Notice to Members
Notice No. 222
05/16/2003
Amendments to NYMEX Clearing Rules for Integration of COMEX and NYMEX Clearing Operations
As previously announced, today is the day that the Exchange is completing the consolidation of clearing operations for COMEX Division contracts into the NYMEX clearinghouse.

Among other things, this consolidation includes transferring the COMEX Clearing Association ("CCA") Guaranty Fund to a single consolidated Exchange Guaranty Fund and also involves the CCA assigning all of its rights, duties and responsibilities to the Exchange.

Because NYMEX rules, including Chapter 9 ("Clearing") rules, will now govern the clearing of COMEX Division, as of today's date, all of the CCA bylaws and rules no longer have any force or effect. In addition, the Exchange has implemented certain rule amendments to NYMEX Chapter 9 rules (included below) that are now in effect and that operationalize this consolidation. Specifically, in connection with this integration of clearing operations, the Exchange is amending the following NYMEX Chapter 9 rules:

Rule 9.03 ("Guaranty Fund");
Rule 9.20 ("Position Limits");
Rule 9.21 ("Minimum Capital Requirements"); and
Rule 9.23 ("Protection of Clearing House").

The amendments to Rule 9.03 simplify the guaranty fund contribution schedule. Dual division Clearing members are required to deposit the aggregate of 10% of the firm's "modified capital" as that term is defined by Rule 9.20, which is calculated independently for each division, with a maximum contribution of $4 million for dual division members.

The amendments to Rule 9.20 clarify that the Exchange will maintain separate capital-based position limits for each division. Nonetheless, even though a Clearing Member may choose to limit its business operations to clearing contracts for only one division, e.g., COMEX division contracts, such a Clearing Member would participate in and be subject to the same mutualization of risk applicable to any other Clearing Member with respect to any default arising as a result of trading on either Exchange division.

Further, Rule 9.21 is being amended to streamline the process of calculating working capital requirements for Exchange Clearing Members with respect to the guarantees issued to floor members. Finally, with respect to assessments in the event of a default, Rule 9.23 is being amended to clarify the maximum assessment that may be imposed on Clearing Members.


NOTIFICATION OF CLEARING RULE AMENDMENTS NOW IN EFFECT

(Deletions have a strikethrough; Additions are bold)

Rule 9.03. GUARANTY FUND

* * * *

(B) Schedule of Contributions

The amount required to be deposited by each Clearing Member shall be equal to the percentage or amount of capital, as defined in Rule 9.20(A) and disclosed on its latest financial statement submitted to the Exchange as prescribed below calculated as follows:

(i) Dual Division Members: The aggregate of 10% of the firm's modified capital, calculated independently for each Division, as defined in Rule 9.20(A)(1) and based on the most recent financial statement submitted to the Exchange, with a maximum contribution of $4 million.

(ii) Sole Division Members: 10% of the firm's modified capital, as defined in Rule 9.20(A)(1) and based on the most recent financial statement submitted to the Exchange, with a minimum contribution of $100,000 and a maximum contribution of $2 million.

CAPITAL PERCENTAGE OR AMOUNT
$250,000 to $2,000,000 $100,000
$2,000,001 to $5,000,000 5% of Capital
$5,000,001 to $10,000,000 7.5% of Capital
$10,000,001 to $20,000,000 10% of Capital
$20,000,001 and over $2,000,000

The amount deposited shall be in the form of cash or securities issued by the Department of the Treasury of the United States maturing within ten (10) years of the date of the deposit and guaranteed as to principal and interest by the United States government valued at ninety-five percent (95%) of par value.


Rule 9.20. POSITION LIMITS

(A) Defined Terms

For the purpose of this Rule, the following terms shall have the meanings set forth below, unless the context otherwise requires:

(1) "Modified Capital" shall mean the working capital (as defined in Rule 9.21) of a cClearing mMember, (1) increased by an amount equal to (a) the face amount of any approved letter of credit issued to the Clearing House for the capital accounts of such cClearing mMember and (b) fifty percent of the working capital of any person that issues an approved Guarantee to the Clearing House for the capital account of such cClearing mMember, and (2)(a) decreased by an amount equal to fifty percent of the working capital of such cClearing mMember for each approved Guarantee such cClearing mMember issues to the Clearing House for the capital account of another cClearing mMember and (b) an amount declared by such cClearing mMember for the purpose of establishing position limits less than those otherwise permitted under this Rule; provided, however, that the capital of a cClearing mMember may not be increased by letters of credit and/or guarantees by more than 100% of such cClearing mMember's working capital. For the purpose of determining position limits under this Rule, modified capital will be determined for the NYMEX and COMEX Divisions independently, and the maximum capital for each Division shall be deemed to be $200 million.

(2) "Position Risk" shall mean the amount calculated using the Exchange's Standard Portfolio Analysis ("SPAN") margin system analyzing the net positions carried by the Clearing Member.

