09/04/2001
Although the amendments by their terms refer to EFP and EFS transactions transacted during Regular Trading Hours, please be advised that these amendments codify existing Exchange policy and practice that generally prohibit non-bona fide EFP and EFS transactions transacted at any time.
Members are further advised that the Exchange will permit "transitory" EFP and EFS transactions involving the NYMEX Brent Crude Oil futures contract, but only upon compliance with the following three conditions:
(1) Such EFP and EFS transactions may only be executed outside of Regular Trading Hours;
(2) Such EFP and EFS transactions must be reported during the first 30 minutes of RTH trading in the NYMEX Brent Crude Oil futures contract (9:10 a.m.- 9:40 a.m.); and
(3) This program will terminate six months following commencement of trading in the NYMEX Brent Crude Oil futures contract.
Any questions concerning this matter should be directed to Thomas LaSala, Vice President, Compliance Department, at 299-2897.
AMENDMENTS TO NYMEX RULE 6.21
("EXCHANGE OF FUTURES FOR, OR IN CONNECTION WITH, PRODUCT")
(Asterisk indicates additions; Bracket's indicate deletions.)
Rule 6.21. EXCHANGE OF FUTURES FOR, OR IN CONNECTION WITH, PRODUCT
(A) An exchange of futures for, or in connection with, product (EFP) consists of two discrete, but related, transactions; a cash transaction and a futures transaction. At the time such transaction is effected, the buyer and seller of the futures must be the seller and the buyer of a quantity of the physical product covered by this Section (or any derivative, by-product or related product). The quantity of physical product must be approximately equivalent to the quantity covered by the futures contracts.
(B) Except *as* otherwise specifically provided in the By-Laws or Rules, an EFP must [take place] *be reported * during the hours of futures trading.
(C) A report of such EFP transaction shall be submitted to the Exchange by each Clearing Member representing the buyer and seller. Such report shall identify the EFP as made under this Rule and shall contain the following information: a statement that the EFP has resulted or will result in a change of ownership, the kind and quantity of the futures, the price at which the futures transaction is to be cleared, the names of the Clearing Members and customers and such other information as the Exchange may require. Such report (form) shall be submitted to the Compliance Department by 12:00 noon, no later than two (2) Exchange business days after the day of posting the EFP on the Floor of the Exchange.
(D)*(1) * Each buyer and seller must satisfy the Exchange, at its request, that the transaction is a legitimate EFP transaction. Upon the request of the Exchange, all documentary evidence relating to the EFP, including, without limitation, evidence as to change of ownership of the cash commodity or a commitment therefor shall be obtained by the Clearing Members from the buyer or seller and made available by the Clearing Members for examination by the Exchange. *Additionally, if the buyer or seller is a Member/Member Firm, the Exchange may obtain the information directly from such person(s). *
*(2) For all NYMEX Division contracts, no EFP that is linked to or contingent upon entry into a second, offsetting cash trade may be transacted during Regular Trading Hours at any time that NYMEX offers trading in its contracts, unless trading in a market is halted, such as during a physical emergency.*
*(3) Failure by a buyer or seller, or its Clearing Member to satisfy the Exchange that an EFP transaction is bona fide shall subject such buyer or seller, if a Member/Member Firm, or the Clearing Member to disciplinary action. Such disciplinary action, depending on the gravity of the offense, may be deemed to be a major offense of the Exchange's rules. Further, if the buyer or seller is not a Member/Member Firm, the Exchange may conduct a hearing before the Business Conduct Committee to limit, condition or deny access to the market.*
(E) [A report of e]*E*ach EFP transaction shall be [given, and notice thereof shall be posted on the floor of the Exchange, on the day that the transaction thereto was made, or if such agreement was made after the close of trading, then on the next business day. EFP transactions shall be] *posted by the Floor Members and* cleared through the Exchange, in accordance with normal procedures, [shall be clearly identified as EFP transactions, and shall be recorded as such by the Exchange and] by the Clearing Members involved.
[(F) The following provisions shall apply to EFP transactions which involve a non-commercial market participant, but shall not apply to any EFP transaction in Platinum or Palladium involving a Qualified Floor Member as a principal:]
[(1) The Exchange shall presume that any EFP which does not involve commercial market participants as both buyer and seller is not a bona fide transaction. In order to overcome the presumption and except as provided in Section (H) below, upon request of the Compliance Department, the Clearing Members shall obtain from the buyer and seller for examination by the Exchange, documentation clearly demonstrating that the cash transaction underlying the EFP is independent and not contingent upon a contemporaneous offsetting cash transaction (commonly referred to as an "ABA" or transitory trade), and would have involved a cash market risk if not hedged by a futures contract. A delivery of product from the seller to the buyer will satisfactorily overcome the presumption if confirmed by credible documentation.]
[(2) For purposes of this subsection (F), a "commercial market participant" shall be defined as a person or entity which transacts business in the normal channels of commerce in the cash commodity or related commodity underlying the EFP posted on the Exchange.]
[(3) Failure by a party, or its Clearing Member, to satisfy the Exchange that an EFP transaction is bona fide, shall subject the Clearing Member to disciplinary action, which, depending on the gravity of the offense, may be deemed to be a major offense of the Exchange's rules.]
