09/30/2002
The changes in systems and procedures are incorporated in amendments to NYMEX Rule 9.04A ("OTC Clearing: Use of EFS and EFP Procedures for Trade Submission"), which is included below. Specifically the Exchange is implementing the following changes for OTC Clearing transactions:
! Terminating use of the risk-assessment system resident in NYMEX ACCESS® and introducing the use of a risk assessment system that is functionally equivalent to the NYMEX ACCESS® but is specifically applicable only to OTC Clearing transactions;
! Shifting to a trade submission process under which all OTC clearing transactions posted to the Exchange are submitted to clearing either by an OTC broker or by Exchange staff in the absence of an OTC broker;
! Revising trade deletion procedures under which, with mutual consent of the parties, the OTC broker or Exchange staff, as applicable, could void an OTC transaction, but only to correct good-faith errors and only if the void is submitted within one hour of the original submission; and
! Shifting the OTC clearing trade submission deadline from 1:30 p.m. to 2:30 p.m. so as to conform to the end of RTH.
PROPOSED AMENDMENTS TO NYMEX RULE 9.04A
(Bold indicates additions; strike-outs indicate deletions.)
Rule 9.04A OTC Clearing: Use of EFS and EFP Procedures for Trade Submission
(A) Scope of this Rule. This rule governs transactions not executed on the Exchange ("OTC transactions") that are submitted to NYMEX for clearing in connection with a contract that is listed for clearing on the Exchange. In submitting such a transaction or in allowing a transaction to be submitted to the Exchange, the two parties to the OTC transaction shall be deemed to have mutually agreed to initiate a process to substitute their OTC transaction for a standardized futures contract listed for clearing on the Exchange. For purposes of this rule, the two principals in the OTC transaction shall be referenced as the "Parties to the OTC Transaction."
(B) OTC Transactions: Compliance with Regulatory Exemptions and Exclusions. Each of the Parties to the OTC Transaction shall be responsible for ensuring that the OTC transaction complies with CFTC regulatory requirements as applicable for such transaction, including as appropriate compliance with the terms of a statutory exemption or exclusion under the Commodity Exchange Act from other CFTC regulation relied upon by the Parties to the OTC Transaction.
(C) Substitution of NYMEX Futures for OTC Transaction. The process of substitution of a NYMEX futures contract for an OTC tTransaction shall not be deemed to have been completed unless and until the Parties to the OTC Transaction have successfully concluded the submission of the OTC transaction to the Exchange as an exchange of futures for physicals (EFP) or as an exchange of futures for swaps (EFS), as applicable, pursuant to the respective provisions of NYMEX Rule 6.21 or Rule 6.21A and the provisions of this rule. For forward transactions involving deferred delivery of the physical commodity to be submitted to the Exchange, the Parties to the OTC Transaction shall utilize the EFP procedure, and for swap transactions to be submitted to the Exchange, the Parties to the OTC Transaction shall utilize the EFS procedure.
(D) Trade Submission Procedures. All transactions submitted to the Exchange pursuant to this rule must be submitted in accordance with the procedures established by the Board of Directors for this purpose, as amended from time to time. The Parties to the OTC Transaction and any OTC Broker authorized to submit executed transactions on their behalf to the Exchange and related activities shall be exclusively responsible, both individually and jointly, for accurately confirming the details of the OTC Transaction to the Exchange,. Once submitted, all such transactions, subject to the rules for trade adjustments set forth in subsection (G) of this Rule, shall be deemed final. Neither the Exchange nor a Clearing Member carrying the account of either party will have any responsibility in the confirmation of trade terms for the EFP or EFS transaction.
(E)
For any such OTC Brokers authorized by the customer and submitted to the Exchange by the Clearing Member, such submission by the Clearing Member will not constitute an endorsement or ratification of the customer's authorization of the OTC Broker. Moreover, submission of OTC Brokers authorized by the customer will not mean that the Clearing Member is in privity with, has a relationship with and/or is otherwise standing behind any of the customer's authorized OTC Brokers, and the Clearing Member will have no responsibility for any such OTC Brokers selected by the customer and no duty or obligation to supervise the activities of any such OTC Brokers.
(F)
(G)
(2) Once the buyer has accepted the transaction, both the buyer and the seller must agree to cancel the trade and must contact the Exchange in the manner provided. Following such notice, the trade thereafter shall be deleted from the system.
(3) If both parties do not agree on canceling the trade after the buyer has accepted the terms of the transaction, nothing in this rule shall preclude resolution pursuant to the Exchange's arbitration procedures as provided by Chapter 5 of the Exchange's rules.
(H) Entry of Clearing Orders into NYMEX ACCESS®. For an OTC Transaction submitted to the Exchange pursuant to this rule, such transaction first will be routed to
(I)
At all times until both Clearing Orders have successfully cleared the OTC RAV Credit Check, a transaction submitted to the Exchange pursuant to this rule shall remain as an uncleared, bilateral OTC transaction wherein the Parties to the OTC Transaction continue as principals in that transaction.
In the event that either Clearing Order is rejected as a result of the OTC RAV Credit Check test,
(J) Trade Submission Deadlines. Transactions that are submitted, confirmed
(K) Clearance by Both Clearing Orders of Credit Check. Upon clearance by both Clearing Orders of the OTC RAV Credit Check, the transaction shall be deemed to have been accepted for clearing and will be routed automatically to the Exchange's clearing system. Consequently, the EFS or EFP procedure also shall be deemed to have been completed, and futures contracts thereafter will effectively be substituted for the OTC transaction that is thus extinguished between the Parties to the OTC Transaction.
Notwithstanding the above, a Clearing Member also shall be responsible for accepting and clearing a position for a Clearing Order entered into the Exchange's clearing system for clearing following any non-operation of the Exchange's OTC RAV Credit Check functionality for the applicable account carried by the Clearing Member.