,326  |                  |   | 97,238 
|Other current assets                                                                                                        |  |                               | 6,567   |                  |   | 8,959  
|                                                                                                                            |  |                               |         |                  |   |        
|Total current assets                                                                                                        |  |                               | 219,161 |                  |   | 239,421
|                                                                                                                            |  |                              
|Property and equipment, net                                                                                                 |  |                               | 197,554 |                  |   | 208,787
|Goodwill, net of amortization                                                                                               |  |                               | 16,329  |                  |   | 16,329 
|Other assets                                                                                                                |  |                               | 11,466  |                  |   | 13,139 
|                                                                                                                            |  |                               |         |                  |   |        
|Total assets                                                                                                                |  | $                             | 444,510 |                  | $ | 477,676
|                                                                                                                            |  |                               |         |                  |   |        
|Liabilities and Stockholders Equity                                                                                        |  |                               |         |                  |   |        
|Current liabilities                                                                                                         |  |                               |         |                  |   |        
|Accounts payable and accrued liabilities                                                                                    |  | $                             | 8,535   |                  | $ | 10,773 
|Accrued salaries and related liabilities                                                                                    |  |                               | 10,808  |                  |   | 4,292  
|Margin deposits and guaranty funds                                                                                          |  |                               | 32,326  |                  |   | 97,238 
|Income tax payable                                                                                                          |  |                               | 11,326  |                  |   | 10,364 
|Other current liabilities                                                                                                   |  |                               | 25,968  |                  |   | 17,126 
|                                                                                                                            |  |                               |         |                  |   |        
|Total current liabilities                                                                                                   |  |                               | 88,963  |                  |   | 139,793
|                                                                                                                            |  |                              
|Grant for building construction deferred credit                                                                             |  |                               | 110,992 |                  |   | 112,600
|Long-term debt                                                                                                              |  |                               | 88,732  |                  |   | 88,732 
|Retirement obligation                                                                                                       |  |                               | 11,558  |                  |   | 11,729 
|Deferred income taxes                                                                                                       |  |                               | 4,673   |                  |   | 5,961  
|Other liabilities                                                                                                           |  |                               | 19,530  |                  |   | 13,446 
|                                                                                                                            |  |                               |         |                  |   |        
|Total liabilities                                                                                                           |  |                               | 324,448 |                  |   | 372,261
|                                                                                                                            |  |                               |         |                  |   |        
|Commitments and contingencies (Note 9)                                                                                      |  |                               |         |                  |   |        
|Stockholders equity                                                                                                        |  |                               |         |                  |   |        
|Common stock, at $0.01 par value, 816 shares authorized, issued and outstanding at September 30, 2004 and December 31, 2003 |  |                               |        |                  |   |       
|Additional paid-in capital                                                                                                  |  |                               | 93,312  |                  |   | 93,312 
|Retained earnings                                                                                                           |  |                               | 26,750  |                  |   | 12,103 
|                                                                                                                            |  |                               |         |                  |   |        
|Total stockholders equity                                                                                                  |  |                               | 120,062 |                  |   | 105,415
|                                                                                                                            |  |                               |         |                  |   |        
|Total liabilities and stockholders equity                                                                                  |  | $                             | 444,510 |                  | $ | 477,676
|                                                                                                                            |  |                               |         |                  |   |        



See accompanying notes
to the unaudited consolidated financial statements.



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NYMEX HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands, except for share data)



|                                              |  |              |  |                          |   |                  |   |        |                          |   |        |   |  |   |         |  
|--------------------------------------------- |  | ------------ |  | ------------------------ | - | ---------------- | - | ------ | ------------------------ | - | ------ | - |  | - | ------- | -
|                                              |  | Common stock |  | Additionalpaid-incapital |   | Retainedearnings |   |        | Totalstockholdersequity |  
|                                              |  | Shares       |  | Amount                   |   |                  |  
|Balances at January 1, 2003                   |  | 816          |  | $                        |  |                  | $ | 93,312 |                          | $ | 8,223  |   |  | $ | 101,535 |  
|Net income                                    |  |              |  |                          |   |                  |   |        |                          |   | 8,880  |   |  |   | 8,880   |  
|Dividends declared Common stock, $6,127/share |  |              |  |                          |   |                  |   |        |                          |   | (5,000 | ) |  |   | (5,000  | )
|                                              |  |              |  |                          |   |                  |   |        |                          |   |        |   |  |   |         |  
|Balances at December 31, 2003                 |  | 816          |  |                          |  |                  |   | 93,312 |                          |   | 12,103 |   |  |   | 105,415 |  
|Net income                                    |  |              |  |                          |   |                  |   |        |                          |   | 17,147 |   |  |   | 17,147  |  
|Dividends declared Common stock, $3,067/share |  |              |  |                          |   |                  |   |        |                          |   | (2,500 | ) |  |   | (2,500  | )
|                                              |  |              |  |                          |   |                  |   |        |                          |   |        |   |  |   |         |  
|Balances at September 30, 2004 (Unaudited)    |  | 816          |  | $                        |  |                  | $ | 93,312 |                          | $ | 26,750 |   |  | $ | 120,062 |  
|                                              |  |              |  |                          |   |                  |   |        |                          |   |        |   |  |   |         |  



See accompanying notes
to the unaudited consolidated financial statements.



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NYMEX HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)



|                                                                                  |  |                                |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine Months EndedSeptember 30, |        
|                                                                                  |  | 2004                           |         |   | 2003 |  
|Cash flows from operating activities:                                             |  |                                |         |   |      |   |         |  
|Net income                                                                        |  | $                              | 17,147  |   |      | $ | 7,470   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                                | 18,351  |   |      |   | 15,543  |  
|Amortization of intangibles                                                       |  |                                | 654     |   |      |   | 426     |  
|Deferred grant credits                                                            |  |                                | (1,983  | ) |      |   | (1,984  | )
|Deferred rental income                                                            |  |                                | (1,069  | ) |      |   |        |  
|Deferred rent expense                                                             |  |                                | 132     |   |      |   | 362     |  
|Deferred income taxes                                                             |  |                                | (2,124  | ) |      |   | (5,671  | )
|Asset impairment and disposition loss                                             |  |                                | 5,350   |   |      |   | 977     |  
|Decrease (increase) in operating assets:                                          |  |                                |         |   |      |   |         |  
|Clearing and transaction fees receivable                                          |  |                                | (5,235  | ) |      |   | 558     |  
|Prepaid expenses                                                                  |  |                                | (1,585  | ) |      |   | (2,563  | )
|Margin deposits and guaranty fund assets                                          |  |                                | 64,912  |   |      |   | (9,290  | )
|Other current assets                                                              |  |                                | 2,392   |   |      |   | (3,385  | )
|Increase (decrease) in operating liabilities:                                     |  |                                |         |   |      |   |         |  
|Accounts payable and accrued liabilities                                          |  |                                | (2,238  | ) |      |   | (2,204  | )
|Accrued salaries and related liabilities                                          |  |                                | 6,516   |   |      |   | 5,920   |  
|Margin deposits and guaranty fund liabilities                                     |  |                                | (64,912 | ) |      |   | 9,290   |  
|Income tax payable                                                                |  |                                | 962     |   |      |   | 7,007   |  
|Other current liabilities                                                         |  |                                | 10,199  |   |      |   | 5,054   |  
|Other liabilities                                                                 |  |                                | 833     |   |      |   | 366     |  
|Retirement obligation                                                             |  |                                | (171    | ) |      |   | 490     |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                                | 48,131  |   |      |   | 28,366  |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash flows from investing activities:                                             |  |                                |         |   |      |   |         |  
|(Increase) decrease in marketable securities                                      |  |                                | (64,233 | ) |      |   | 712     |  
|(Increase) decrease in securities purchased under agreements to resell            |  |                                | 23,550  |   |      |   | (6,240  | )
|Capital expenditures                                                              |  |                                | (4,762  | ) |      |   | (9,608  | )
|(Increase) decrease in other assets                                               |  |                                | 1,019   |   |      |   | (3,694  | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                                | (44,426 | ) |      |   | (18,830 | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash flows from financing activities:                                             |  |                                |         |   |      |   |         |  
|Dividends paid                                                                    |  |                                | (5,000  | ) |      |   | (7,500  | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net cash used in financing activities                                             |  |                                | (5,000  | ) |      |   | (7,500  | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net (decrease) increase in cash and cash equivalents                              |  |                                | (1,295  | ) |      |   | 2,036   |  
|Cash and cash equivalents at beginning of period                                  |  |                                | 1,763   |   |      |   | 1,014   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                              | 468     |   |      | $ | 3,050   |  
|                                                                                  |  |                                |         |   |      |   |         |  



See
accompanying notes to the unaudited consolidated financial statements.



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NYMEX HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



|1. | Basis of Presentation and Summary of Significant Accounting Policies
|-- | --------------------------------------------------------------------



Nature of Business



NYMEX Holdings, Inc. (NYMEX Holdings) was incorporated in 2000 as a stock corporation in Delaware, and is the successor to the New York
Mercantile Exchange which was established in 1872. The two principal operating subsidiaries of NYMEX Holdings are the New York Mercantile Exchange, Inc. (NYMEX Exchange or NYMEX Division) and the Commodity Exchange, Inc.
(COMEX or COMEX Division), which is a wholly-owned subsidiary of the NYMEX Division. When discussing NYMEX Holdings together with its subsidiaries, reference is being made to the Company.



The Company demutualized on November 17, 2000, at which time the book value
of the assets and liabilities of the New York Mercantile Exchange carried over to the NYMEX Division.



The Company exists principally to provide facilities for buying, selling and clearing of energy and precious and base metals commodities for future
delivery under rules intended to protect the interests of market participants. The Company itself generally does not own commodities, trade for its own account, or otherwise engage in market activities. The Company provides the physical facilities
necessary to conduct an open outcry auction market, electronic trading systems, systems for the matching and clearing of trades executed on the Exchange, and systems for the clearing of certain bilateral trades executed in the over-the-counter (OTC)
market. These services facilitate price discovery, hedging, and liquidity in the energy and metals markets. Transactions executed on the Exchange mitigate the risk of counter-party default because the Companys clearinghouse acts as the
counter-party to every trade. Trading on the Exchange is regulated by the Commodity Futures Trading Commission.



Significant Accounting Policies



The Companys accounting policies are described in the notes of the December 31, 2003 audited consolidated financial statements included in its
Annual Report on Form 10-K. The accounting policies that management has identified as critical or complex accounting policies are described starting on Page 25 of this Form 10-Q under the caption Critical Accounting Policies.



Basis of Presentation



The unaudited consolidated financial statements include the accounts of the
Company and have been prepared in accordance with accounting principles generally accepted in the United States of America. Reclassifications are made to the unaudited consolidated financial statements to conform to the current presentation, when
appropriate.



The accompanying unaudited consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in Item 15(a) of NYMEX Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2003. Quarterly results are not
necessarily indicative of results for any subsequent period.



The Company delayed filing of this Quarterly Report on Form 10-Q pending review of its fixed asset inventory balances, which it determined was necessary to ensure that its reported financial statements were materially correct. The Company
has completed its review and has identified charges of $4.4 million, of which $2.0 million relates to 2004 and $2.4 million relates to prior year periods. These charges represent (i) write-off of certain fixed assets that had been disposed of during
fiscal years 2004 and prior, (ii) adjustments relating to the depreciation of certain other fixed assets and (iii) an adjustment of the net book values of the Companys fixed assets resulting from a physical inventory of certain asset
categories. The impact of these adjustments on the Companys prior period financial statements has been determined by management and the Audit Committee of the Company to not be material to the users of such financial statements based on
relevant quantitative and qualitative factors. In addition, management and the Audit Committee have



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NYMEX HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



determined that the impact of recording the $2.4 million adjustment in the current quarter will not be material to the full year financial statements of the
Company. Accordingly, these charges were recognized as current period adjustments in the three-month period ended September 30, 2004, with $1.0 million recorded in depreciation and amortization and $3.4 million recorded in asset impairment and
disposition losses in the unaudited consolidated statements of income.



Principles of Consolidation



The accompanying
unaudited consolidated financial statements include the accounts of NYMEX Holdings and its wholly-owned subsidiaries: NYMEX Division; COMEX Division; COMEX Clearing Association, Inc. (CCA); NYMEX Technology Corporation (which became
inactive in November 1996); and Tradingear Acquisition LLC. Intercompany balances and transactions have been eliminated in consolidation. COMEX Division and CCA were acquired by the Company in 1994. While CCA is still in existence, its operations
were consolidated into the NYMEX Division in May 2003.



Earnings per Share



In accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share,basic net earnings per common share excludes dilution and is computed by dividing net income by the weighted average of the Companys common
shares outstanding for the period. Diluted net earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The Company does not have
common stock equivalents, therefore, diluted earnings per share is equal to basic earnings per share. For the three months ended September 30, 2004 and 2003, basic and diluted earnings per share were $6,842 and $1,885, respectively. For the nine
months ended September 30, 2004 and 2003, basic and diluted earnings per share were $21,013 and $9,154, respectively.



Recent Accounting Pronouncements and Changes



In November 2002, the Financial Accounting Standards Board (FASB) issued Financial Accounting Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others(FIN No. 45). This interpretation elaborates on the existing disclosure requirements for most
guarantees, including loan guarantees, and standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair market value of the obligations it assumes under that
guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions of the interpretation apply on a prospective basis to guarantees issued or modified after December 31,
2002. The Company adopted FIN No. 45, effective January 1, 2003. The adoption of FIN No. 45 did not have a material impact on the Companys consolidated results of operations, financial position or cash flows.



In December 2003, the FASB issued FIN No. 46R, Consolidation of Variable
Interest Entities(FIN No. 46R). FIN No. 46R requires a company to consolidate a variable interest entity if it is designated as the primary beneficiary of that entity even if the company does not have a majority of voting interests.
A variable interest entity is generally defined as an entity that has insufficient equity to finance its activities or the owners of the entity lack the risk and rewards of ownership. FIN No. 46R replaces FIN No. 46, Consolidation of Variable
Interest Entities, which was issued in January 2003. The interpretation applies to interests in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for the periods ending after
December 15, 2003 and for all other types of entities in the financial statements for periods ending after March 15, 2004. The Company does not have any interests that would change its current reporting entity or require additional disclosure as
outlined in FIN No. 46R.



