NYMEX - FAQs

FAQs

A new slate of Futures and OTC contracts are available for trade on both CME Globex® and NYMEX ClearPort® Clearing, cleared through LCH.Clearnet, and regulated under FSA and CFTC authorities.

In order to trade the futures contracts listed on the NYMEX MTF Limited (MTF), Participants will need to complete the following forms:

Static Data form
MTF Membership application (no longer than 3 pages)
TRS logon form - access to TRS gateway in which LCH.Clearnet will provide the details of the new feed if you require one
CME Globex® connection agreement and/or NYMEX ClearPort® Clearing EULA
ECM Trade Participant Agreement & Participant Application

You must be one of the three different types of members:

General Participants: permitted to transact their own business and business for clients. The Clients may be other Members or non-Members.
Trade Participants: permitted to transact their own business only.
Individual Participants: permitted to transact their own business and business for other Individual Participants. Business can only be transacted for other Individual Participants where the relevant Individual Participant has requested the execution (like locals)

In order to trade OTC contracts listed on the NYMEX ECM (Exempt Commercial Market), - NO Membership is required

– You will however, need to be signed up with either CPC and/or Globex. If you already have agreements with CPC and/or Globex, you do not need to sign these again. You only need to complete the Static Data form

For more information – please visit www.nymexonlchclearnet.com

Access to Trade

You will be able to access the contracts listed on CME GLOBEX® through your existing ISV. A list of these ISVs can be found at http://www.cmegroup.com/globex/trading-cme-group-products/trading-applications/
Contracts listed on NYMEX ClearPort® Clearing can be accessed via ISV's who have built an interface to the CPC API. A list of these ISVs can be found at http://www.cmegroup.com/globex/trading-cme-group-products/trading-applications/.

CONTRACTS

What contracts will be listed?

Brent Crude Oil, WTI Crude Oil, and European Gasoil, Henry Hub Natural Gas Swaps

A complete contract list is available on the following websites:
www.nymexonlchclearnet.com www.nymex.com and www.lchclearnet.com

Will the new contracts be available on the existing clearing systems or do I need to connect to a new version of TRS?

Clearing Members will need to connect to a new version of TRS with a market code of "V". A new version of PC Gateway will be available to allow clearing members to connect and LCH.Clearnet is currently working with back office vendors to ensure their systems are updated for the new service.

TRS Definition - The trade-related portion of the TRS/CPS system used to manage trades within TRS. Trades may be allocated to other members such that the allocatee is the "owner" of the trade and can assign the trade to a position-keeping account, such as "customer segregated" or "house" accounts. Trades can be split and assigned "account reference" numbers

Are any of the contracts going to be eligible for tax treatment under the Section 1256?

With respect to 60/40 tax treatment (US customers only) for trading of the UK futures (and not applicable to the OTC products), this will not be available day one. NYMEX is seeking to have relief from the Internal Revenue Service (IRS), but the time frame is generally 4 – 6 months.

Will the Gasoil contract remain a physically delivered contract and if so, what are the delivery processes?

Yes, the contract will be available for physical delivery. The Clearing House delivery duties will remain the same with LCH.Clearnet continuing to carry out their role. NYMEX will attend to the Exchange processes and responsibilities.

How will the new contracts be settled on a daily basis? For example, what price will the Brent crude oil futures positions be margined against?

Brent futures will be margined at the NYMEX MTF Brent closing price.

Will the new NYMEX on LCH contracts be fungible with contracts offered by ICE Futures?

No, there will be no fungibility between existing or newly traded contracts offered by ICE and those offered by NYMEX and cleared by LCH.Clearnet.

Will the contracts be ZERO rated as regards VAT?

All futures and options contracts listed on the NYMEX MTF will be exempt from VAT. Contracts listed on the ECM in the U.S. will also be exempt from UK VAT. VAT on deliveries will be assessed in the same way as they are today.

MEMBERSHIP DETAILS

The NYMEX User Registration Guide and NYMEX on LCH.CLEARNET registration guide advises that new users and current LCH.CLEARNET Members who want to clear the NYMEX MTF platform need to complete the "Trading Participant (Membership) Application". What does this refer to?

This refers to the MTF Membership Application. This is a short three page application for those that are already registered with the FSA or similar regulatory body. If not registered, the long form must be completed to demonstrate fitness and properness/suitability.

Does a Clearing Member (GCM/ICM) or trading firm (non-Clearing Member (NCM)) need a CME Globex® membership in order to clear MTF contracts? Would it be possible to become a NYMEX MTF Clearing Member, but only offer to clear these contracts on NYMEX ClearPort® Clearing?