[(G)] *(F)* All omnibus accounts and foreign brokers shall submit a signed EFP reporting agreement in the form prescribed by the Exchange to the Exchange's Compliance Department. Such Agreement shall provide that any omnibus account or foreign broker identified by a Clearing Member (or another omnibus account or foreign broker) as the buyer or seller of an EFP pursuant to Rule 6.21(C), shall supply the name of its customer and such other information as the Exchange may require. Such information shall be submitted to the Exchange's Compliance Department by 12:00 noon no later than two (2) Exchange business days after the day of posting the EFP on the floor of the Exchange. Failure by an omnibus account or foreign broker to submit either the agreement or the particular EFP information to the Exchange may result in a hearing by the Business Conduct Committee to limit, condition or deny access of such omnibus account or foreign broker to the market.
AMENDMENTS TO NYMEX RULE 6.21A
(Asterisk indicates additions; Brackets indicate deletions.)
Rule 6.21A. EXCHANGE OF FUTURES FOR, OR IN CONNECTION WITH, SWAP TRANSACTIONS (Pilot Program)
(A) (1) An exchange of futures for, or in connection with, a swap (EFS) consists of two discrete, but related, transactions; a swap transaction and a futures transaction. At the time such transaction is effected, the buyer and seller of the futures must be, respectively, the seller and the buyer of the swap. The swap component shall involve the commodity underlying the futures contract (or a derivative, by-product or related product of such commodity). The quantity covered by the swap must be approximately equivalent to the quantity covered by the futures contracts. The swap component of an EFS transaction must comply with the applicable CFTC swap regulatory requirements. The initial term of the pilot program shall be three years from the effective date of this Rule 6.21A.
(2) Eligible Contracts and Transactions. EFS transactions may be effected only for transactions in the Exchange's Brent crude oil futures contract.
(B)(1) The report of an EFS transaction shall be given on the Floor of the Exchange during the hours of futures trading. (2) EFS transactions are permitted until the close of trading on the last trading day in the expiring contract month of the applicable contract(s).
(C) A report of such EFS transaction shall be submitted to the Exchange by each Clearing Member representing the buyer and/or seller. Such report shall identify the EFS as made under this Rule and shall contain the following information: a statement that the swap component of the EFS complied with the applicable CFTC swap regulatory requirements at the time the EFS was entered into between the buyer and seller, a statement that the EFS has resulted or will result in a change of payments or other such change, the kind and quantity of the futures, the price at which the futures transaction is to be cleared, the names of the Clearing Members and customers and such other information as the Exchange may require. Such report (form) shall be submitted to the Compliance Department by 12:00 noon, no later than two (2) Exchange business days after the day of posting the EFS on the Floor of the Exchange.
(D)*(1)* Each buyer and seller must satisfy the Exchange, at its request, that the transaction is a legitimate EFS transaction. Upon the request of the Exchange, all documentary evidence relating to the EFS, including a master swap agreement and any supplements thereto, shall be obtained by the Clearing Members from the buyer or seller and made available by the Clearing Members for examination by the Exchange. *Additionally, if the buyer or seller is a Member/Member Firm, the Exchange may obtain the information directly from such person(s). *
*(2) For all NYMEX Division contracts, no EFS that is linked to or contingent upon entry into a second, offsetting swap transaction may be transacted during Regular Trading Hours at any time that NYMEX offers trading in its contracts, unless trading in a market is halted, such as during a physical emergency. *
*(3) Failure by a buyer or seller, or its Clearing Member to satisfy the Exchange that an EFS transaction is bona fide shall subject such buyer or seller, if a Member/Member Firm, or the Clearing Member to disciplinary action. Such disciplinary action, depending on the gravity of the offense, may be deemed to be a major offense of the Exchange's rules. Further, if the buyer or seller is not a Member/Member Firm, the Exchange may conduct a hearing before the Business Conduct Committee to limit, condition or deny access to the market.*
(E) [A report of e]*E*ach EFS transaction shall be [given, and notice thereof shall be posted on the Floor of the Exchange, on the day that the transaction thereto was made, or if such agreement was made after the close of trading, then on the next business day. EFS transactions shall be] *posted by the Floor Members and* cleared through the Exchange in accordance with normal procedures, [shall be clearly identified and marked in the same manner as EFP transactions, and shall be recorded by the Exchange] and by the Clearing Members involved.
(F) All omnibus accounts and foreign brokers shall submit a signed EFS reporting agreement in the form prescribed by the Exchange to the Exchange's Compliance Department. Such Agreement shall provide that any omnibus account or foreign broker identified by a Clearing Member (or another omnibus account or foreign broker) as the buyer or seller of an EFS pursuant to Rule 6.21A(C), shall supply the name of its customer and such other information as the Exchange may require. Such information shall be submitted to the Exchange's Compliance Department by 12:00 noon no later than two (2) Exchange business days after the day of posting the EFS on the Floor of the Exchange. Failure by an omnibus account or foreign broker to submit either the agreement or the particular EFS information to the Exchange may result in a hearing by the Business Conduct Committee to limit, condition or deny access of such omnibus account or foreign broker to the market.