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|2. | Collateralization
|-- | -----------------



In connection with reverse repurchase agreements, the Company receives collateral that is held in custody by the Companys banks. At September 30,
2004, the Company accepted collateral in the form of U.S. Treasury bills that it is permitted by contract or industry practice to sell or re-pledge. At September 30, 2004 and December 31, 2003, the total collateral held was $32.3 million and $97.2
million, respectively.



|3. | Notes Payable
|-- | -------------



The Company issued long-term debt totaling $100 million during 1996 and 1997 to provide completion financing for the Companys trading facility and
headquarters. This issuance is comprised of three series, each with different maturity dates, interest rates, and repayment schedules. Series A notes require annual principal repayments from 2001 to 2010, and a final payment of principal in 2011.
Series B notes require annual principal repayments from 2011 to 2020, and a final payment of principal in 2021. Series C notes require annual principal repayments from 2022 to 2025, and a final payment of principal in 2026. The notes represent
senior unsecured obligations of the Company and are not secured by the facility, the Companys interest therein, or any other collateral. At September 30, 2004, the notes payable balance was $91.5 million.



|4. | Member Seat Financing Program
|-- | -----------------------------



Included in marketable securities are investments that are pledged as collateral with one of the Companys investment managers relating to a
membership seat financing program. Under this program, the investment manager extends credit to individuals purchasing NYMEX Division membership seats. The program requires that the Company pledge assets to the investment manager in an amount equal
to at least 118% of the loan value. In the event a member defaults on a loan, the investment manager has the right to seize the Companys collateral for the amount of the default, and the Company has the right to liquidate the members
interest in the NYMEX Division to be reimbursed for its loss of collateral. At September 30, 2004, there were total seat loan balances of $7.9 million and securities pledged against the seat loan balances of $9.3 million.



|5. | Incentive Programs
|-- | ------------------



The Company has various discretionary rebate and cost reduction programs that reduce operating costs of certain market participants. These programs were
designed to provide incentives to third parties to establish business with the Company. During the three- and nine-month periods ended September 30, 2004, these programs totaled $4.0 million and $8.9 million, respectively, compared to $1.4 million
and $2.9 million, respectively, in the prior year periods.



During 2003, the Company had in effect a proprietary fee reduction program. Under this program, NYMEX Division members received from the Company, either directly or through a clearing member, payments representing reductions of their
clearing and transaction fees. The amount of payments under this program was based on each members individual trading and clearing volumes, and represented a stated per-side transaction fee reduction. The level of the per-side fee reduction
was set periodically by the Companys board of directors. Clearing and transaction fees were recorded net of these payments, which totaled $3.8 million and $11.9 million for the three and nine months ended September 30, 2003, respectively. This
program was eliminated effective December 31, 2003 and, as a result, there were no fee reduction credits during the three and nine months ended September 30, 2004.



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|6. | Allowance for Doubtful Accounts and Credits
|-- | -------------------------------------------



Clearing and transaction fees receivable are carried net of allowances for member credits, which are based upon expected billing adjustments. Allowances
for member credits were $255,000 at September 30, 2004.



An
allowance for doubtful accounts was established for market data accounts receivables to cover potential non-collectible receivables as well as future adjustments by the market data customers. At September 30, 2004, this allowance was $130,000, which
the Company believes is sufficient to cover potential bad debts and subsequent credits. At September 30, 2004, the combined amounts due from customers with the ten highest receivable balances represented 79% of the total accounts receivable balance.



Other revenues, which include member booth rentals, licensing
fees and equipment rentals, are recognized on an accrual basis in the period during which the Company derives economic value, with the exception of floor and compliance fines, which are recognized when cash is received. The Company has established a
reserve for non-collectible receivables of $665,000 at September 30, 2004, and believes the amount is sufficient to cover potential bad debts and subsequent credits.



|7. | Supplemental Disclosures of Cash Flow Information
|-- | -------------------------------------------------



Supplemental disclosures of cash flow information for the nine months ended September 30, 2004 and 2003 are as follows (in thousands):



|                                                  |  |                                |        |      |   |      
|------------------------------------------------- |  | ------------------------------ | ------ | ---- | - | -----
|                                                  |  | Nine Months EndedSeptember 30,
|                                                  |  | 2004                           |        | 2003
|Cash paid for:                                    |  |                                |        |      |   |      
|Interest                                          |  | $                              | 3,524  |      | $ | 3,629
|                                                  |  |                                |        |      |   |      
|Income taxes                                      |  | $                              | 14,677 |      | $ | 4,794
|                                                  |  |                                |        |      |   |      
|Noncash investing and financing activities:       |  |                                |        |      |   |      
|Purchase of assets under capital lease obligation |  | $                              | 955    |      | $ |     
|                                                  |  |                                |        |      |   |      



|8. | Margin Deposits and Guaranty Funds
|-- | ----------------------------------



The Company is required, under the Commodity Exchange Act, to maintain separate accounts for cash and securities that are deposited by clearing members at
banks, approved by the Company, as margin for house and customer accounts. These margin deposits are used by members to meet their obligations to the Company for margin requirements on open futures and options positions, as well as delivery
obligations.



Each clearing member firm is required to
maintain a security deposit, in the form of cash or U.S. treasury securities, ranging from $100,000 to $2.0 million per division, based upon such clearing member firms reported regulatory capital, in a fund known as a Guaranty Fund.
Historically, separate and distinct Guaranty Funds were maintained for the NYMEX Division and the COMEX Division. Effective May 16, 2003, the NYMEX Division assumed all of the clearing functions of the COMEX Division. Accordingly, the deposits were
aggregated and are now maintained in a single Guaranty Fund which may be used for any loss sustained by the Company as a result of the failure of a clearing member to discharge its obligations on either division. Although there is now one Guaranty
Fund for both divisions, separate contribution amounts are calculated for each division.



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Every member and non-member executing transactions on the Companys divisions must be guaranteed by a clearing member and clear their transactions
through the Companys clearinghouse. This requirement also applies to transactions conducted outside of the Exchange which clear through NYMEX ClearPortSMClearing. Clearing members of the NYMEX Division and COMEX Division require their customers to maintain deposits in accordance with Company margin requirements. Margin deposits and Guaranty Funds are
posted by clearing members with the Companys clearinghouse. In the event of a clearing member default, the Company satisfies the clearing members obligations on the underlying contract by drawing on the defaulting clearing members
Guaranty Funds. If those resources are insufficient, the Company may fund the obligations from its own financial resources or draw on Guaranty Funds posted by non-defaulting clearing members. During the second quarter of 2003, the Company obtained a
$100 million default insurance policy. This insurance coverage is available to protect the Company and clearing members in the event that a default in excess of $130 million occurs which depletes the available Guaranty Funds and defaulting member
margin deposits. Additionally, the Company is evaluating the viability of a line of credit that would provide temporary liquidity, prior to accessing Guaranty Funds, in the event of a clearing member default, and would be collateralized by margin
deposits and Guaranty Funds.



The Company is entitled to earn
interest on cash balances posted as margin deposits and Guaranty Funds. Such balances are included in the Companys consolidated balance sheets, and are generally invested overnight in securities purchased under agreements to resell.



The following table sets forth margin deposits and Guaranty
Fund balances held by the Company on behalf of clearing members at September 30, 2004 and December 31, 2003 (in thousands):



|                                                        |                |                    |               |                   |             |         |                |   |               |  |             |           |  |   |         |  |   |          
|------------------------------------------------------- | -------------- | ------------------ | ------------- | ----------------- | ----------- | ------- | -------------- | - | ------------- |  | ----------- | --------- |  | - | ------- |  | - | ---------
|Cash and securities earning interest for NYMEX Holdings |                | September 30, 2004 |               | December 31, 2003
|                                                        | MarginDeposits |                    | GuarantyFunds |                   | Total Funds |         | MarginDeposits |   | GuarantyFunds |  | Total Funds
|Cash                                                    |                | $                  | 6             |                   | $           |        |                | $ | 6             |  | $           | 67        |  | $ | 81      |  | $ | 148      
|Securities held for resale                              |                |                    | 29,945        |                   |             | 2,375   |                |   | 32,320        |  |             | 92,450    |  |   | 4,640   |  |   | 97,090   
|                                                        |                |                    |               |                   |             |         |                |   |               |  |             |           |  |   |         |  |   |          
|Total cash and securities                               |                |                    | 29,951        |                   |             | 2,375   |                |   | 32,326        |  |             | 92,517    |  |   | 4,721   |  |   | 97,238   
|                                                        |                |                    |               |                   |             |         |                |   |               |  |             |           |  |   |         |  |   |          
|Cash and securities earning interest for members        |                |                    |               |                   |             |         |                |   |               |  |             |           |  |   |         |  |   |          
|Money market funds                                      |                |                    | 1,957,620     |                   |             |        |                |   | 1,957,620     |  |             | 2,099,620 |  |   |        |  |   | 2,099,620
|U.S. treasuries                                         |                |                    | 5,749,227     |                   |             | 142,256 |                |   | 5,891,483     |  |             | 5,108,929 |  |   | 149,911 |  |   | 5,258,840
|Letters of credit                                       |                |                    | 441,514       |                   |             |        |                |   | 441,514       |  |             | 408,632   |  |   |        |  |   | 408,632  
|                                                        |                |                    |               |                   |             |         |                |   |               |  |             |           |  |   |         |  |   |          
|Total cash and securities                               |                |                    | 8,148,361     |                   |             | 142,256 |                |   | 8,290,617     |  |             | 7,617,181 |  |   | 149,911 |  |   | 7,767,092
|                                                        |                |                    |               |                   |             |         |                |   |               |  |             |           |  |   |         |  |   |          
|Total funds                                             |                | $                  | 8,178,312     |                   | $           | 144,631 |                | $ | 8,322,943     |  | $           | 7,709,698 |  | $ | 154,632 |  | $ | 7,864,330
|                                                        |                |                    |               |                   |             |         |                |   |               |  |             |           |  |   |         |  |   |          



|9. | Commitments and Contingencies
|-- | -----------------------------



Contractual Obligations



The Company occupies premises under leases, including a land lease, with various lessors that expire during the years 2004 through 2069. For the three
months ended September 30, 2004 and 2003, rental expense for facilities and the land lease amounted to $0.9 million and $0.7 million, respectively. For the nine months ended September 30, 2004 and 2003, rental expense for facilities and the land
lease amounted to $1.9 million and $3.4 million, respectively.



In connection with its operating activities, the Company enters into certain contractual obligations. The Companys material contractual cash obligations include long-term debt, operating leases, a capital lease and other contracts. A
summary of the Companys future cash payments associated with its contractual cash



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obligations outstanding as of September 30, 2004, as well as an estimate of the timing in which these commitments are expected to expire, are set forth on
the following table (in thousands):



|                              |  |                        |        |            |   |            |  |               |        |       |   |         |  |   |        
|----------------------------- |  | ---------------------- | ------ | ---------- | - | ---------- |  | ------------- | ------ | ----- | - | ------- |  | - | -------
|                              |  | Payments Due by Period
|                              |  | Less than 1Year        |        | 1 -3 Years |   | 4 -5 Years |  | After 5 Years |        | Total
|Contractual Obligations       |  |                        |        |            |   |            |  |               |        |       |   |         |  |   |        
|Long-term debt principal      |  | $                      | 2,817  |            | $ | 5,634      |  | $             | 5,634  |       | $ | 77,464  |  | $ | 91,549 
|Debt interest                 |  |                        | 6,942  |            |   | 13,252     |  |               | 12,409 |       |   | 50,568  |  |   | 83,171 
|Operating Leases              |  |                        | 4,572  |            |   | 8,121      |  |               | 7,116  |       |   | 10,043  |  |   | 29,852 
|Capital lease                 |  |                        | 468    |            |   | 487        |  |               |       |       |   |        |  |   | 955    
|Other long-term obligations   |  |                        | 800    |            |   | 1,600      |  |               | 1,600  |       |   | 7,451   |  |   | 11,451 
|                              |  |                        |        |            |   |            |  |               |        |       |   |         |  |   |        
|Total contractual obligations |  | $                      | 15,599 |            | $ | 29,094     |  | $             | 26,759 |       | $ | 145,526 |  | $ | 216,978
|                              |  |                        |        |            |   |            |  |               |        |       |   |         |  |   |        



The Companys
senior notes are subject to a prepayment penalty in the event they are paid off prior to their scheduled maturities. The Company believes that any economic benefits derived from early redemption of these notes would be offset by the redemption
penalty. These notes place certain limitations on the Companys ability to incur additional indebtedness.



Financial Guarantees



The Company adopted FIN No. 45, effective, January 1, 2003. The Company has certain guarantee arrangements in its clearing process as well as other
financial guarantees discussed below:



Included in marketable
securities are investments that are pledged as collateral with one of the Companys investment managers relating to a membership seat financing program. Under this program, the investment manager extends credit to individuals purchasing NYMEX
Division memberships. The program requires that the Company pledge assets to the investment manager in an amount equal to at least 118% of the loan value. In the event a member defaults on a loan, the investment manager has the right to seize the
Companys collateral for the amount of the default, and the Company has the right to liquidate the members interest in the NYMEX Division to be reimbursed for its loss of collateral. At September 30, 2004, there were total seat loan
balances of $7.9 million and $9.3 million in securities that were pledged against the seat loan balances.



The Company serves a clearinghouse function, standing as a financial intermediary on every futures and options transaction cleared. Through its
clearinghouse, the Company maintains a system of guarantees for performance of obligations owed to buyers and sellers. This system of guarantees is supported by several mechanisms, including margin deposits and Guaranty Funds posted by clearing
members with the Companys clearinghouse. The Company is required, under the Commodity Exchange Act, to maintain separate accounts for cash and securities that are deposited by clearing members at banks approved by the Company as margin for
house and customer accounts. These clearing deposits are used by members to meet their obligations to the Company for margin requirements on open futures and options positions as well as delivery obligations. As of September 30, 2004, there were no
clearing members in default.



There were no events of default
during the first nine months of 2004, in either arrangement, in which a liability should be recognized in accordance with FIN No. 45.



Legal Proceedings



Set forth below is a description of material litigation to which the Company is a party, as of September 30, 2004. Although there can be no assurance as
to the ultimate outcome, the Company believes it has meritorious defenses and is vigorously defending each matter described below. The final outcome of any litigation, however, cannot be predicted with certainty, and an adverse resolution of these
matters could have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows.



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The Company has been named as a defendant in the following legal action:



New York Mercantile Exchange, Inc. v. IntercontinentalExchange, Inc.On November 20, 2002, NYMEX Exchange commenced
an action in United States District Court for the Southern District of New York against IntercontinentalExchange, Inc. (ICE). The amended complaint alleges claims for (a) copyright infringement by ICE arising out of ICEs uses of
certain NYMEX Exchange settlement prices; (b) service mark infringement by reason of use by ICE of the service marks NYMEX and NEW YORK MERCANTILE EXCHANGE, (c) violation of trademark anti-dilution statutes, and (d) interference with contractual
relationships. On January 6, 2003, ICE served an Answer and Counterclaims, in which ICE alleges five counterclaims against NYMEX Exchange as follows: (1) a claim for purported violation of Section 2 of the Sherman Act, 15 U.S.C. § 2, for NYMEX
Exchanges allegedly trying to maintain a monopoly in the execution of the North America energy futures and expand the alleged monopoly into the execution and clearing of North American OTC energy contracts by attempting to deny ICE access to
NYMEX Exchange settlement prices; (2) a claim for purported violation of Section 1 of the Sherman Act by conspiring with certain of its members to restrain trade by attempting to deny ICE access to NYMEX Exchange settlement prices; (3) a claim for
alleged violation of Section 2 of the Sherman Act by NYMEX Exchange purportedly denying ICE access to NYMEX Exchanges settlement prices which are allegedly an essential facility; (4) a claim for purported violation of Section 1 of
the Sherman Act and Section 3 of the Clayton Act by NYMEX Exchange allegedly tying execution services for North American energy futures and options to clearing services; and (5) a claim for purported violation of the Lanham Act through false
advertising with respect to certain services offered by NYMEX Exchange and services offered by ICE. The counterclaims request damages and trebled damages in amounts not specified yet by ICE in addition to injunctive and declaratory relief.