Yes, it is possible to gain access to NYMEX ClearPort® Clearing (CPC) and not GLOBEX, but please keep in mind that CPC is a system that allows brokerage firms to enter over the counter(OTC) trades for clearing purposes, and allows customers to register themselves as a "broker firm" and enter the trade themselves. Additionally, CPC is not a trading system like CME Globex®. NYMEX provides a free front-end system and an application programming interface (API) into CPC. Additionally, the NYMEX Facilitation Desk is available to act as a broker and enter a trade into CPC for two registered market participants..

Will clearing members be required to test connectivity in order to gain access to this service?

Yes, further clearing member testing will be scheduled shortly prior to go-live. Additionally, there will be a member test environment available after the launch.

Will there be any incremental costs for connectivity to the clearing systems i.e. TSCS feed, PC Gateway etc?

If you require additional TSCS or PC Gateway feeds, yes.

TSCS Definition - This API is encapsulated within the TRAMP Interface. It describes all messages that will be sent to a client application of TRS/CPS including new trades, trade updates, position updates, exercise notices, and other trade and clearing-related messages. It is most similar to NYMEX's Cleared Trades API.

How do I connect to production version "V"?

Clearing members will connect via the existing LIFFE Connect Network (LCN) or via a new VPN connection if you do not subscribe to LCN.

How do I sign up for this new service?

You will be required to sign up with NYMEX for one or both of their services and also become a Clearing Member of the respective LCH.Clearnet service. ONLY existing members of LCH.Clearnet will be required to submit an "Approval for Application to clear NYMEX on LCH Transactions" and specify static data and set-up requirements to expand the new NYMEX-LCH.Clearnet products to existing product and servicing platforms.

What changes are necessary for current operational or downstream back-office systems?

LCH.Clearnet are dynamically working with SunGard, Rolfe & Nolan and GL Trade to ensure that the necessary changes are being made to all affected systems.

What are the "Individual Trading Mnemonics" (ITMs) and where are we supposed to get them from?

An ITM is a three-character representation of a trading entity. It could be used to represent a single trader, a specific trading desk, or an entire trading firm. How the ITMs are used can vary based on the specific business and technical needs of each entity. The ITMs are assigned by LCH.CLEARNET. Once you submit the Static Data Form to NYMEX, NYMEX will request ITMs from LCH.CLEARNET and provide it to you.

What are "Responsible Individuals" or "User Names" requested in the Static Data Form?

"Responsible Individuals" or "User Names" are the individuals who will manage the access to the ITMs by traders and will be available to address issues with NYMEX concerning trades submitted under the ITMs for which the individual is responsible. The "Users" will be subject to AML and Compliance background check, as they are currently under ICE rules.

What are the timelines for the new service?

The new service is planned for launch Q3 2008.

MARGINING

Will a single standalone NYMEX on LCH margin calculation produce the same initial margin requirement as currently with ICE contracts?

Yes, before margin offsets.

Will a NYMEX on LCH WTI contract have a different IM requirement to a NYMEX NY WTI contract?

Yes

Will LCH.Clearnet continue to use the current version of London SPAN with 2 day risk, rather than CME SPAN which is based on one day risk?

Yes

Does the LCH.Clearnet Clearing Member retain offset margin benefits for its consolidated client positions with the new NYMEX contracts - e.g. if you have 2 clients one who are long 1 lot of Brent and one who is short 1 lot of Brent, you would not be gross margined for 2 lots by LCH.Clearnet?

Yes

Will there be any NYMEX style maintenance margin levels for clearing members separately to full client initial margin levels?

No

MARGIN EFFICIENCIES

Will margin offsets be offered between NYMEX and LCH.Clearnet contracts?

On day 1 (Phase I) NYMEX will offer margin credits to its existing customers. For more information please contact the NYMEX Clearing department at nymexclearing@nymex.com. In Phase II, NYMEX and LCH.Clearnet plan to offer full cross margining by the end of 2008. The methodology for the full margin offsetting mechanism is currently being defined and will be communicated in the future.

If XYZ Commodity Futures Ltd is the LCH.Clearnet Clearing Member, but XYZ Commodity Futures Inc is the NYMEX clearing member can the reductions still be made across related group entities, but not across completely different clearing members who represent the same customer in the different jurisdictions?

NYMEX Clearing Member firms will be able to submit on behalf of the account owner that specifies the contract types, the account number and the amount of margin credit requested. The extent of margin credit relief will be determined based upon the relationship of the products. Clearing Member Firms have the option of passing this reduced rate on to their customers even if the Clearing Member doesn't request the credit from the NYMEX Clearinghouse. Customers are not subject to a minimum number of spreads. It is important to note that in order to qualify for the spread margin rate, both legs of the NYMEX/LCH.Clearnet spread are required to be maintained in the same customer or trading firm account.

