08/20/2002
As currently prescribed, if a clearing member is unable to cover its obligation, the Clearing House will first liquidate the firm's assets pledged to the Exchange and apply such funds to the debt. If a debt continues to exist, the Board of Directors may allocate Exchange funds at its discretion. Thereafter, the Guaranty Funds of non-defaulting clearing members are utilized and, if necessary, a monetary assessment may be made of such firms .
The amendments concern two areas; (1) the formula utilized to determine each Clearing Member's contribution in the circumstance whereby it is necessary to liquidate the Guarantee Fund and (2) the maximum monetary assessment permitted.
The amount of each firm's contribution will now be based on the following formula:
Outstanding Default Deficit x each Clearing Member's % of the total Guaranty Fund
As stated above, after the Guaranty Fund is exhausted, each clearing member may be assessed an additional amount using the same formula noted above. Our Rules provide for a limit on the maximum assessment to be levied against a clearing member. Currently, no clearing member shall be required to pay more than the lesser of $10 million dollars or 25% of its working capital. In conjunction with the overall strengthening of our safeguard system, under the attached amendments, the maximum assessment is increased to the lesser of $15 million dollars or 40% of the firm's working capital.
The new Rule amendments have been filed with the Commodity Futures Trading Commission and will become effective on June 30, 2002. If you have any questions or would like to discuss this issue please contact Artie McCoy (Vice President of Financial Surveillance) at 212-299-2928 or AMCCOY@NYMEX.com or Joe Sanguedolce (Director) at 212-299-2855 or "JSANGUEDOLCE@NYMEX.com".
The changes to NYMEX Rule 9.23 and CCA By-Law Section 9.4 are noted below.
NYMEX Rule 9.23. PROTECTION OF THE CLEARING HOUSE
(Additions are in Bold ; Deletions are in {Brackets})
"(B) Other Assets
If the margin deposits in the Guaranty Fund and other assets of the Clearing Member under the control of the Exchange or the Clearing House are insufficient to satisfy all of the clearing member's obligations to the Clearing House, and if the clearing member fails to pay the Clearing House the amount of any such deficiency within one business day, the amount of the deficiencies shall be paid from the following sources of funds, each such source to be completely exhausted before the next following source is applied:
(1) First, such Exchange funds as the Board in its discretion may determine to apply;
(2) Second, proceeds from each clearing member's Guaranty Fund based on each firm's percentage of the total Guarantee Fund requirement of all clearing members per Rule 9.03. {the portion of the Guaranty Fund comprised of the minimum cash or United States Treasury Bill deposited by Clearing Members, prescribed by Rule 9.03(B), in equal shares by each Clearing Member};
(3) Third, {the portion of the Guaranty Fund comprised of the amounts in excess of the deposits set forth in subsection (B)(2), above, in shares for each Clearing Member to be determined in accordance with the procedure set forth in subsection (C)(1) of this Rule; and
(4) Fourth,} such assets as may be made available from assessments against Clearing Members pursuant to Section (C) of this Rule.
Any amount so paid shall be deemed a loss to the Exchange or the Clearing House and shall be a liability of the defaulting Clearing Member to the Exchange or the Clearing House.