On August 11, 2003, the Court issued an opinion dismissing
certain counterclaims and one affirmative defense, with leave to replead. On or about August 28, 2003, NYMEX Exchange was served with ICEs First Amended Counterclaims in which ICE made four counterclaims against NYMEX Exchange principally
alleging violations of U.S. antitrust laws, including claims regarding monopoly leveraging.



By Order and Opinion dated June 30, 2004, the Court granted NYMEX Exchanges motion and dismissed all of the antitrust counterclaims asserted against NYMEX Exchange. This case is ongoing.



The Company is defending counterclaims filed against it by the defendant in
the following legal action:



New York Mercantile Exchange,
Inc. v. Kai Neumann and Codeland, Inc. On May 18, 2004, NYMEX Exchange commenced an action in New York State Supreme Court. This action arises from defendants alleged unauthorized use of computer software and other subject matter
proprietary to NYMEX Exchange, and asserts causes of action for, among other things, trade secret misappropriation, fraudulent misrepresentation, and breach of fiduciary duties. On June 25, 2004, defendants Neumann and Codeland answered the
complaint and interposed several counterclaims against NYMEX Exchange that include causes of action for breach of contract and theft of trade secrets. These counterclaims seek, among other things, $13,000,000 in compensatory damages, $10,000,000 in
punitive damages, as well as injunctive relief and additional damages for back pay, front pay, lost fringe benefits, and reinstatement of Neumanns employment. NYMEX Exchanges time to reply, move or otherwise respond to these
counterclaims was extended to October 12, 2004. On that date NYMEX Exchange moved to dismiss certain counterclaims. On December 20, 2004, NYMEX Exchange settled this action. The settlement was recorded in the current period ended September 30, 2004
and did not have a material impact on the Companys consolidated results of operations, financial position or cash flows.



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|10. | Segment Reporting
|--- | -----------------



The Company considers operating results for two business segments: Open Outcry and Electronic Trading and Clearing. Open Outcry is the trading and
clearing of NYMEX Division and COMEX Division futures and options contracts on the trading floor of the Exchange. Electronic Trading and Clearing consists of NYMEX ACCESS®, NYMEX ClearPortSMTrading and NYMEX ClearPortSMClearing. The Company reports income on a segment basis, but does not allocate assets or goodwill. Operating revenues presented for each segment include clearing and transaction fees related to such segment and a pro rated portion
of market data fees. Other revenues are attributed entirely to Open Outcry. Depreciation and amortization and other operating expenses are allocated based on the proportion of operating revenues attributed to each segment. The prior year segment
information has been restated to reflect this methodology of reporting each segment.



Financial information relating to these segments is set forth below (in thousands):



|                                     |  |                                                |        |                                 |   |              |  |             |        |              |   |             |  |   |        |  |   |        
|------------------------------------ |  | ---------------------------------------------- | ------ | ------------------------------- | - | ------------ |  | ----------- | ------ | ------------ | - | ----------- |  | - | ------ |  | - | -------
|                                     |  | Three and Nine Months Ended September 30, 2004
|                                     |  | Open Outcry                                    |        | Electronic Trading and Clearing |   | Total       
|                                     |  | Three Months                                   |        | Nine Months                     |   | Three Months |  | Nine Months |        | Three Months |   | Nine Months
|Operating revenues                   |  | $                                              | 46,281 |                                 | $ | 133,740      |  | $           | 15,672 |              | $ | 37,909      |  | $ | 61,953 |  | $ | 171,649
|Depreciation and amortization        |  |                                                | 5,119  |                                 |   | 13,555       |  |             | 1,734  |              |   | 3,842       |  |   | 6,853  |  |   | 17,397 
|Other operating expenses             |  |                                                | 33,706 |                                 |   | 93,796       |  |             | 11,413 |              |   | 26,587      |  |   | 45,119 |  |   | 120,383
|                                     |  |                                                |        |                                 |   |              |  |             |        |              |   |             |  |   |        |  |   |        
|Operating income (loss)              |  |                                                | 7,456  |                                 |   | 26,389       |  |             | 2,525  |              |   | 7,480       |  |   | 9,981  |  |   | 33,869 
|                                     |  |                                                |        |                                 |   |             
|Investment income, net               |  |                                                | 1,809  |                                 |   | 2,225        |  |             |       |              |   |            |  |   | 1,809  |  |   | 2,225  
|Interest expense                     |  |                                                | 1,770  |                                 |   | 5,310        |  |             |       |              |   |            |  |   | 1,770  |  |   | 5,310  
|Provision (benefit) for income taxes |  |                                                | 3,319  |                                 |   | 10,323       |  |             | 1,118  |              |   | 3,314       |  |   | 4,437  |  |   | 13,637 
|                                     |  |                                                |        |                                 |   |              |  |             |        |              |   |             |  |   |        |  |   |        
|Net income (loss)                    |  | $                                              | 4,176  |                                 | $ | 12,981       |  | $           | 1,407  |              | $ | 4,166       |  | $ | 5,583  |  | $ | 17,147 
|                                     |  |                                                |        |                                 |   |              |  |             |        |              |   |             |  |   |        |  |   |        



|                              |  |                                                |        |                                 |   |              |  |             |       |              |   |             |  |   |        |  |   |        
|----------------------------- |  | ---------------------------------------------- | ------ | ------------------------------- | - | ------------ |  | ----------- | ----- | ------------ | - | ----------- |  | - | ------ |  | - | -------
|                              |  | Three and Nine Months Ended September 30, 2003
|                              |  | Open Outcry                                    |        | Electronic Trading and Clearing |   | Total       
|                              |  | Three Months                                   |        | Nine Months                     |   | Three Months |  | Nine Months |       | Three Months |   | Nine Months
|Operating revenues            |  | $                                              | 38,919 |                                 | $ | 114,043      |  | $           | 6,926 |              | $ | 22,460      |  | $ | 45,845 |  | $ | 136,503
|Depreciation and amortization |  |                                                | 4,155  |                                 |   | 11,997       |  |             | 740   |              |   | 2,363       |  |   | 4,895  |  |   | 14,360 
|Other operating expenses      |  |                                                | 31,641 |                                 |   | 88,950       |  |             | 5,631 |              |   | 17,518      |  |   | 37,272 |  |   | 106,468
|                              |  |                                                |        |                                 |   |              |  |             |       |              |   |             |  |   |        |  |   |        
|Operating income              |  |                                                | 3,123  |                                 |   | 13,096       |  |             | 555   |              |   | 2,579       |  |   | 3,678  |  |   | 15,675 
|                              |  |                                                |        |                                 |   |             
|Investment income, net        |  |                                                | 643    |                                 |   | 3,393        |  |             |      |              |   |            |  |   | 643    |  |   | 3,393  
|Interest expense              |  |                                                | 1,823  |                                 |   | 5,468        |  |             |      |              |   |            |  |   | 1,823  |  |   | 5,468  
|Provision for income taxes    |  |                                                | 747    |                                 |   | 4,970        |  |             | 213   |              |   | 1,160       |  |   | 960    |  |   | 6,130  
|                              |  |                                                |        |                                 |   |              |  |             |       |              |   |             |  |   |        |  |   |        
|Net income                    |  | $                                              | 1,196  |                                 | $ | 6,051        |  | $           | 342   |              | $ | 1,419       |  | $ | 1,538  |  | $ | 7,470  
|                              |  |                                                |        |                                 |   |              |  |             |       |              |   |             |  |   |        |  |   |        



|11. | Members Retirement Plan and Benefits
|--- | -------------------------------------



The Company maintains a retirement and benefit plan for certain members of the COMEX Division under the COMEX Members Recognition and Retention
Program (MRRP). The annual benefit payments are $12,500 ($2,000 for options members) for 10 years for vested participants; no new participants were permitted after the date of the merger, nor were there payments made prior to January 1,
2002. The Company is required to fund the plan with a minimum annual contribution of $400,000 until the plan is fully funded. Based on continued funding of $800,000 per year, and certain actuarial assumptions, the Company expects the plan to be
fully funded in 2018. Corporate contributions and related investment earnings are charged



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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



against current operations. All benefits to be paid under the COMEX MRRP shall be based upon reasonable actuarial assumptions which, in turn, are based upon
the amounts that are available and are expected to be available to pay benefits, except that the benefits paid to any individual will not exceed the amounts stated above. Quarterly distributions from the program began in the second quarter of 2002.
Subject to the foregoing, the board of directors of the Company reserves the right to amend or terminate the COMEX MRRP upon an affirmative vote of 60% of the eligible COMEX Division plan participants.



|12. | Postretirement Benefits other than Pensions
|--- | -------------------------------------------



The Companys postretirement benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the
discount rate and expected long-term rate of return on plan assets. Material changes in its postretirement benefit costs may occur in the future due to changes in these assumptions, changes in the number of plan participants, changes in the level of
benefits provided, and changes in asset levels. The Company provides certain health care and life insurance benefit plans for qualifying retired employees. Substantially all of the Companys employees may become eligible for these benefits if
they reach specified age and years of service criteria while working for the Company. The benefits are provided through certain insurance companies. The Company expects to fund its share of such benefit costs principally on a pay-as-you-go basis. In
December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) became law in the U.S. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree
health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare benefit. In accordance with FAS No. 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003, the Company elected to defer recognition of the effects of the Act in any measures of the benefit obligation or cost. In May 2004, the FASB issued FASB Staff Position No. 106-2 (FAS No. 106-2) under the same title. FAS
No. 106-2 provides guidance on accounting for the benefits attributable to new government subsidies for companies that provide prescription drug benefits to retirees. The Company has concluded that it will likely not be eligible to receive a
subsidy. Therefore, the Act is not expected to have a material effect on the Companys consolidated results of operations, financial position or cash flows. The measurement date used to determine pension and other postretirement benefit
measures for the pension plan and the postretirement benefit plan is December 31 of each year.



Accrued postretirement benefit costs are included in other non-current liabilities in the consolidated balance sheets. The accrued postretirement
obligations recorded in the balance sheet at September 30, 2004 and December 31, 2003 exceed the amount of the accumulated obligations.



The following table presents the funded status of such plans, reconciled with amounts recognized in the Companys consolidated financial statements
(in thousands):



|                                             |  |                                         |     |   |                                        |   |      |      |  |   |      |   |  |   |      |  
|-------------------------------------------- |  | --------------------------------------- | --- | - | -------------------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                             |  | For the Three MonthsEnded September 30, |     |   | For the Nine MonthsEnded September 30, |  
|                                             |  | 2004                                    |     |   | 2003                                   |   |      | 2004 |  |   | 2003 |  
|Service costs                                |  | $                                       | 123 |   |                                        | $ | 55   |      |  | $ | 253  |   |  | $ | 165  |  
|Interest costs                               |  |                                         | 119 |   |                                        |   | 62   |      |  |   | 245  |   |  |   | 185  |  
|Expected return on plan assets               |  |                                         |    |   |                                        |   |     |      |  |   |     |   |  |   |     |  
|Amortization of prior service costs          |  |                                         | (15 | ) |                                        |   | (14  | )    |  |   | (43  | ) |  |   | (43  | )
|Amortization of net (gain) loss              |  |                                         | 7   |   |                                        |   | (5   | )    |  |   | 5    |   |  |   | (17  | )
|                                             |  |                                         |     |   |                                        |   |      |      |  |   |      |   |  |   |      |  
|Net periodic postretirement benefit cost     |  |                                         | 234 |   |                                        |   | 98   |      |  |   | 460  |   |  |   | 290  |  
|Adjustment for prior period overstatement    |  |                                         |    |   |                                        |   | (276 | )    |  |   |     |   |  |   | (827 | )
|                                             |  |                                         |     |   |                                        |   |      |      |  |   |      |   |  |   |      |  
|Total net period postretirement benefit cost |  | $                                       | 234 |   |                                        | $ | (178 | )    |  | $ | 460  |   |  | $ | (537 | )
|                                             |  |                                         |     |   |                                        |   |      |      |  |   |      |   |  |   |      |  



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##### Table of Contents

NYMEX HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



|13. | Subsequent Events
|--- | -----------------



On October 5, 2004, the Company introduced the New York Mercantile Exchange Electronic Order Network (NEON) in its gold and silver futures
rings, with Prudential Financial Derivatives, LLC, serving as the first futures commission merchant to offer the service. NEON is a technology that was internally developed by the Exchange to provide a gateway for firms and traders to route orders
to the Exchanges energy and metals markets. The network conforms with industry standard financial information exchange message formats and provides firms with a webbased display for order data including status and fill details.



On October 6, 2004, the board of directors of the Company
voted to move daytime trading of its financially-settled PJM monthly electricity futures contract from the trading floor to its internet-based NYMEX ClearPortsmTrading system, effective November 1, 2004.



On November 1, 2004, the Company launched open outcry trading of Brent Crude Oil futures in its newly established Dublin, Ireland branch (NYMEX-Europe). Open outcry is the primary means of trading at
NYMEX-Europe, with trading also being made available on an after-hours basis via the Companys electronic trading systems. The Company has sub-leased space from FINEX, the Board of Trade of the City of New York, Inc.s Dublin operation.
The board of directors of the Company approved the launch of a trading floor in Dublin on October 18, 2004.



On November 12, 2004, the Company and the Taiwan Futures Exchange announced that they have signed a memorandum of understanding to develop areas of
cooperation and business opportunities with the goal of enhancing the liquidity, efficiency, and integrity of the markets of both exchanges.



On December 15, 2004, the board of directors of the Company voted to declare and distribute a dividend of $3.5 million to stockholders of record as of
December 31, 2004. The dividend is the fifth issued by the Company since its demutualization in November 2000.



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



Overview



Throughout this document NYMEX Holdings, Inc. will be referred to as NYMEX Holdings and, together with its subsidiaries, as the
Company. The two principal operating subsidiaries of NYMEX Holdings are New York Mercantile Exchange, Inc. (NYMEX Exchange or NYMEX Division), and Commodity Exchange, Inc. (COMEX or COMEX
Division), which is a wholly-owned subsidiary of NYMEX Exchange. Where appropriate, each division will be discussed separately, and collectively will be discussed as the Exchange.



Since its founding 132 years ago, the Company has evolved into a major
provider of financial services to the energy and metals industries. A core component of the business is the revenue derived from the Companys trading facilities and from providing clearing and settlement services through its clearinghouse to a
wide range of participants in these industries. A significant amount of revenue is also derived from the sale of market data. Based upon the Companys volume of approximately 139 million contracts transacted and/or cleared on the Exchange
during 2003, the Exchange is the largest physical commodity based futures exchange in the world and the third largest futures exchange in the U.S.



The NYMEX Exchange is the largest exchange in the world for the trading of energy futures and options contracts, including contracts for crude oil,
unleaded gasoline, heating oil and natural gas, and is the largest exchange in North America for the trading of platinum group metals contracts.



