04/07/2003
– Orders may be placed by the Permittee for futures contracts to offset or hedge PJM Electricity positions. Such orders shall be limited to futures contracts designated as legitimate offsets for the PJM Electricity contract and must be on the opposite side of the market from the Permittee's PJM Electricity position. Legitimate offsets have been designated as Natural Gas futures (NG) and e-miNY Natural Gas futures (QG).
– The ratio of Natural Gas (NG) offset contracts to PJM Electricity contracts must not exceed one NG contract traded for every one PJM contract. The ratio of e-miNY Natural Gas (QG) offset contracts to PJM Electricity contracts must not exceed two and a half QG contracts traded for every one PJM contract. Such offsetting contracts must be traded in an arbitrage fashion. Scalping, speculating or day trading of NG or QG contracts by a Permittee is not permitted.
– All orders from the Permittee which are executed for legitimate offset contracts shall be executed by a NYMEX Member authorized to accept orders from the Permittee.
– The executing NYMEX Member must create an order ticket in accordance with Exchange Rule 6.18 and shall identify orders placed by the Permittee for legitimate offset contracts using a unique symbol relating to the Special Trading Account. That symbol shall also be placed on the NYMEX Member's trading card, at the time of execution of the trade, before the related pit card is submitted to the Exchange.
– Allocations to a Special Trading Account must be made from the trading floor using the Permittee's Special Trading Account number. This account number must be entered on transfer information, and thus reflected on the Exchange's Trade Registers.
– When a member executes an order on behalf of a Permittee, for the Permittee's Special Trading Account, the executing member must designate the trade as "type 3" and otherwise comply with the trade recordation and allocation procedures cited above.
– PJM contracts executed by the Permittee must be designated as "type 1" and allocated to the Special Trading Account.
Permittees are not permitted to trade in any contract traded on the Exchange for their own accounts or for any account in which they have a beneficial interest except in accordance with the provisions specified above. Additionally, Members or Permittees may not accept or clear trades on behalf of floor employees or clerks [NYMEX Rules 6.30 and 6.31]. Members are responsible for the actions of persons they employ on the trading floor [NYMEX Rule 6.30(5)].
Customer Orders for Spark Spreads
Although there is currently no provision for trading a "spark spread" on NYMEX, such orders may be accepted by Members or Permittees and may be "legged" by the executing broker or Permittee. The following procedures will govern the execution of such orders:
- An order ticket must be created for the customer order. The order must clearly state the terms of the order, including the desired differential and a distinct customer account identifier.
- All NYMEX brokers, including Permittees will be responsible for adherence to Rules governing trading standards. For example, trading ahead or opposite a leg of a customer Spark Spread order will not be permitted.
- The Permittee may execute the PJM Electricity leg of the spread in the PJM trading ring.
- The Permittee or his/her representative (clerk) must enter an order for the appropriate Natural Gas contracts with a NYMEX Member authorized to trade in that contract. The Member receiving the Natural Gas leg must create an order ticket which must properly indicate a unique customer identification number or code.
- In the case where a Permittee is attempting to leg a spark spread and has an error of any kind, the Permittee may place the trade in the Special Trading Account and must provide documentation of the error.
Prohibition Against Trading Ahead of Customer Orders:
Members or Permittees holding executable orders in NYMEX contracts may not trade on the same side of the market, for their personal account or any account they control, ahead of their customer orders or the orders of any associated persons.
Prohibition Against Trading Opposite Customer Orders:
Members or Permittees holding executable orders in NYMEX contracts may not trade directly or indirectly opposite their orders or the orders of any associated person.
Failure to comply with the above terms may result in revocation of the PJM Electricity Permit and/or formal disciplinary action against the Member, Permittee or Guaranteeing Clearing Member (PCM).
Please call David Schneiderman, Director Trade Practice Surveillance at (212) 299-2857, Nancy Minett, Vice President Compliance, at (212) 299-2940, or Thomas LaSala, Senior Vice President, Compliance and Risk Management at (212) 288-2897 if you have any questions.