(C) Assessments
Except as provided in Section (D) of this Rule, if there is a deficiency remaining after the Guaranty Fund has been exhausted as provided in Section (B) of this Rule, each clearing member (except the defaulting clearing member and any insolvent clearing member) shall be required, subject to the limitations in this Rule, to pay an assessment {in an amount} as determined by the Board, in an amount proportional to such clearing member's Guaranty Fund requirement compared to the total Guaranty Fund requirement of all clearing members per Rule 9.03. {in accordance with the following procedure:}
{(1) Each clearing member (except the defaulting clearing member and any insolvent clearing member) shall be required to pay an amount equal to the sum of (a) and (b) below:}
{(a ) An amount equal to fifty percent of such remaining deficiency multiplied by a fraction, the numerator of which is the number of futures and futures-equivalent options contracts for each commodity in which the loss occurred cleared by such clearing member during the six month period preceding the default, and the denominator of which is the number of futures and futures-equivalent options contracts in that commodity cleared during such six-month period by all clearing members (excluding the defaulting clearing member and any insolvent clearing member).}
{(b) An amount equal to fifty percent of such remaining deficiency multiplied by a fraction, the numerator of which is the average gross open position in that commodity in which loss occurred of such clearing member (customer and proprietary) in futures and futures-equivalent options contracts on the last trading day of each month during the six-month period preceding the default, and the denominator of which is the average gross open position of all clearing members (customer and proprietary) in futures and futures-equivalent options contracts in that commodity on the last trading day of each month during such six-month period (excluding the defaulting clearing member and any insolvent clearing member).}
(2) Notwithstanding subsection (C) {(1)} of this Rule, no clearing member shall be required to pay, as an assessment, any amount in excess of (a) the greater of 40 {25} percent of such clearing member's: (i) working capital as shown on its last financial statement filed with the Clearing House pursuant to Rule 9.22 or (ii) capital as defined in Rule 9.20(A), or (b) fifteen {ten} million dollars (15,000,000) {($10,000,000)}, whichever is less, during any period of ten consecutive business days (the "Maximum Assessment"). The difference, if any, between the amount that would be assessed against any clearing member pursuant to subsection (C) {(1)} of this Rule and the Maximum Assessment for any such clearing member, shall be considered a deficiency and shall be assessed against clearing members (excluding the defaulting clearing member, any insolvent clearing member and any clearing member which has paid the Maximum Assessment) in accordance with subsection (C) {(1)} of this Rule (except that the denominator of the fractions referred to in paragraphs (a) and (b) of subsection (C) {(1)} shall additionally exclude the transactions and/or positions of any clearing member which has paid the Maximum Assessment) and this subsection (C) {(2)} until the entire deficiency is paid or every clearing member (except the defaulting clearing member and any insolvent clearing member) has paid the Maximum Assessment, and any such assessment shall be considered part of a single assessment, without regard to the times when they are made, for purposes of determining the Maximum Assessment.
CCA By-Law 9.4. Payment of Losses of Defaulting Member
(Additions are in Bold ; Deletions are in {Brackets})
(a) If the margin deposits in the Guaranty Fund and other assets of the Clearing Member under the control of the Exchange or the Clearing House are insufficient to satisfy all of the clearing member's obligations to the Clearing House, and if the clearing member fails to pay the Clearing House the amount of any such deficiency within one business day, the amount of the deficiencies shall be paid from the following sources of funds, each such source to be completely exhausted before the next following source is applied:
(1) First, such Exchange funds as the Board in its discretion may determine to apply;
(2) Second, proceeds from each clearing member's Guaranty Fund based on each firm's percentage of the total Guarantee Fund requirement of all clearing members per Rule 90.
(3) Third, such assets as may be made available from assessments against Clearing Members pursuant to Section (b) of this Rule.
Any amount so paid shall be deemed a loss to the Exchange or the Clearing House and shall be a liability of the defaulting Clearing Member to the Exchange or the Clearing House.
(b) Assessments
(1) Except as provided in Section (D) of this Rule, if there is a deficiency remaining after the Guaranty Fund has been exhausted as provided in Section (B) of this Rule, each clearing member (except the defaulting clearing member and any insolvent clearing member) shall be required, subject to the limitations in this Rule, to pay an assessment as determined by the Board, in an amount proportional to such clearing member's Guaranty Fund requirement compared to the total Guaranty Fund requirement of all clearing members per Rule 90.