The COMEX is the largest marketplace for gold and silver futures and options contracts, and is the largest exchange in North America for futures and
options contracts for copper and aluminum. Participants in the Exchanges markets include a wide variety of customers involved in the production, consumption and trading of energy and metals products. Market participants use the Exchange for
both hedging and speculative purposes.



NYMEX
ClearPortSMClearing is the mechanism by which individually negotiated off-exchange trades are submitted to the
Exchange for clearing of specified products. The NYMEX ClearPortSMClearing system enables market participants to
take advantage of the financial depth and security of the NYMEX Exchange clearinghouse along with access to more than 60 energy futures contracts.



Note Regarding Forward-Looking Statements



The Company may, in discussions of its future plans, objectives and expected performance in periodic reports filed by the Company with the Securities and
Exchange Commission (or documents incorporated by reference therein) and in written and oral presentations made by the Company, include projections or other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
or Section 21E of the Securities Exchange Act of 1934, as amended (the 1934 Act). Such projections and forward-looking statements are based on assumptions, which the Company believes are reasonable but are, by their nature, inherently
uncertain. Some of the important factors that could cause actual results to differ from any such projections or other forward-looking statements are discussed below, and in other reports filed by the Company under the 1934 Act, including in the
Companys December 31, 2003 Annual Report on Form 10-K. The Companys forward-looking statements are based on information available to the Company today, and except as required by law, the Company undertakes no obligation to update any
forward-looking statement, whether as a result of new information, future events or otherwise. Actual results and experience may differ materially from forward-looking statements as a result of many factors, including: changes in general economic
and industry conditions in various markets in which the Companys contracts are traded; increased competitive activity; fluctuations in trading floor administrative expenses related to trading and clearing contracts; the ability to control
costs and expenses; changes to legislation or regulations; protection and validity of the Companys intellectual property rights and rights licensed from others; and other unanticipated events and conditions. It is not possible for the Company
to foresee or identify all such factors.



17



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##### Table of Contents

Market Conditions



For the three months ended September 30, 2004, the volume of total futures and options contracts traded and cleared was 43.7
million contracts, an increase of 8.7 million contracts or 24.9% from 35.0 million contracts for the same period last year.



For the nine months ended September 30, 2004, the volume of total futures and options contracts traded and cleared was 123.7 million contracts, an
increase of 16.3 million contracts or 15.2% from 107.4 million contracts for the same period last year.



Provided below is a discussion of the Companys three significant components of trading and clearing operations: (i) the NYMEX Division; (ii) the
COMEX Division; and (iii) NYMEX ClearPortSMClearing. The NYMEX Division and COMEX Division information presented in
the following discussion excludes contracts cleared through NYMEX ClearPortSMClearing.



Trading and clearing volumes discussed in this managements discussion
and analysis are expressed as round-turns, which are matched buys and sells of the underlying contracts. These volumes include futures settlement and options exercise transactions for which transaction fees are assessed. Prior to the
filing of the second quarter 2004 Form 10-Q, the Company did not include settlement and exercise volumes in its volume disclosures. Accordingly, prior period volume information has been adjusted to include such transactions for comparative purposes.
Open interest represents the number of contracts at September 30, 2004 and 2003 for which clearing members and their customers are obligated to the Companys clearinghouse and are required to make or take future delivery of the physical
commodity (or in certain cases be settled by cash), or close out the position with an offsetting sale or purchase prior to contract expiration. Options open interest represents unexpired, unexercised option contracts.



Energy Markets  NYMEX Division



For the three months ended September 30, 2004, the volume of futures and
options contracts traded and cleared on the NYMEX Division was 32.9 million contracts, an increase of 6.5 million contracts or 24.6% from 26.4 million contracts for the same period last year. Futures contracts volume was 26.6 million contracts, an
increase of 4.8 million contracts or 22.0% from 21.8 million contracts for the same period last year. Options contracts volume was 6.3 million contracts, an increase of 1.7 million contracts or 37.0% from 4.6 million contracts for the same period
last year.



For the nine months ended September 30, 2004, the
volume of futures and options contracts traded and cleared on the NYMEX Division was 92.2 million contracts, an increase of 8.0 million contracts or 9.5% from 84.2 million contracts for the same period last year. Futures contracts volume was 75.3
million contracts, an increase of 7.6 million contracts or 11.2% from 67.7 million contracts for the same period last year. Options contracts volume was 16.9 million contracts, an increase of 0.4 million contracts or 2.4% from 16.5 million contracts
for the same period last year.



The following tables set forth
trading and clearing volumes and open interest for the Companys major energy futures and options products.



18



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##### Table of Contents

NYMEX Division Contracts Traded and Cleared

(in thousands)



|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|---------------------------------------------------------- |  | ---------------------------------------- |  | ------- |  | ------ |  | ------- |  | ------- |  | ------
|                                                           |  | For the Three Months Ended September 30,
|                                                           |  | 2004                                     |  | 2003   
|Quarterly Comparison                                       |  | Futures                                  |  | Options |  | Total  |  | Futures |  | Options |  | Total 
|Light sweet crude oil                                      |  | 14,054                                   |  | 3,346   |  | 17,400 |  | 11,059  |  | 2,160   |  | 13,219
|Henry Hub natural gas                                      |  | 5,259                                    |  | 2,274   |  | 7,533  |  | 4,536   |  | 2,072   |  | 6,608 
|N.Y. heating oil                                           |  | 3,108                                    |  | 253     |  | 3,361  |  | 2,884   |  | 157     |  | 3,041 
|N.Y. harbor unleaded gasoline                              |  | 3,289                                    |  | 205     |  | 3,494  |  | 2,982   |  | 163     |  | 3,145 
|Other                                                      |  | 923                                      |  | 170     |  | 1,093  |  | 290     |  | 53      |  | 343   
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|Total                                                      |  | 26,633                                   |  | 6,248   |  | 32,881 |  | 21,751  |  | 4,605   |  | 26,356
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|NYMEX Division Contracts Traded and
Cleared (in thousands)
|                                                           |  | For the Three Months Ended September 30,
|                                                           |  | 2004                                     |  | 2003   
|Year-to-Date Comparison                                    |  | Futures                                  |  | Options |  | Total  |  | Futures |  | Options |  | Total 
|Light sweet crude oil                                      |  | 40,277                                   |  | 8,859   |  | 49,136 |  | 34,571  |  | 8,357   |  | 42,928
|Henry Hub natural gas                                      |  | 13,873                                   |  | 6,179   |  | 20,052 |  | 14,884  |  | 6,781   |  | 21,665
|N.Y. heating oil                                           |  | 9,529                                    |  | 501     |  | 10,030 |  | 8,791   |  | 537     |  | 9,328 
|N.Y. harbor unleaded gasoline                              |  | 10,037                                   |  | 820     |  | 10,857 |  | 8,860   |  | 599     |  | 9,459 
|Other                                                      |  | 1,587                                    |  | 492     |  | 2,079  |  | 629     |  | 194     |  | 823   
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|Total                                                      |  | 75,303                                   |  | 16,851  |  | 92,154 |  | 67,735  |  | 16,468  |  | 84,203
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|NYMEX Division Contracts Open
Interest (in thousands)     
|                                                           |  | At September 30,                        
|                                                           |  | 2004                                     |  | 2003   
|                                                           |  | Futures                                  |  | Options |  | Total  |  | Futures |  | Options |  | Total 
|Light sweet crude oil                                      |  | 703                                      |  | 1,410   |  | 2,113  |  | 501     |  | 674     |  | 1,175 
|Henry Hub natural gas                                      |  | 376                                      |  | 927     |  | 1,303  |  | 350     |  | 784     |  | 1,134 
|N.Y. heating oil                                           |  | 190                                      |  | 119     |  | 309    |  | 158     |  | 71      |  | 229   
|N.Y. harbor unleaded gasoline                              |  | 154                                      |  | 50      |  | 204    |  | 75      |  | 21      |  | 96    
|Other                                                      |  | 55                                       |  | 52      |  | 107    |  | 24      |  | 11      |  | 35    
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|Total                                                      |  | 1,478                                    |  | 2,558   |  | 4,036  |  | 1,108   |  | 1,561   |  | 2,669 
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       



Light Sweet Crude
Oil



For the three months ended September 30, 2004,
futures contract volume was 14.1 million contracts, an increase of 3.0 million contracts or 27.0% from 11.1 million contracts for the same period last year. Options contract volume was 3.3 million contracts, an increase of 1.1 million contracts or
50.0% from 2.2 million contracts for the same period last year. Total futures and options contract volume was 17.4 million contracts, an increase of 4.1 million contracts or 30.8% from 13.3 million contracts for the same period last year.



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##### Table of Contents

For the nine months ended September 30, 2004, futures contract volume was 40.3 million contracts, an
increase of 5.7 million contracts or 16.5% from 34.6 million contracts for the same period last year. Options contract volume was 8.9 million contracts, an increase of 0.5 million contracts or 6.0% from 8.4 million contracts for the same period last
year. Total futures and options contract volume was 49.2 million contracts, an increase of 6.2 million contracts or 14.4% from 43.0 million contracts for the same period last year.



The Company believes that increases in futures and options contract volume for the three and nine months ended September 30,
2004 were due, in part, to the continuing strong global demand for crude oil. In addition, the price volatility of crude oil increased due to terrorism concerns in the Middle East and the hurricanes that have affected the oil refineries located near
the Gulf of Mexico. Finally, continued high price differentials between crude oil and gasoline have resulted in higher trading activity.



Henry Hub Natural Gas



For the three months ended September 30, 2004, futures contract volume was 5.3 million contracts, an increase of 0.8 million contracts or 17.8% from 4.5
million contracts for the same period last year. Options contract volume was 2.3 million contracts, an increase of 0.2 million contracts or 9.5% from 2.1 million contracts for the same period last year. Total futures and options contracts volume was
7.6 million contracts, an increase of 1.0 million contracts or 15.2% from 6.6 million contracts for the same period last year.



The Company believes that increases in futures and options contract volume for the three months ended September 30, 2004 were due, in part, to concerns
about the natural gas supply resulting from the hurricanes in the Gulf of Mexico. The hurricanes caused damage and disruption to the production facilities located in that area, which resulted in reduced natural gas production.



For the nine months ended September 30, 2004, futures contract volume was
13.9 million contracts, a decrease of 1.0 million contracts or 6.7% from 14.9 million contracts for the same period last year. Options contract volume was 6.2 million contracts, a decrease of 0.6 million contracts or 8.8% from 6.8 million contracts
for the same period last year. Total futures and options contracts volume was 20.1 million contracts, a decrease of 1.6 million contracts or 7.4% from 21.7 million contracts for the same period last year.



The Company believes that decreases in futures and options contract volume
for the nine months ended September 30, 2004 were due, in part, to diminished concern, prior to the hurricane season, regarding the supply of natural gas. This past winter was characterized by weather that was, for the most part, forecasted
accurately. This resulted in weather that was expected, and as a result, there was an adequate supply of natural gas to meet the heating needs of consumers. During the prior year period, a colder than expected winter led to increased concerns about
the supply, and therefore, resulted in increased trading activity.



New York Heating Oil



For the three months
ended September 30, 2004, futures contract volume was 3.1 million contracts, an increase of 0.2 million contracts or 6.9% from 2.9 million contracts for the same period last year. Options contract volume was 0.3 million contracts, an increase of 0.1
million contracts or 50.0% from 0.2 million contracts for the same prior last year. Total futures and options contracts volume was 3.4 million contracts, an increase of 0.3 million contracts or 9.7% from 3.1 million contracts for the same period
last year.



For the nine months ended September 30, 2004,
futures contract volume was 9.5 million contracts, an increase of 0.7 million contracts or 8.0% from 8.8 million contracts for the same period last year. Options contract volume was 0.5 million contracts for both the current and prior year period.
Total futures and options contracts volume was 10.0 million contracts, an increase of 0.7 million contracts or 7.5% from 9.3 million contracts for the same period last year.



The Company believes that increases in futures contract volume for the three and nine months ended September 30, 2004, and
options contract volume for the three months ended September 30, 2004, were due, in part, to the continuing strong global



20



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##### Table of Contents

demand for petroleum products, including heating oil. In addition, the price volatility in the heating oil market increased, as supply concerns arose due to
terrorism in the Middle East and the hurricanes that have affected the oil refineries located near the Gulf of Mexico. Options contract volume for the nine months ended September 30, 2004 was essentially flat compared to the same period last year
due to unusually strong levels of volume in the prior year period, as volatility was higher due to the war in Iraq.



New York Harbor Unleaded Gasoline



For the three months ended September 30, 2004, futures contract volume was 3.3 million contracts, an increase of 0.3 million contracts or 10.0% from 3.0
million contracts for the same period last year. Options contract volume was 0.2 million for both the current and prior year period. Total futures and options contracts volume was 3.5 million contracts, an increase of 0.3 million contracts or 9.4%
from 3.2 million contracts for the same period last year.



For
the nine months ended September 30, 2004, futures contract volume was 10.0 million contracts, an increase of 1.1 million contracts or 12.4% from 8.9 million contracts for the same period last year. Options contract volume was 0.8 million, an
increase of 0.2 million contracts or 33.3% from 0.6 million contracts for the same period last year. Total futures and options contract volume was 10.8 million contracts, an increase of 1.3 million contracts or 13.7% from 9.5 million contracts for
the same period last year.



The Company believes that
increases in futures and options contracts volume for the three and nine months ended September 30, 2004 were due, in part, to the continuing strong consumer demand for gasoline. The increased demand was coupled with a decrease in gasoline supply as
hurricanes in the Gulf of Mexico caused refineries to shut down at times throughout the current quarter. These factors attributed to the increased price differential between gasoline and crude oil, resulting in higher trading activity.



Metals Market  COMEX Division



For the three months ended September 30, 2004, the volume of total futures
and options contracts traded and cleared for the COMEX Division was 6.8 million contracts, a decrease of 0.2 million contracts or 2.9% from 7.0 million contracts for the same period last year. Futures contract volume was 5.3 million contracts for
both the current and prior year period. Options contract volume was 1.5 million contracts, a decrease of 0.2 million contracts or 11.8% from 1.7 million contracts for the same period last year.



For the nine months ended September 30, 2004, the volume of total futures
and options contracts traded and cleared for the COMEX Division was 22.7 million contracts, an increase of 4.0 million contracts or 21.4% from 18.7 million contracts for the same period last year. Futures contract volume was 18.6 million contracts,
an increase of 3.6 million contracts or 24.0% from 15.0 million contracts for the same period last year. Options contract volume was 4.1 million contracts, an increase of 0.4 million contracts or 10.8% from 3.7 million contracts for the same period
last year.



The following tables set forth trading and
clearing volumes and open interest for the Companys major metals futures and options products.