On the NYMEX on LCH website (www.nymexonlchclearnet.com) under FAQ's it states that "LCH members can sign up with NYMEX to trade a full suite of NYMEX US Contracts". Is this a short cut clearing membership offer for NYMEX U.S. or could we eventually clear these contracts at LCH.Clearnet through your alliance?

These contracts will ONLY be cleared by LCH.Clearnet Ltd.

Under phase 1 for margin efficiencies please confirm the reduction will be taken fully on the LCH.Clearnet margin requirement side?

No, LCH.Clearnet margin reductions will only be provided in Phase 2 when full cross margining is implemented.

What product combinations will generate efficiencies
Brent Crude Oil Complex: 85%
WTI Crude Oil Complex: 85%
Gasoil Complex: 85%
Natural Gas Complex: 70%
PJM Complex: 50%

How will the priority order work for the offsets behind these margin calculations?

The credit will be on a case-by-case basis based upon the Residual Net Delta. That is only those positions that have not already been spread against other NYMEX positions. SPAN Deltas are used in order to include options contracts. Thus, if a residual long delta position on one clearinghouse is offset by a residual short delta position on the other clearinghouse, credit on the NYMEX clearinghouse will be allowed.

Will the clearing member be required to supply any additional information to either LCH or NYMEX to facilitate this?

Yes – an application form will need to be completed and submitted to the NYMEX Clearing department via fax to 212-301-4506 or a pdf file to nymexclearing@nymex.com

Will LCH.Clearnet and NYMEX allow offsets on non-Energy products – e.g. LME vs. NYMEX COMEX?

No.

How will this be different for Phase 2 of the cross-clearing house margin calculations, and what Regulatory approvals are required before that can happen - what is the likely timeline for that?

Phase 2 will allow for more efficient margin offsets at both LCH.Clearnet and NYMEX; it will consist of netting of positions and then the calculation of the initial margin requirement; this is a much more efficient use of the SPAN algorithm. This will occur late 2008/early 2009 once FSA approval has been granted.

TRADING SYSTEMS

Can I get access to the new contracts through my current ISV trade execution system?

You will be able to access the contracts listed on CME GLOBEX® through your existing ISV. Contracts listed on NYMEX ClearPort® Clearing can be accessed via ISV's who have built an interface to the CPC API. A list of these ISVs can be found at http://www.cmegroup.com/globex/trading-cme-group-products/trading-applications/.

I currently trade crude futures using WebICE at no fee - are you offering an equivalent solution?

Yes, TradeCapture will be available for free. Also, any ISV connected to CME GLOBEX® and NYMEX ClearPort® Clearing can offer the new product slate.

Will it be free if used for non-NYMEX on LCH products {e.g. a) NYMEX U.S. contracts, b) CME contracts, c) Other non-CME/NYMEX Group exchanges}?

TradeCapture can be used free on other NYMEX cleared contracts (NYMEX, GreenExchange) – except DME.

How do I access CME GLOBEX and NYMEX ClearPort?

Participants can access CME GLOBEX® and NYMEX ClearPort® Clearing in the same way as they currently connect, or through ISVs who have subscribed to the CME GLOBEX and NYMEX ClearPort API's.

REGULATORY

What regulatory status will NYMEX have in the UK and the US?

If approved, the NYMEX regulatory status in the U.K. will be authorised as a Multilateral Trading Facility (MTF) and in the U.S. NYMEX will be listed as an Exempt Commercial Market (ECM).

TECHNOLOGY

Will Clearing Members need an additional instance of TRS, and would this require an extra Gateway/Tramp connection. Will existing ones move to ICE for their products only?

No, existing Gateway/Tramp feeds will continue to work. The new market will be represented within the feed by a market code of "V". If you require a separate feed per market, this will be provided at zero cost for the first year including any installation costs.

How do we subscribe to a new TRS/Gateways through LCH.Clearnet. Will LCH.Clearnet (or NYMEX) pay for this?

Yes, LCH.Clearnet will provide the details of the new feed if you require one.

Have the ClearVision type vendors been involved in developing functionality in time for the new product slate too?

ClearVision is aware of the new initiative, however it will be their clients who will define their requirements.

Have you been liaising with all the main clearing system providers including Sungard, R&N, and Ubix. Have they all said they will be ready for your target launch dates?

Yes, we have been in contact with the vendors, who have committed to meeting the target launch dates.

How will they mimic the cross clearinghouse margin offsets?

Since cross clearinghouse margin offsets are not scheduled until Phase 2, there will be no reflection of this in Phase 1. Once we have finalised the methodology, we will pass this onto the 3rd party vendors and work with them to ensure their systems will support the new model.

Will PC SPAN give us transparency on these cross clearing house offsets? How will we see them/justify them to our clients?

In Phase 2 we will update PC Span to reflect the new model.