(2) Notwithstanding subsection (b) of this Rule, no clearing member shall be required to pay, as an assessment, any amount in excess of (a) the greater of 40 percent of such clearing member's: (i) working capital as shown on its last financial statement filed with the Clearing House or (ii) capital as defined in Rule 9.20(A), or (b) fifteen million dollars ($15,000,000), whichever is less, during any period of ten consecutive business days (the "Maximum Assessment"). The difference, if any, between the amount that would be assessed against any clearing member pursuant to subsection (b) of this Rule and the Maximum Assessment for any such clearing member, shall be considered a deficiency and shall be assessed against clearing members (excluding the defaulting clearing member, any insolvent clearing member and any clearing member which has paid the Maximum Assessment) in accordance with subsection (b) of this Rule (except that the denominator of the fractions referred to in paragraphs (a) and (b) of subsection (b) shall additionally exclude the transactions and/or positions of any clearing member which has paid the Maximum Assessment) and this subsection (b) until the entire deficiency is paid or every clearing member (except the defaulting clearing member and any insolvent clearing member) has paid the Maximum Assessment, and any such assessment shall be considered part of a single assessment, without regard to the times when they are made, for purposes of determining the Maximum Assessment.
{If a defaulting Clearing Member shall be unable to pay immediately any deficit owing by it to the Corporation arising from the closing of its contracts with the corporation in the foregoing manner, the amount of such deficit, until collected from such Clearing Member, shall be made good by the application of the following sources of funds in the following order of priority (each such source of funds to be fully utilized before the next source is applied):
(i) the Guaranty Fund deposit of such defaulting Clearing Member;
(ii) such portion, if any, of the surplus of the Corporation as the Board determines to be available for such purpose;
(iii) the Guaranty Fund; and
(iv) Assessments levied upon the Clearing Member as hereinafter provided.
The amount withdrawn from the Guaranty Fund as hereinafter provided shall be restored by assessments levied as hereinafter provided upon Clearing Members. However, if, because of the limitations contained in paragraphs (d), (e) and (f) below, the maximum assessments permitted pursuant to this Section 9.4 are insufficient both to cover the deficit of the defaulting Clearing Member and to restore the Guaranty Fund, such assessments first shall be applied to cover such deficit.
(b) Except as set forth in paragraphs (c), (d), (e), and (f) below, all such assessments shall be levied on a Clearing Member as follows:
(i) For each commodity in which the loss occurred,
(A) divide the number of contracts in such commodity cleared for the account of such Clearing Member for the nine months preceding the default by
(B) an amount equal to the total number of contracts in that commodity cleared by the Corporation during such nine months period minus the number of contracts in that commodity cleared by the Corporation during such nine month period for the account of the defaulting Clearing Member, and
(C) Multiply the resultant fraction by the amount of such loss.
(ii) For each commodity in which the loss occurred
(A) divide the aggregate net open interest in such commodity carried for the account of such Clearing Member for the nine months preceding the default by
(B) an amount equal to (x) the total aggregate net open interest in that commodity carried by the Corporation during such nine month period minus (y) the aggregate net open position in that commodity carried by the Corporation during such nine month period for the account of the defaulting Clearing Member, and
(C) Multiply the resultant fraction by the amount of such loss.
(iii) For each Clearing Member, add the amounts computed pursuant to (i) and (ii) for each such commodity and divide the total by 2.
(iv) For each Clearing Member, add the amounts computed pursuant to (iii).
(v) For the purpose of this Section 9.4(b), the terms "number of contracts" and "net open interest" in a commodity shall include both future contracts and option contracts.
(c) If at any one time the contracts of all Clearing Members in any commodity shall be or shall have been closed, the assessment provided under this Section 9.4 shall be based only upon contracts for the specific commodity accepted for clearance after the date of such closing.
(i) 25% of such Clearing Member's adjusted net capital or working capital, as the case may be, as shown on the most recent financial statement it has filed with the Association preceding the date of the default with the respect to which such assessment is made (the "capital assessment") provided, however, that if, for thirty or more business days (whether or not consecutive) during the nine month period preceding the default on which such assessment is based, such Clearing Member carried contracts for which it made super margin deposits pursuant to Rule 40(c), the assessment of such Clearing Member shall equal its pursuant to Rule 40(c) made by such Clearing Member during such time month period; or (Amended 5/93)
(ii) Ten Million Dollars ($10,000,000).}