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##### Table of Contents

COMEX Division Contracts Traded and Cleared

(in thousands)



|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|---------------------------------------------------------- |  | ---------------------------------------- |  | ------- |  | ------ |  | ------- |  | ------- |  | ------
|                                                           |  | For the Three Months Ended September 30,
|                                                           |  | 2004                                     |  | 2003   
|Quarterly Comparison                                       |  | Futures                                  |  | Options |  | Total  |  | Futures |  | Options |  | Total 
|Gold                                                       |  | 3,442                                    |  | 1,253   |  | 4,695  |  | 3,198   |  | 1,550   |  | 4,748 
|Silver                                                     |  | 1,072                                    |  | 223     |  | 1,295  |  | 1,221   |  | 179     |  | 1,400 
|High grade copper                                          |  | 756                                      |  | 34      |  | 790    |  | 812     |  | 9       |  | 821   
|Aluminum                                                   |  | 14                                       |  |        |  | 14     |  | 43      |  | 1       |  | 44    
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|Total                                                      |  | 5,284                                    |  | 1,510   |  | 6,794  |  | 5,274   |  | 1,739   |  | 7,013 
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|COMEX Division Contracts Traded and
Cleared (in thousands)
|                                                           |  | For the Nine Months Ended September 30, 
|                                                           |  | 2004                                     |  | 2003   
|Year-to-Date Comparison                                    |  | Futures                                  |  | Options |  | Total  |  | Futures |  | Options |  | Total 
|Gold                                                       |  | 11,878                                   |  | 3,246   |  | 15,124 |  | 9,331   |  | 3,273   |  | 12,604
|Silver                                                     |  | 4,018                                    |  | 703     |  | 4,721  |  | 3,124   |  | 398     |  | 3,522 
|High grade copper                                          |  | 2,624                                    |  | 163     |  | 2,787  |  | 2,440   |  | 25      |  | 2,465 
|Aluminum                                                   |  | 71                                       |  |        |  | 71     |  | 129     |  | 3       |  | 132   
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|Total                                                      |  | 18,591                                   |  | 4,112   |  | 22,703 |  | 15,024  |  | 3,699   |  | 18,723
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|COMEX Division Contracts Open
Interest (in thousands)     
|                                                           |  | At September 30,                        
|                                                           |  | 2004                                     |  | 2003   
|                                                           |  | Futures                                  |  | Options |  | Total  |  | Futures |  | Options |  | Total 
|Gold                                                       |  | 290                                      |  | 630     |  | 920    |  | 278     |  | 706     |  | 984   
|Silver                                                     |  | 93                                       |  | 91      |  | 184    |  | 106     |  | 83      |  | 189   
|High grade copper                                          |  | 97                                       |  | 18      |  | 115    |  | 91      |  | 3       |  | 94    
|Aluminum                                                   |  | 10                                       |  |        |  | 10     |  | 8       |  |        |  | 8     
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       
|Total                                                      |  | 490                                      |  | 739     |  | 1,229  |  | 483     |  | 792     |  | 1,275 
|                                                           |  |                                          |  |         |  |        |  |         |  |         |  |       



Gold



For the three months ended September 30, 2004, futures
contract volume was 3.4 million contracts, an increase of 0.2 million contracts or 6.3% from 3.2 million contracts for the same period last year. Options contract volume was 1.3 million contracts, a decrease of 0.3 million contracts or 18.8% from
1.6 million contracts for the same period last year. Total futures and options contract volume was 4.7 million contracts, a decrease of 0.1 million contracts or 2.1% from 4.8 million contracts for the same period last year.



For the nine months ended September 30, 2004, futures contract volume was
11.9 million contracts, an increase of 2.6 million contracts or 28.0% from 9.3 million contracts for the same period last year. Options



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##### Table of Contents

contract volume was 3.2 million contracts, essentially flat compared to the same period last year. Total futures and options contract volume was 15.1 million
contracts, an increase of 2.5 million contracts or 19.8% from 12.6 million contracts for the same period last year.



The Company believes that increases in futures contract volume for the three and nine months ended September 30, 2004 were due, in part, to significant
uncertainty regarding geopolitical conditions, rapidly rising physical commodity prices, a weakened U.S. currency and economic growth, which led to increased hedging and speculative demand for gold futures. The Company believes that the decrease in
options contract volume for the three months ended September 30, 2004 was due, in part, to a period of reduced market volatility.



Silver



For the three months ended September 30, 2004, futures contract volume was 1.1 million contracts, a decrease of 0.1 million contracts or 8.3% from 1.2
million contracts for the same period last year. Options contract volume was 0.2 million contracts for both the current and prior year period. Total futures and options contract volume was 1.3 million contracts, a decrease of 0.1 million contracts
or 7.1% from 1.4 million contracts for the same period last year.



For the nine months ended September 30, 2004, futures contract volume was 4.0 million contracts, an increase of 0.9 million contracts or 29.0% from 3.1 million contracts for the same period last year. Options contract volume was 0.7 million
contracts, an increase of 0.3 million contracts or 75.0% from 0.4 million contracts for the same period last year. Total futures and options contract volume was 4.7 million contracts, an increase of 1.2 million contracts or 34.3% from 3.5 million
contracts for the same period last year.



The Company believes
that the decrease in futures contract volume for the three months ended September 30, 2004 was due, in part, to a significant decline in film sales. Silver, a key ingredient in the photographic developing process, is not needed in digital cameras,
whose sales have been outpacing those of traditional film cameras.



The Company believes that increases in futures and options contract volume for the nine months ended September 30, 2004 were due, in part, to significant uncertainty regarding geopolitical conditions, rapidly rising physical commodity
prices, a weakened U.S. currency and economic growth, which led to increased hedging and speculative demand for silver futures and options.



High Grade Copper



For the three months ended September 30, 2004, futures contract volume was 0.8 million contracts, essentially flat with the same period last year. Options
contract volume increased to 34,000 contracts from 9,000 contracts for the same period last year. Total futures and options contract volume was 0.8 million for both the current and prior year period.



For the nine months ended September 30, 2004, futures contract volume was
2.6 million contracts, an increase of 0.2 million contracts or 8.3% from 2.4 million contracts for the same period last year. Options contract volume increased to 163,000 contracts from 25,000 contracts for the same period last year. Total futures
and options contract volume was 2.8 million contracts, an increase of 0.3 million or 12.0% from 2.5 million contracts for the same period last year.



The Company believes that increases in futures and options contract volume for the nine months ended September 30, 2004 were due, in part, to a projected
copper deficit in 2004 as a result of declining global warehouse stocks. World usage of copper has exceeded production due to strong housing starts in the U.S. coupled with increased international demand, which contributed to increased market
volatility, resulting in increases in copper futures and options trading levels.



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NYMEX ClearPort SMClearing



For the three months ended September 30, 2004, futures and options contract clearing volume was 4.0 million contracts, an increase of 2.4 million
contracts or 150.0% from 1.6 million contracts from the same period last year.



For the nine months ended September 30, 2004, futures and options contract clearing volume was 8.8 million contracts, an increase of 4.3 million contracts or 95.6% from 4.5 million contracts from the same period last
year.



While the Companys open outcry and electronic
trading venues experienced declines in natural gas futures and options trading volumes for the nine months ended September 30, 2004, there was significant growth in natural gas clearing volume through NYMEX ClearPortSMClearing. The growth in NYMEX ClearPortSMClearing was due, in part, to traditional over-the-counter market participants seeking credit risk mitigation provided by the Companys clearinghouse for off-exchange trade execution activities.
In addition, significant growth in existing natural gas products during the current period and the launch of new products for petroleum, electricity and coal on NYMEX ClearPortSMClearing contributed to this increase.



NYMEX ClearPortSMClearing
Contracts

(in thousands)



|                     |  |                                         |  |      
|-------------------- |  | --------------------------------------- |  | -----
|                     |  | For the Three MonthsEnded September 30,
|Quarterly Comparison |  | 2004                                    |  | 2003 
|Natural gas          |  | 3,719                                   |  | 1,506
|Electricity          |  | 146                                     |  | 66   
|Petroleum products   |  | 114                                     |  | 34   
|Coal                 |  | 2                                       |  | 1    
|                     |  |                                         |  |      
|Total                |  | 3,981                                   |  | 1,607
|                     |  |                                         |  |      



NYMEX ClearPortSMClearing Contracts

(in thousands)



|                        |  |                                        |  |      
|----------------------- |  | -------------------------------------- |  | -----
|                        |  | For the Nine MonthsEnded September 30,
|Year-to-Date Comparison |  | 2004                                   |  | 2003 
|Natural gas             |  | 8,055                                  |  | 4,302
|Electricity             |  | 385                                    |  | 147  
|Petroleum products      |  | 372                                    |  | 38   
|Coal                    |  | 6                                      |  | 2    
|                        |  |                                        |  |      
|Total                   |  | 8,818                                  |  | 4,489
|                        |  |                                        |  |      



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NYMEX ClearPortSMClearing Open Interest

(in thousands)



|                   |  |                  |  |     
|------------------ |  | ---------------- |  | ----
|                   |  | At September 30,
|                   |  | 2004             |  | 2003
|Natural gas        |  | 2,183            |  | 893 
|Electricity        |  | 72               |  | 31  
|Petroleum products |  | 109              |  | 13  
|Coal               |  | 1                |  | 1   
|                   |  |                  |  |     
|Total              |  | 2,365            |  | 938 
|                   |  |                  |  |     



Critical
Accounting Policies



The Securities and
Exchange Commission (SEC) has requested that all registrants discuss their three to five most critical accounting policies in Managements Discussion and Analysis. The SEC indicated that a critical accounting
policy is one which is both important to the portrayal of the companys financial condition and results of operations and requires managements most difficult, subjective or complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain. The Company believes that the following accounting policies fit this definition:



Internally Developed Software



Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, provides guidance on the
accounting treatment of costs related to software obtained or developed for internal use. The Company has capitalized certain costs to develop internal-use software, consisting primarily of software tools and systems. Since most of its capital
expenditures are not exclusively used on developing internally used software, the Company allocates these costs on a project-by-project basis. The Company capitalizes these costs related to software developed for internal use based on the results of
this allocation. During the nine months ended September 30, 2004, the Company had no capitalized internal-use software costs, compared to $1.7 million capitalized in the comparable prior year period. These amounts are included in property and
equipment, net, in the Companys unaudited consolidated balance sheets. The Company amortizes these capitalized costs to expense over an estimate of the useful life of the internal-use software, which is generally three to five years.



Revenue Recognition



Clearing and Transaction Fee Revenues



The largest source of the Companys operating
revenues is clearing and transaction fees. These fees are recognized as revenue in the same period that trades are executed and/or cleared on the Exchange. During 2003, the Company had in effect a proprietary fee reduction program. Under this
program, NYMEX Division members received from the Company, either directly or through a clearing member, payments representing reductions of their clearing and transaction fees. The amount of payments under this program was based on each
members individual trading and clearing volumes, and represented a stated per-side transaction fee reduction. The level of the per-side fee reduction was set periodically by the Companys board of directors. Clearing and transaction fees
were recorded net of these payments, which totaled $3.8 million and $11.9 million for the three and nine months ended September 30, 2003. This program was eliminated effective December 31, 2003 and, as a result, there were no fee reduction credits
during the three and nine months ended September 30, 2004.



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Clearing and transaction fees receivable are monies due to the Company from clearing member firms.
Exposure to losses on receivables is principally dependent on the financial condition of each clearing member firm. Clearing members seats collateralize fees owed to the Company. At September 30, 2004, no clearing and transaction fees
receivable balance was greater than the related clearing members aggregate seat value. Management does not believe that a concentration of credit risk exists from these receivables. The Company has the right to liquidate a members seat
in order to satisfy its receivable.



Clearing and transaction
fees receivable are carried net of allowances for member credits, which are based upon expected billing adjustments. Allowances for member credits were $255,000 at September 30, 2004. The Company believes the likelihood of incurring material losses
due to non-collectibility of clearing and transaction fees is remote and that the allowance is adequate to cover anticipated member credits.



Market Data Revenue



The Company provides real time information to subscribers regarding prices of futures and options contracts traded on the Exchange. As is common practice
in the industry, fees are remitted to the Company by market data customers on behalf of subscribers. Revenues are accrued for the current month based on the most recent month reported by the customers. The Company conducts periodic audits of the
information provided. Revenues derived from audit recoveries are recognized when cash is received from the market data customers. An allowance for doubtful accounts was established to cover potential non-collectible customer receivables as well as
future adjustments by the market data customers. At September 30, 2004, this allowance was $130,000, which the Company believes is sufficient to cover potential bad debts and subsequent credits. At September 30, 2004, the combined amounts due from
customers with the ten highest receivable balances represented 79% of the total accounts receivable balance. Effective January 1, 2005, the Company will implement a new price structure that it anticipates will generate an increase in market data
revenue compared to the current structure.



Other
Revenues



Other revenues consist of rental income from
tenants leasing space in the Companys headquarters building, compliance fines assessed for violation of trading rules and procedures, fees charged to members and non-members for the use of trading booths provided by the Company, fees charged
for access to the NYMEX ACCESS® electronic trading
system and other miscellaneous revenues. Included in other revenues in the prior year periods are fees charged to members and non-members for the use of telephone equipment and long distance telephone service, whereas in the current year, these fees
were recorded as a reduction of telecommunication expenses. Other revenues are recognized on an accrual basis in the period during which the Company derives economic value, with the exception of floor and compliance fines, which are recognized when
cash is received. The Company has established a reserve for non-collectible receivables of $665,000 at September 30, 2004, and believes the amount is sufficient to cover potential bad debts and subsequent credits.



Accounting for the Impairment or Disposal of Long-Lived Assets



The Company reviews long-lived assets for impairment, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS No. 144). If facts and circumstances indicate that the Companys
long-lived assets might be impaired, the estimated future undiscounted cash flows associated with the long-lived asset would be compared to its carrying value to determine if a write-down to fair value is necessary. If a write-down is required, the
amount is determined by comparing fair market values to carrying values in accordance with SFAS No. 144.



The Company is pursuing a new technology strategy, which is designed to standardize the Companys technology infrastructure. In conjunction with this
strategy, the functionality and useful lives of existing technology assets were evaluated as of September 30, 2003. As a result of this evaluation, the Company shortened the estimated useful lives of significant components of its existing technology
infrastructure, resulting in an acceleration of depreciation and associated increase in depreciation expense for subsequent periods.



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##### Table of Contents

Deferred Credits



In 1995, the Company secured a grant of $128.7 million from the New York City Economic Development Corporation
(EDC) and the Empire State Development Corporation (ESDC, formerly known as the New York State Urban Development Corporation) for construction of its corporate headquarters and trading facility. The grant is being recognized
in income on the same basis as, and is a reduction to, the depreciation of the facility.



In 2002, the Company entered into an agreement and received a $5 million grant from the ESDC. This agreement requires the Company to maintain certain annual employment levels, and the grant is subject to recapture
amounts on a declining scale over time. The grant is recognized in income ratably in accordance with the recapture schedule.



Results of Operations for the Three and Nine Months Ended September 30, 2004 and 2003



Overview



Net income for the three months ended September 30, 2004 was $5.6 million,
an increase of $4.1 million from $1.5 million for the same period last year. This increase was the result of revenues increasing by $16.2 million, which was partially offset by operating expenses increasing by $9.8 million. The increase in revenues
was due to an increase in gross clearing and transaction fees from higher trading and clearing volumes, as well as the elimination of the Companys proprietary fee reduction program that was in effect during 2003. The increase in operating
expenses was due primarily to increases in professional fees, depreciation and asset impairment and disposal charges.



Net income for the nine months ended September 30, 2004 was $17.1 million, an increase of $9.6 million from $7.5 million for the same period last year.
This increase was the result of revenues increasing by $35.1 million, which was partially offset by operating expenses increasing by $17.0 million. The increase in revenues was due to an increase in gross clearing and transaction fees from higher
trading and clearing volumes, as well as the elimination of the Companys proprietary fee reduction program that was in effect during 2003. The increase in operating expenses was due primarily to increases in salaries and employee benefits,
professional fees, general and administrative expenses, depreciation and asset impairment and disposal charges.



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##### Table of Contents

The following table summarizes the components of net income for the three and nine months ended September
30, 2004 and 2003 (in thousands, except for share data):



|                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        
|---------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------- |  | - | -------
|                                         |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                         |  | 2004                            |        | 2003                           |   | 2004   |  | 2003
|Total revenues                           |  | $                               | 61,953 |                                | $ | 45,845 |  | $    | 171,649 |  | $ | 136,503
|Operating expenses                       |  |                                 | 51,972 |                                |   | 42,167 |  |      | 137,780 |  |   | 120,828
|                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Operating income                         |  |                                 | 9,981  |                                |   | 3,678  |  |      | 33,869  |  |   | 15,675 
|Investment income, net                   |  |                                 | 1,809  |                                |   | 643    |  |      | 2,225   |  |   | 3,393  
|Interest expense                         |  |                                 | 1,770  |                                |   | 1,823  |  |      | 5,310   |  |   | 5,468  
|                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Income before provision for income taxes |  |                                 | 10,020 |                                |   | 2,498  |  |      | 30,784  |  |   | 13,600 
|Provision for income taxes               |  |                                 | 4,437  |                                |   | 960    |  |      | 13,637  |  |   | 6,130  
|                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Net income                               |  | $                               | 5,583  |                                | $ | 1,538  |  | $    | 17,147  |  | $ | 7,470  
|                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Basic and diluted earnings per share     |  | $                               | 6,842  |                                | $ | 1,885  |  | $    | 21,013  |  | $ | 9,154  
|                                         |  |                                 |        |                                |   |        |  |      |         |  |   |        

Revenue



Clearing and Transaction Fees, Net



For the three months ended September 30, 2004, clearing and transaction fees were $50.2 million, an increase of $16.9
million or 50.8% from $33.3 million for the same period last year. For the nine months ended September 30, 2004, clearing and transaction fees were $138.8 million, an increase of $36.7 million or 35.9% from $102.1 million for the same period last
year. The increases for both the three- and nine-month periods were due to higher NYMEX Division floor trading volumes, NYMEX ClearPortSMClearing volumes, NYMEX ACCESS® volumes for both the NYMEX Division and COMEX Division and the aggregate average revenue per contract. COMEX Division floor trading volumes increased for the nine-month period. In
addition, the elimination of the proprietary fee reduction program, which was in effect during 2003, also contributed to the increase in revenue.



For the three and nine months ended September 30, 2004, gross revenue per contract was $1.15 and $1.12, respectively, increases of $0.09 and $0.06 per
contract, respectively, compared to the comparable prior year periods. Gross revenue per contract increased due to the customer trading mix and an increase in the trading of certain products on NYMEX ClearPortSMClearing. For the three and nine months ended September 30, 2004, net revenue per contract increased an additional $0.11 due to the elimination of
the proprietary fee reduction program that was in effect during 2003. The following table provides details related to clearing and transaction revenue per contract (in thousands, except for revenue per contract):



|                                                          |  |                                 |        |      |                                |        |      |  |      |         |  |   |         |  
|--------------------------------------------------------- |  | ------------------------------- | ------ | ---- | ------------------------------ | ------ | ---- |  | ---- | ------- |  | - | ------- | -
|                                                          |  | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |       
|                                                          |  | 2004                            |        | 2003 |                                |        | 2004 |  | 2003 |        
|Clearing and Transaction Fee Revenue                      |  |                                 |        |      |                                |        |      |  |      |         |  |   |         |  
|Gross fees                                                |  | $                               | 50,151 |      | $                              | 37,138 |      |  | $    | 138,766 |  | $ | 114,039 |  
|Proprietary fee reduction program                         |  |                                 |       |      |                                | (3,801 | )    |  |      |        |  |   | (11,946 | )
|                                                          |  |                                 |        |      |                                |        |      |  |      |         |  |   |         |  
|Clearing and transaction fees, net                        |  | $                               | 50,151 |      | $                              | 33,337 |      |  | $    | 138,766 |  | $ | 102,093 |  
|                                                          |  |                                 |        |      |                                |        |      |  |      |         |  |   |         |  
|Average Clearing and Transaction Fee Revenue per Contract |  |                                 |        |      |                                |        |      |  |      |         |  |   |         |  
|Gross revenue per contract                                |  | $                               | 1.15   |      | $                              | 1.06   |      |  | $    | 1.12    |  | $ | 1.06    |  
|Impact of fee reduction program                           |  |                                 |       |      |                                | (0.11  | )    |  |      |        |  |   | (0.11   | )
|                                                          |  |                                 |        |      |                                |        |      |  |      |         |  |   |         |  
|Revenue per contract, net                                 |  | $                               | 1.15   |      | $                              | 0.95   |      |  | $    | 1.12    |  | $ | 0.95    |  
|                                                          |  |                                 |        |      |                                |        |      |  |      |         |  |   |         |  



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Market Data Fees



For the three months ended September 30, 2004, market data fee revenues were $8.2 million, an increase of $0.6 million or
7.9% from $7.6 million for the same period last year. This increase was due primarily to the implementation of separate vendor administrative fees for the NYMEX Division and COMEX Division in May of 2004. Prior to this, vendors were being charged
only one administrative fee for access to market data of both divisions.



For the nine months ended September 30, 2004, market data fee revenues were $23.9 million, essentially flat with the same period last year. The increase in revenue from additional NYMEX Division and COMEX Division
units during the current year was offset by audit recovery revenue included in the prior year period.



Other Revenues



For the three months ended September 30, 2004, other revenues were $3.6 million, a decrease of $1.3 million or 26.5% from $4.9 million for the same period
last year. For the nine months ended September 30, 2004, other revenues were $9.0 million, a decrease of $1.5 million or 14.3% from $10.5 million for the same period last year. The decreases for both the three- and nine-month periods were due
primarily to lower revenue from compliance fines, as the third quarter of 2003 included a large compliance fine levied on one of the Companys clearing members offset, in part, by additional rental income recorded from the Board of Trade of the
City of New York, Inc.



Operating Expenses



Salaries and Employee Benefits



For the three months ended September 30, 2004, salaries and employee benefit
expenses were $13.9 million, a decrease of $0.5 million or 3.5% from $14.4 million for the same period last year. This decrease was due primarily to lower employee costs attributable to a decline in the average number of employees as compared to the
same period last year.



For the nine months ended September
30, 2004, salaries and employee benefit expenses were $42.9 million, an increase of $2.0 million or 4.9% from $40.9 million for the same period last year. This increase was due primarily to an increase in severance costs the Company incurred in the
second quarter of 2004 with respect to one of its senior executives, as well as lower levels of capitalized compensation related to software development activities. In addition, this increase was partially offset by lower employee costs attributable
to a decline in the average number of employees as compared to the same period last year.



Occupancy and Equipment



For the three months ended September 30, 2004, occupancy and equipment expenses were $7.2 million, an increase of $0.1 million or 1.4% from $7.1 million
for the same period last year. For the nine months ended September 30, 2004, occupancy and equipment expenses were $19.5 million, a decrease of $1.5 million or 7.1% from $21.0 million for the same period last year. The decrease for the nine-month
period was due primarily to the additional rent and associated expenses the Company incurred in the prior year period to maintain a temporary disaster recovery site.



Depreciation and Amortization



For the three months ended September 30, 2004, depreciation and amortization expenses were $6.9 million, an increase of $2.0
million or 40.8% from $4.9 million for the same period last year. For the nine months ended September 30, 2004, depreciation and amortization expenses were $17.4 million, an increase of $3.0 million or 20.8% from $14.4 million for the same period
last year. The increases for both the three- and nine-month



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periods were due to additional depreciation related to the change in the useful life of certain fixed assets. The Company continued development of a new
technology strategy, which has been designed to standardize the Companys technology infrastructure. Implementation of this strategy is expected to reduce technology operating costs while enhancing processing speed and capacity. In conjunction
with this strategy, the functionality and useful lives of existing technology assets were evaluated. As a result of this evaluation, the Company shortened the estimated useful lives of a significant component of its existing technology
infrastructure. The change in useful lives will result in higher annual depreciation costs in 2004 compared to 2003. In addition, during the three-month period ended September 30, 2004, the Company identified, through an internal review, a material
weakness in its internal controls relating to the acquisition, tracking and disposition of fixed assets. The Company is currently in the process of remediating this weakness, and as a result, certain fixed assets were adjusted to properly reflect
their estimated remaining useful life. Depreciation expense attributable to the change in estimated remaining useful life of these assets was $1.0 million for the three- and nine-month periods ended September 30, 2004.



General and Administrative



For the three months ended September 30, 2004, general and administrative
expenses were $8.4 million, an increase of $1.2 million or 16.7% from $7.2 million for the same period last year. For the nine months ended September 30, 2004, general and administrative expenses were $21.5 million, an increase of $4.4 million or
25.7% from $17.1 million for the same period last year. The increases for both the three- and nine-month periods were attributable to the Companys implementation of, in the second quarter of 2003, certain programs designed to provide
incentives to third parties to establish business with the Company. This increase was partially offset by a decrease in litigation settlements in the current year periods. In addition, insurance expenses during the current nine-month period
increased due to premiums on a default insurance policy obtained in the second quarter of 2003 to provide protection to the Companys clearinghouse in the event of a clearing member default that exceeds the Guaranty Fund.



Professional Services



For the three months ended September 30, 2004, professional services
expenses were $6.5 million, an increase of $2.0 million or 44.4% from $4.5 million for the same period last year. For the nine months ended September 30, 2004, professional service expenses were $19.0 million, an increase of $5.0 million or 35.7%
from $14.0 million for the same period last year. The increases for both the three- and nine-month periods were due primarily to higher consulting fees related to compliance with the Sarbanes-Oxley Act of 2002, as well as financial and technical
consulting to support technology and strategic business initiatives. In addition, legal fees during the current nine-month period increased due to on-going involvement in certain litigation.



Telecommunications



For the three months ended September 30, 2004, telecommunications expenses
were $1.2 million, a decrease of $0.5 million or 29.4% from $1.7 million for the same period last year. For the nine months ended September 30, 2004, telecommunications expenses were $4.2 million, a decrease of $0.2 million or 4.5% from $4.4 million
for the same period last year. The decreases for both the three- and nine-month periods were due to lower data communication expenses. Also, during the current three-month period, a direct billing system was implemented for long distance
telecommunication services provided to members, whereby the members are now billed directly by the telecommunications vendors. This resulted in a decrease in telephone expenses during the current three-month period.



Marketing



For the three months ended September 30, 2004, marketing expenses were $0.4
million, a decrease of $0.1 million or 20.0% from $0.5 million for the same period last year. This decrease was due primarily to fewer general marketing expenses incurred during the current three-month period.



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For the nine months ended September 30, 2004, marketing expenses were $1.7 million, a decrease of $0.2
million or 10.5% from $1.9 million for the same period last year. This decrease was due primarily to fewer advertising campaigns offset, in part, by additional corporate logo sponsorships during the current nine-month period.



Other Expenses



For the three months ended September 30, 2004, other expenses were $2.5
million, an increase of $0.7 million or 38.9% from $1.8 million for the same period last year. For the nine months ended September 30, 2004, other expenses were $6.3 million, an increase of $0.1 million or 1.6% from $6.2 million for the same period
last year. The increase for the three-month period was due primarily to higher earnings from the COMEX Members Recognition and Retention Program (MRRP). The earnings or losses for the COMEX MRRP are included in investment income,
with an equal and offsetting charge recorded in other expenses on the consolidated statements of income.



Asset Impairment and Disposition Losses



The loss on impairment and disposition of property and equipment for the three- and nine-month periods ended September 30, 2004 was $4.8 million and $5.4
million, respectively. The Company, in the normal course of business, records charges for the impairment and disposal of assets which it determines to be obsolete. In addition, during the three-month period ended September 30, 2004, the Company
identified a material weakness in its internal controls relating to the acquisition, tracking and disposition of fixed assets. The Company is currently in the process of remediating this weakness and, as a result, recorded a charge of $3.4 million
in the three-month period ended September 30, 2004 consisting of $1.6 million for certain fixed assets that had been disposed of during periods prior to this three-month period and $1.8 million related to a reduction of fixed asset net book values
resulting from a physical inventory of certain fixed asset categories. Charges related to assets disposed of in the normal course of business during the three-month period ended September 30, 2004 were $1.4 million.



Investment Income



For the three months ended September 30, 2004, investment income was $1.8
million, an increase of $1.2 million or 200.0% from $0.6 million for the same period last year. This increase was due primarily to higher unrealized gains on fixed income securities in the current three-month period compared to the same period last
year which reported unrealized losses.



For the nine months
ended September 30, 2004, investment income was $2.2 million, a decrease of $1.2 million or 35.3% from $3.4 million for the same period last year. This decrease was due primarily to higher unrealized losses on fixed income securities during the
first six months of the current year compared to the same period last year which reported unrealized gains during the first six months.



Provision for Income Taxes



The Companys effective tax rate was 44.3% for the nine months ended September 30, 2004, compared to 45.1% for the same period last year. The
difference between the effective tax rates was due primarily to the establishment, during the prior year periods, of valuation allowances related to the potential expiration of charitable contribution carry-forwards and disallowed research and
development credits.



Financial Condition and Cash
Flows



Liquidity and Capital Resources



At September 30, 2004, the Company had $151.1 million in
cash and cash equivalents, securities purchased under agreements to resell and marketable securities. Working capital at September 30, 2004 was $130.2 million.



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Cash Flow; Sources and Uses of Cash



The Companys principal sources of cash are fees collected from clearing members for trading and/or clearing futures
and options transactions, fees collected from market data vendors for distribution of the Companys proprietary contract price information, and rent collected from tenants leased space in the Companys headquarters building.
Principal uses of cash include operating expenses, income taxes, capital expenditures, debt service, dividends and payments made to members and third parties under certain incentive programs.



The following table is a summary of significant cash flow categories for the
nine months ended September 30, 2004 and 2003 (in thousands):



|                                                                       |  |                                        |         |   |      |   |        |  
|---------------------------------------------------------------------- |  | -------------------------------------- | ------- | - | ---- | - | ------ | -
|                                                                       |  | For the Nine Months EndedSeptember 30, |        
|                                                                       |  | 2004                                   |         |   | 2003 |  
|Net cash provided by operating activities                              |  | $                                      | 48,131  |   |      | $ | 28,366 |  
|(Increase) decrease in marketable securities                           |  |                                        | (64,233 | ) |      |   | 712    |  
|(Increase) decrease in securities purchased under agreements to resell |  |                                        | 23,550  |   |      |   | (6,240 | )
|Capital expenditures                                                   |  |                                        | (4,762  | ) |      |   | (9,608 | )
|Other net cash flows                                                   |  |                                        | 1,019   |   |      |   | (3,694 | )
|                                                                       |  |                                        |         |   |      |   |        |  
|Change in cash and investments before dividends                        |  |                                        | 3,705   |   |      |   | 9,536  |  
|Dividends paid to stockholders                                         |  |                                        | (5,000  | ) |      |   | (7,500 | )
|                                                                       |  |                                        |         |   |      |   |        |  
|Net change in cash and cash equivalents                                |  | $                                      | (1,295  | ) |      | $ | 2,036  |  
|                                                                       |  |                                        |         |   |      |   |        |  



Net cash provided by
operating activities includes cash inflows related to operating revenues, net of cash outflows from operating expenses, income taxes and payments to members and third parties under certain incentive programs.



Net cash provided by operating activities was $48.1 million for the nine
months ended September 30, 2004 compared to $28.4 million for the same period last year. Cash flows from operating activities resulted primarily from net income during both periods, which represents the Companys principal source of cash and
led the period-over-period increase. In addition, operating cash flows were positively impacted by increases in accrued salaries and related liabilities and other current liabilities, offset by an increase in accounts receivable related to an
increase in revenues period-over-period, and income tax payments of $14.7 million during the current year period compared to $4.8 million in the prior year period. The Company did not pay income taxes in the first quarter of 2003 due to the
utilization of net operating losses offsetting taxable income.



Net cash used in investing activities was $44.4 million for the nine months ended September 30, 2004, an increase of $25.6 million compared to $18.8 million for the same period last year. This increase was due primarily to the investment of
higher operating cash flows into marketable securities.



Capital expenditures for the nine months ended September 30, 2004 and 2003 were $4.8 million and $9.6 million, respectively.



Net cash used in financing activities for the nine months ended September 30, 2004 and 2003 was $5.0 million and $7.5 million, respectively. These amounts
represent payments of cash dividends to the Companys common stockholders of $6,127 per common share and $9,191 per common share, respectively. The Company reserves the right to pay discretionary future dividends.



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In the fourth quarter of 2002, the Company and the Board of Trade of the City of New York, Inc.
(NYBOT) entered into a ten-year lease agreement, under which NYBOT is leasing office and trading floor space in the Companys headquarters building. Rent commenced for the office and trading floor space on various occupancy dates
during 2003. Operating cash flows in 2004 will benefit from full-year rent receipts under this lease agreement.



The Company believes that its cash flows from operations and existing working capital will be sufficient to meet its needs for the foreseeable future,
including capital expenditures, debt service and dividends. Subject to certain limitations under existing long-term note agreements, the Company has the ability and may seek to raise capital through the issuance of debt or equity in the private and
public capital markets.



Investment
Policy



The Company
maintains cash and short-term investments in an amount sufficient to meet its working capital requirements. The Companys investment policies are designed to maintain a high degree of liquidity, emphasizing safety of principal and total after
tax return. Excess cash on hand is generally invested overnight in securities purchased under agreements to resell. Cash that is not required to meet daily working capital requirements is invested primarily in high-grade tax-exempt municipal bonds,
and obligations of the United States government and its agencies. The Company also invests in equity securities. During the third quarter of 2004, the Company increased the amount of cash invested in overnight repurchase agreements and marketable
securities. The Company believes this change will increase its overall investment yield while maintaining a reasonable amount of cash on hand to meet daily working capital needs. At September 30, 2004 and December 31, 2003, cash and investments were
as follows (in thousands):



|                                                |  |                   |         |                  |   |        
|----------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                                |  | September 30,2004 |         | December 31,2003
|Cash and cash equivalents                       |  | $                 | 468     |                  | $ | 1,763  
|Securities purchased under agreements to resell |  |                   | 21,500  |                  |   | 45,050 
|Marketable securities                           |  |                   | 129,118 |                  |   | 64,885 
|                                                |  |                   |         |                  |   |        
|                                                |  | $                 | 151,086 |                  | $ | 111,698
|                                                |  |                   |         |                  |   |        



Included in
marketable securities at September 30, 2004 are investments totaling $12.0 million relating to the COMEX MRRP. This plan provides benefits to certain COMEX Division members based on long-term membership, and participation is limited to individuals
who were COMEX Division members prior to the Companys acquisition of COMEX in 1994. The Company is required to fund the plan with a minimum annual contribution of $400,000 until the plan is fully funded. Based on continued funding of $800,000
per year, and certain actuarial assumptions, the Company expects the plan to be fully funded by 2018.



Included in marketable securities are investments that are pledged as collateral with one of the Companys investment managers relating to a
membership seat financing program. Under this program, the investment manager extends credit to individuals purchasing NYMEX Division membership seats. The program requires that the Company pledge assets to the investment manager in an amount equal
to at least 118% of the loan value. In the event a member defaults on a loan, the investment manager has the right to seize the Companys collateral for the amount of the default, and the Company has the right to liquidate the members
interest in the NYMEX Division to reimburse its loss of collateral. At September 30, 2004, there were total seat loan balances of $7.9 million and $9.3 million in securities that were pledged against the seat loan balances.



Clearinghouse



The Company serves a clearinghouse function, standing as a financial
intermediary on every futures and options transaction cleared. Through its clearinghouse, the Company maintains a system of guarantees for performance of obligations owed to buyers and sellers. This system of guarantees is supported by several



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mechanisms, including margin deposits and Guaranty Funds posted by clearing members with the Companys clearinghouse. The amount of margin deposits on
hand will fluctuate over time as a result of, among other things, the extent of open positions held at any one point in time by market participants in NYMEX Division and COMEX Division contracts and the margin rates then in effect for such
contracts.



The Company is required, under the Commodity
Exchange Act, to maintain separate accounts for cash and securities that are deposited by clearing members at banks approved by the Company, as margin for house and customer accounts. These margin deposits are used by members to meet their
obligations to the Company for margin requirements on open futures and options positions as well as delivery obligations.



Each clearing member firm is required to maintain a security deposit, in the form of cash or U.S. treasury securities, ranging from $100,000 to $2.0
million per division, based upon such clearing member firms reported regulatory capital, in a fund known as a Guaranty Fund. Historically, separate and distinct Guaranty Funds were maintained for the NYMEX Division and the COMEX Division.
Effective May 16, 2003, the NYMEX Division assumed all of the clearing functions of the COMEX Division. Accordingly, the deposits were aggregated and are now maintained in a single Guaranty Fund which may be used for any loss sustained by the
Company as a result of the failure of a clearing member to discharge its obligations on either division. Although there is now one Guaranty Fund for both divisions, separate contribution amounts are calculated for each division.



Every member and non-member executing transactions on the Companys
divisions must be guaranteed by a clearing member and clear their transactions through the Companys clearinghouse. This requirement also applies to transactions conducted outside of the Exchange which clear through NYMEX ClearPortSMClearing. Clearing members of the NYMEX Division and COMEX Division require their customers to maintain deposits in accordance
with Company margin requirements. Margin deposits and Guaranty Funds are posted by clearing members with the Companys clearinghouse. In the event of a clearing member default, the Company satisfies the clearing members obligations on the
underlying contract by drawing on the defaulting clearing members Guaranty Funds. If those resources are insufficient, the Company may fund the obligations from its own financial resources or draw on Guaranty Funds posted by non-defaulting
clearing members. During the second quarter of 2003, the Company obtained a $100 million default insurance policy. This insurance policy provides coverage that protects the Company and clearing members in the event that a default in excess of $130
million occurs which depletes the available Guaranty Funds and defaulting member margin deposits. Additionally, the Company is evaluating the viability of a line of credit that would provide temporary liquidity, prior to accessing Guaranty Funds, in
the event of a clearing member default, and would be collateralized by margin deposits and Guaranty Funds.



The Company is entitled to earn interest on cash and investment balances recorded as margin deposits and Guaranty Funds. Such balances are included in the
Companys consolidated balance sheet, and are generally invested overnight in securities purchased under agreements to resell. The table in Note 8, Margin Deposits and Guaranty Funds,sets forth Guaranty Fund balances held by the Company
on behalf of clearing members at September 30, 2004 and December 31, 2003.



Future Cash Requirements



In connection with its operating activities, the Company enters into certain contractual obligations. The Companys material contractual cash obligations include long-term debt, operating leases, a capital lease
and other contracts.



A summary of the Companys future
cash payments associated with its contractual cash obligations outstanding as of September 30, 2004, as well as an estimate of the timing in which these commitments are expected to expire, are set forth in the following table (in thousands):



|                              |  |                        |        |            |   |            |  |               |        |       |   |         |  |   |        
|----------------------------- |  | ---------------------- | ------ | ---------- | - | ---------- |  | ------------- | ------ | ----- | - | ------- |  | - | -------
|                              |  | Payments Due by Period
|                              |  | Less than 1Year        |        | 1 -3 Years |   | 4 -5 Years |  | After 5 Years |        | Total
|Contractual Obligations       |  |                        |        |            |   |            |  |               |        |       |   |         |  |   |        
|Long-term debt principal      |  | $                      | 2,817  |            | $ | 5,634      |  | $             | 5,634  |       | $ | 77,464  |  | $ | 91,549 
|Debt interest                 |  |                        | 6,942  |            |   | 13,252     |  |               | 12,409 |       |   | 50,568  |  |   | 83,171 
|Operating leases              |  |                        | 4,572  |            |   | 8,121      |  |               | 7,116  |       |   | 10,043  |  |   | 29,852 
|Capital lease                 |  |                        | 468    |            |   | 487        |  |               |       |       |   |        |  |   | 955    
|Other long-term obligations   |  |                        | 800    |            |   | 1,600      |  |               | 1,600  |       |   | 7,451   |  |   | 11,451 
|                              |  |                        |        |            |   |            |  |               |        |       |   |         |  |   |        
|Total contractual obligations |  | $                      | 15,599 |            | $ | 29,094     |  | $             | 26,759 |       | $ | 145,526 |  | $ | 216,978
|                              |  |                        |        |            |   |            |  |               |        |       |   |         |  |   |        



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The Companys senior notes are subject to a prepayment penalty in the event they are paid off prior
to their scheduled maturities. The Company believes that any economic benefits derived from early redemption of these notes would be offset by the redemption penalty. These notes place certain limitations on the Companys ability to incur
additional indebtedness.



Other Matters



In February 2004, the Commodity Futures Trading
Commission (CFTC) issued, in connection with a Company proposal to clear OTC options, an order requiring, among other things, that the Company establish and maintain a permanent retail customer protection mechanism supported by a
commitment of not less than $10 million, which must be available at all times to reimburse retail customers trading on the Exchange whose original margin might be lost in the default of another customer of their clearing member. Based on historical
patterns, the Company believes that the likelihood of events that would require its performance under this CFTC order is remote. Therefore, the Company has not established and does not expect in the future to establish, a liability related to this
commitment.



On August 6, 2003, the Company modified and
implemented new rules addressing the posting of funds for lessee floor brokers and billing entities where the member ownership interest is solely comprised of lessees. The purpose of the modifications was to strengthen the overall financial
integrity and accountability of the floor brokerage business community, by requiring lessee floor brokers and billing entities comprised entirely of lessees to post funds of $100,000 as prescribed by the Exchange. The deposited funds may be used to
satisfy amounts assessed by Exchange arbitration panels or other duly authorized Exchange committees which remain unsatisfied. The Company maintains deposits for these lessees in cash and securities at financial institutions approved by the Company.
These deposits, in the amount of $4.7 million, are not included on the Companys consolidated balance sheet at September 30, 2004, and interest earned is paid monthly to each respective lessee.



Business Highlights



On July 7, 2004, the board of directors of the Company voted to declare and
distribute a dividend of $2.5 million to stockholders of record as of July 15, 2004. The dividend is the fourth issued by the Company since its demutualization in November 2000.



On July 9, 2004, the Company announced that Dr. James E. Newsome accepted the position of president of the Company,
effective August 2, 2004. Dr. Newsome had been Chairman of the Commodity Futures Trading Commission (CFTC) since Senate confirmation in December 2001. He served as a Commissioner of the CFTC since August 1998.



On July 13, 2004, the Company and the Tokyo Commodity Exchange
(TOCOM) announced that as of July 20, 2004, energy and metals futures contracts will become available for trading in Japan on NYMEX ACCESS®. In May 2004, the Company and TOCOM executed a cooperation agreement through which, among
other things, TOCOM would assist the Company in the offering of the Companys products in Japan.



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On August 4, 2004, the board of directors of the Company determined not to currently pursue a transaction
with Parthenon Capital, LLC (Parthenon), a private equity investment firm. In April 2004, the Company announced that it had received an indication of interest from Parthenon to acquire a potential controlling equity interest in the
Company. Parthenon and the Company had engaged in due diligence and preliminary discussions as to the structure of a proposed deal.



On August 12, 2004, the Company and the Shanghai Futures Exchange announced that they have signed a memorandum of understanding to explore potential areas
of cooperation that could mutually benefit the memberships of both exchanges. Such areas include cooperation in (i) sharing information regarding physical delivery futures contracts, clearing procedures, and risk management, (ii) developing future
lines of business, and (iii) exploring the feasibility of each exchange licensing the others products.



Subsequent Events



On October 5, 2004, the Company introduced the New York Mercantile Exchange Electronic Order Network (NEON) in its gold and silver futures
rings, with Prudential Financial Derivatives, LLC, serving as the first futures commission merchant to offer the service. NEON is a technology that was internally developed by the Exchange to provide a gateway for firms and traders to route orders
to the Exchanges energy and metals markets. The network conforms with industry standard financial information exchange message formats and provides firms with a webbased display for order data including status and fill details.



On October 6, 2004, the board of directors of the Company
voted to move daytime trading of its financially-settled PJM monthly electricity futures contract from the trading floor to its internet-based NYMEX ClearPortsmTrading system, effective November 1, 2004.



On November 1, 2004, the Company launched open outcry trading of Brent Crude Oil futures in its newly established Dublin, Ireland branch (NYMEX-Europe). Open outcry is the primary means of trading at
NYMEX-Europe, with trading also being made available on an after-hours basis via the Companys electronic trading systems. The Company has sub-leased space from FINEX, the Board of Trade of the City of New York, Inc.s Dublin operation.
The board of directors of the Company approved the launch of a trading floor in Dublin on October 18, 2004.



On November 12, 2004, the Company and the Taiwan Futures Exchange announced that they have signed a memorandum of understanding to develop areas of
cooperation and business opportunities with the goal of enhancing the liquidity, efficiency, and integrity of the markets of both exchanges.



On December 15, 2004, the board of directors of the Company voted to declare and distribute a dividend of $3.5 million to stockholders of record as of
December 31, 2004. The dividend is the fifth issued by the Company since its demutualization in November 2000.



Responsibility for Financial Reporting



The Companys management is responsible for the preparation, integrity and objectivity of the unaudited consolidated
financial statements and related notes, and the other financial information contained in this Form 10-Q. Such financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and are
considered by management to present fairly the Companys consolidated financial position, results of operations and cash flows. These unaudited consolidated financial statements include certain amounts that are based on managements
estimates and judgments, giving due consideration to materiality.



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Item 3. Quantitative and Qualitative Disclosures about Market Risk



The table below provides information about the Companys municipal bond portfolio and long-term debt including expected principal and interest cash
flows for the years 2004 through 2009 and thereafter (in thousands):



Principal Amounts by Expected Maturity

At September 30, 2004



|                    |  |           |         |          |   |        |  |                              |         |  |      |  
|------------------- |  | --------- | ------- | -------- | - | ------ |  | ---------------------------- | ------- |  | ---- | -
|Year                |  | Principal |         | Interest |   | Total  |  | WeightedAverageInterest Rate |        
|Assets              |  |           |         |          |   |        |  |                              |         |  |      |  
|Municipal Bonds     |  |           |         |          |   |        |  |                              |         |  |      |  
|2004                |  | $         |        |          | $ |       |  | $                            |        |  | N/A  |  
|2005                |  |           | 54      |          |   | 2      |  |                              | 56      |  | 3.47 | %
|2006                |  |           | 1,134   |          |   | 57     |  |                              | 1,191   |  | 4.95 | %
|2007                |  |           | 3,489   |          |   | 183    |  |                              | 3,672   |  | 4.86 | %
|2008                |  |           | 10,062  |          |   | 395    |  |                              | 10,457  |  | 3.88 | %
|2009 and thereafter |  |           | 38,046  |          |   | 1,678  |  |                              | 39,724  |  | 4.19 | %
|                    |  |           |         |          |   |        |  |                              |         |  |      |  
|Total               |  | $         | 52,785  |          | $ | 2,315  |  | $                            | 55,100  |  |      |  
|                    |  |           |         |          |   |        |  |                              |         |  |      |  
|Fair Value          |  | $         | 52,986  |          |   |        |  |                              |         |  |      |  
|                    |  |           |         |          |   |        |  |                              |         |  |      |  
|Liabilities         |  |           |         |          |   |        |  |                              |         |  |      |  
|Corporate Debt      |  |           |         |          |   |        |  |                              |         |  |      |  
|2004                |  | $         | 2,817   |          | $ | 3,524  |  | $                            | 6,341   |  | 7.70 | %
|2005                |  |           | 2,817   |          |   | 6,837  |  |                              | 9,654   |  | 7.71 | %
|2006                |  |           | 2,817   |          |   | 6,626  |  |                              | 9,443   |  | 7.71 | %
|2007                |  |           | 2,817   |          |   | 6,416  |  |                              | 9,233   |  | 7.72 | %
|2008                |  |           | 2,817   |          |   | 6,204  |  |                              | 9,021   |  | 7.73 | %
|2009 and thereafter |  |           | 77,464  |          |   | 53,564 |  |                              | 131,028 |  | 7.74 | %
|                    |  |           |         |          |   |        |  |                              |         |  |      |  
|Total               |  | $         | 91,549  |          | $ | 83,171 |  | $                            | 174,720 |  |      |  
|                    |  |           |         |          |   |        |  |                              |         |  |      |  
|Fair Value          |  | $         | 116,012 |          |   |        |  |                              |         |  |      |  
|                    |  |           |         |          |   |        |  |                              |         |  |      |  



Interest Rate
Risk



Current Assets



The Company maintains cash and short-term investments in an amount
sufficient to meet its working capital requirements. Excess cash on hand is generally invested overnight in securities purchased under agreements to resell. Cash that is not required to meet daily working capital requirements is invested primarily
in high-grade tax-exempt municipal bonds, and obligations of the United States government and its agencies. The Company also invests in equity securities. The Companys investment income consists primarily of interest income and realized and
unrealized gains and losses on the market values of its investments. Given the composition of its investment portfolio, the Companys investment income is highly sensitive to fluctuation in interest rates. Investment income for the three and
nine months ended September 30, 2004 was $1.8 million and $2.2 million, respectively, compared to income of $0.6 million and $3.4 million for the same periods last year. The fair value of the Companys marketable securities, including equity
securities, was $129.1 million at September 30, 2004. Based on portfolio compositions at September 30, 2004, assuming a 10% change in market values, the Company would have recognized losses of $12.9 million.



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Debt



The weighted average interest rate on the Companys long-term debt is 7.74%. The debt contains a redemption premium, the amount of which varies with
changes in interest rates. Therefore, the fair market value of the Companys long-term debt is highly sensitive to changes in interest rates. Although the market value of the debt will fluctuate with interest rates, the Companys interest
expense will not vary with changes in market interest rates if the debt is paid off in accordance with stated principal repayment schedules. As of the date of this report, the Company does not expect to pay down any series of its long-term debt
prior to stated maturities. However, the Company may pursue future financing strategies that involve early repayment of its current debt, or issuance of new debt, potentially increasing its sensitivity to changes in interest rates.



Credit Risk



NYMEX Division bylaws authorize its board of directors to fix the annual
dues of NYMEX Division members and to levy assessments as it determines to be necessary. Such dues and assessments are payable at such time as the Companys board of directors may determine. The Companys board of directors may waive the
payment of dues by all NYMEX Division members or by individual members as it determines. The COMEX Division bylaws authorize the Companys board of directors with similar powers relating to dues, assessments and fees with respect to COMEX
Division members, provided that such dues and assessments (or fee surcharges in lieu thereof) may not be imposed (other than in connection with certain merger-related events) without the consent of the COMEX Governors Committee and that the ability
of the Companys board of directors to impose such fee is subject to the limitations.



The Exchange, as a self-regulatory organization, has instituted detailed risk-management policies and procedures to guard against default risk with respect to contracts traded and/or cleared on the Exchange. The
Exchange also has extensive surveillance and compliance operations and procedures to monitor and to enforce compliance with rules pertaining to the trading, position sizes and financial condition of members. As described herein, the Exchange has
powers and procedures designed to support contract obligations in the event that a contract default occurs on the Exchange, including authority to levy assessments on any of its clearing members if, after a default by another clearing member, there
are insufficient funds available to cover a deficit. The maximum assessment on each clearing member is the lesser of $30 million or 40% of such clearing members reported regulatory capital.



Despite the Companys authority to levy assessments or impose fees,
there can be no assurance that the relevant members will have the financial resources available to pay, or will choose to be expelled from membership rather than pay, any dues, fees or assessments. The Company believes that assessment liabilities of
a member arising prior to expulsion are contractual in nature and, accordingly, survive expulsion. In addition, the Exchange would have recourse to such member and the proceeds from the Companys sale of such members seat would apply
towards any outstanding obligations to the Exchange of such member. Recourse to a members seat, however, may not be of material value in the case of large defaults that result in assessments greater than the seat value, particularly when the
seat value declines markedly in price as a consequence of the default.



Moreover, despite the risk mitigation techniques adopted and other powers and procedures implemented by the Company, which are designed to, among other things, minimize the potential risks associated with the occurrence of contract defaults
on the Company, there can be no assurance that these powers and procedures will prevent contract defaults or will otherwise function to preserve the liquidity of the Company.



Item 4.Controls and Procedures



| | (a) | Evaluation of Disclosure Controls and Procedures. The Companys principal executive officer and principal financial officer, after evaluating the
effectiveness of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | of 1934, as amended (the Exchange Act)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on
such evaluation, the Companys disclosure controls and procedures were, except for those relating to the material weakness described in Item 4(b) below, effective in reporting, on a timely basis, information required to be disclosed by the
Company in the reports that the Company files or submits under the Exchange Act, and this Quarterly Report on Form 10-Q.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Changes in Internal Controls. There were no changes, other than as discussed below, in the Companys internal control over financial reporting identified in
connection with the evaluation of such internal control that occurred during the Companys last fiscal quarter that have materially affected, or are reasonably likely to materially affect the Companys internal control over financial
reporting.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company has identified a
material weakness in its internal controls relating to the acquisition, tracking and disposition of fixed assets. The identification of this material weakness caused the Company to delay the filing of this Quarterly Report on Form 10-Q until the
completion of a review of its fixed asset inventory balances. The Company has completed its review and has identified charges of $4.4 million, of which $2.0 million relates to 2004 and $2.4 million relates to prior year periods. These charges
represent (i) write-off of certain fixed assets that had been disposed of during fiscal years 2004 and prior, (ii) adjustments relating to the depreciation of certain other fixed assets and (iii) an adjustment of the net book values of the
Companys fixed assets resulting from a physical inventory of certain asset categories. The impact of these adjustments on the Companys prior period financial statements has been determined by management and the Audit Committee of the
Company to not be material to the users of such financial statements based on relevant quantitative and qualitative factors. In addition, management and the Audit Committee have determined that the impact of recording the $2.4 million adjustment in
the current quarter will not be material to the full year financial statements of the Company. Accordingly, these charges were recognized as current period adjustments in the three-month period ended September 30, 2004, with $1.0 million recorded in
depreciation and amortization and $3.4 million recorded in asset impairment and disposition losses in the unaudited consolidated statements of income.



The Company is in the process of remediating this weakness in internal controls. Specifically, the Company is in the process of instituting new automated
processes to replace certain manual processes, new asset-tagging procedures, and new controls over the disposition of assets. In addition, the Company has instituted a monthly review process that verifies the valuation, categorization and the
estimated useful life of all fixed asset additions.



PART II: OTHER INFORMATION



Item 1.Legal Proceedings



Set forth below is a description of material litigation to which the Company is a party, as of September 30, 2004. Although there can be no assurance as to the ultimate outcome, the Company believes it has meritorious defenses and is
vigorously defending each matter described below. The final outcome of any litigation, however, cannot be predicted with certainty, and an adverse resolution of these matters could have a material adverse effect on the Companys consolidated
financial position, results of operations or cash flows.



The
Company has been named as a defendant in the following legal action:



New York Mercantile Exchange, Inc. v. Intercontinental Exchange, Inc.On November 20, 2002, NYMEX Exchange commenced an action in United States District Court for the Southern District of New York against Intercontinental Exchange,
Inc. (ICE). The amended complaint alleges claims for (a) copyright infringement by ICE arising out of ICEs uses of certain NYMEX Exchange settlement prices; (b) service mark infringement by reason of use by ICE of the service marks
NYMEX and NEW YORK MERCANTILE EXCHANGE, (c) violation of trademark anti-dilution statutes, and (d) interference with



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contractual relationships. On January 6, 2003, ICE served an Answer and Counterclaims, in which ICE alleges five counterclaims against NYMEX Exchange as
follows: (1) a claim for purported violation of Section 2 of the Sherman Act, 15 U.S.C. § 2, for NYMEX Exchanges allegedly trying to maintain a monopoly in the execution of the North America energy futures and expand the alleged monopoly
into the execution and clearing of North American OTC energy contracts by attempting to deny ICE access to NYMEX Exchange settlement prices; (2) a claim for purported violation of Section 1 of the Sherman Act by conspiring with certain of its
members to restrain trade by attempting to deny ICE access to NYMEX Exchange settlement prices; (3) a claim for alleged violation of Section 2 of the Sherman Act by NYMEX Exchange purportedly denying ICE access to NYMEX Exchanges settlement
prices which are allegedly an essential facility; (4) a claim for purported violation of Section 1 of the Sherman Act and Section 3 of the Clayton Act by NYMEX Exchange allegedly tying execution services for North American energy futures
and options to clearing services; and (5) a claim for purported violation of the Lanham Act through false advertising with respect to certain services offered by NYMEX Exchange and services offered by ICE. The counterclaims request damages and
trebled damages in amounts not specified yet by ICE in addition to injunctive and declaratory relief. NYMEX Exchanges response to the counterclaims was served on February 26, 2003.



On August 11, 2003, the Court issued an opinion dismissing certain counterclaims and one affirmative defense, with leave to
replead. On or about August 28, 2003, NYMEX Exchange was served with ICEs First Amended Counterclaims in which ICE made four counterclaims against NYMEX Exchange principally alleging violations of U.S. antitrust laws, including claims
regarding monopoly leveraging.



By Order and Opinion dated
June 30, 2004, the Court granted NYMEX Exchanges motion and dismissed all of the antitrust counterclaims asserted against NYMEX Exchange. This case is ongoing.



The Company is defending counterclaims filed against it by the defendant in the following legal action:



New York Mercantile Exchange, Inc. v. Kai Neumann and Codeland, Inc.
On May 18, 2004, NYMEX Exchange commenced an action in New York State Supreme Court. This action arises from defendants alleged unauthorized use of computer software and other subject matter proprietary to NYMEX Exchange, and asserts causes of
action for, among other things, trade secret misappropriation, fraudulent misrepresentation, and breach of fiduciary duties. On June 25, 2004, defendants Neumann and Codeland answered the complaint and interposed several counterclaims against NYMEX
Exchange that include causes of action for breach of contract and theft of trade secrets. These counterclaims seek, among other things, $13,000,000 in compensatory damages, $10,000,000 in punitive damages, as well as injunctive relief and additional
damages for back pay, front pay, lost fringe benefits, and reinstatement of Neumanns employment. NYMEX Exchanges time to reply, move or otherwise respond to these counterclaims was extended to October 12, 2004. On that date NYMEX
Exchange moved to dismiss certain counterclaims. On December 20, 2004, NYMEX Exchange settled this action. The settlement was recorded in the current period ended September 30, 2004 and did not have a material impact on the Companys
consolidated results of operations, financial position or cash flows.



Item 2.Unregistered Sales of Equity Securities and Use of Proceeds



Not applicable



Item 3.Defaults upon Senior Securities



Not applicable



Item 4.Submission of Matters to a Vote of Security Holders



Not applicable



Item 5.Other Information



Not applicable



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##### Table of Contents

Item 6.Exhibits



| | 10.1 | Employment Agreement by and between NYMEX Holdings, Inc., New York Mercantile Exchange, Inc. and James E. Newsome, dated as of August 2, 2004.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------



| | 31.1 | Certification of the Principal Executive Officer pursuant to § 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | -----------------------------------------------------------------------------------------------------



| | 31.2 | Certification of the Principal Financial Officer pursuant to § 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | -----------------------------------------------------------------------------------------------------



| | 32 | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to § 906 of the Sarbanes-Oxley Act of 2002.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                         |  |                      |  |                              
|------------------------ |  | -------------------- |  | -----------------------------
|                         |  | NYMEX HOLDINGS, INC.
|                         |  |                     
|Dated: December 28, 2004 |  | By:                  |  | /s/ Mitchell Steinhause      
|                         |  | Name:                |  | Mitchell Steinhause          
|                         |  | Title:               |  | Chairman                     
|                         |  |                      |  | (Principal Executive Officer)
|                         |  |                     
|Dated: December 28, 2004 |  | By:                  |  | /s/ Lewis A. Raibley, III    
|                         |  | Name:                |  | Lewis A. Raibley, III        
|                         |  | Title:               |  | Chief Financial Officer      
|                         |  |                      |  | (Principal Financial Officer)



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