(B) Aggregate Position Limits

Except as provided in paragraphs (C) and (D) of this Rule, no mMember may carry futures and/or options contracts on either the NYMEX Division or the COMEX Division resulting in "Position Risk" in excess of:

(a) In the Customer Account – 150% of the firm's modified capital;
(b) In the House Account – 75% of the firm's modified capital; or
(c) In total – 200% of the firm's modified capital.

(C) Super Margin Deposits

Any mMember may carry futures and/or options contracts resulting in Position Risk in excess of the limits established under paragraph (B) of this Rule on either the NYMEX Division or the COMEX Division, and may have expanded position limits that result in Position Risk up to, but not in excess of:

(a) In the Customer Account – 200% of the firm's modified capital;
(b) In the House Account – 100% of the firm's modified capital; or
(c) In total – 250% of the firm's modified capital.

if such mMember deposits with the Clearing House (in addition to all other deposits for margins, fees or other charges that may be required), the difference between the Clearing Member's permissible Position Risk and actual Position Risk.

(Remainder of Rule is unchanged)


Rule 9.21. MINIMUM CAPITAL REQUIREMENTS

(A) Working Capital Defined

For purposes of this Rule, the term "working capital" shall mean the amount by which current assets exceed current liabilities as calculated in accordance with generally accepted accounting principles or in the case of a Clearing Member registered as a Futures Commission Merchant it shall mean "adjusted net capital" as calculated in accordance with CFTC Regulation 1.17. (1) in the case of any person which is a futures commission merchant, "adjusted net capital" computed in accordance with Commission regulation 1.17, and (2) in the case of any other person, "adjusted net capital" as defined above or, at the election of such person, the amount by which current assets exceed current liabilities, computed in accordance with generally accepted accounting principles.

(B) Minimum Financial Requirements

Each Clearing Member registered with the Commission as a futures commission merchant shall have and maintain minimum working capital equal to or in excess of the greater of $5,000,000 or the amount prescribed in Commission Regulation 1.17. Except as provided in Rule 9.02(K), all other Clearing Members shall have and maintain minimum working capital of $5,000,000.

(C) Additional Financial Requirements for Primary Clearing Members

A Primary Clearing Member shall maintain $50,000 in additional working capital, as defined in Subsection (A) above, for the guarantee of each Floor Member as noted within Rule 2.21 in excess of one hundred (100) of such guarantees for each Division of the Exchange, provided, however, that no such requirement shall apply where the guaranteed Floor Member has net liquid assets in excess of one hundred thousand dollars ($100,000) and such Floor Member files with the Primary Clearing Member an annual financial statement as of the calendar year-end and presented on a form as provided by NYMEX documenting net liquid assets in excess of one hundred thousand dollars ($100,000). The Primary Clearing Member shall obtain such financial statement and supporting schedules no later than January 31 of each year and maintain these documents as part of the Primary Clearing Members books and records.

(C)(D) Alternative Measure of Financial Soundness

The Board of Directors or its designee may exempt a Clearing Member from the working capital requirement set forth in Rule 9.21 (B) if, in its sole discretion, an alternative measure of financial soundness of such Clearing Member, such as a minimum level of net worth, is more appropriate.


Rule 9.23. PROTECTION OF CLEARING HOUSE

(A) Clearing Member Assets

If a clearing member fails promptly to discharge any obligation to the Clearing House, its margin on deposit with the Clearing House, its deposit in the Guaranty Fund, and any of its other assets under the control of the Exchange or the Clearing House shall be applied by the Clearing House to discharge the obligation.

For purposes of this Rule, the positions in the cross-margin account of a participating Clearing Member or its Cross-Margin Affiliate at a Cross-Margining Clearing Organization, and the margin deposited thereon, shall be considered an asset of the Participating Clearing Member available to the Exchange to the extent provided in the Cross-Margin Agreement between the Exchange and such Cross-Margin Clearing Organization.

If the failure to discharge the obligation involves a default in the customer account of the clearing member, all of such assets (whether held for the proprietary or customer account) shall be available to discharge the obligation. If such failure involves a default in the proprietary account of the clearing member, only that portion of such assets as are held for the proprietary account shall be available to discharge the obligation. The clearing member shall immediately make up any deficiencies in its margin or its deposits in the Guaranty Fund resulting from such application.

(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; and

(3) Third, 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

(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 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.

(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 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

(i) NYMEX modified capital as defined in Rule 9.20(A), or

(ii) COMEX modified capital as defined in Rule 9.20(A), or

(b) fifteen thirty million dollars ($15,000,000) ($30,000,000), 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) of this Rule 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.

(3) Notwithstanding subsection (C)(1) of this Rule, a clearing member which pays an assessment in accordance with this Section (C) and gives the Clearing House written notice of withdrawal from membership prior to ten business days after such assessment is made shall not be subject to any further assessment after the date such notice is received by the Clearing House, except that such clearing member shall continue to be liable for any assessment made pursuant to the second sentence of subsection (C)(2) of this Rule, up to the Maximum Assessment.

(4) Any assessments made pursuant to this Rule shall be paid by each clearing member not more than one business day after written notice of any such assessment shall have been delivered to such clearing member.

(D) Cancelled Assessments

Notwithstanding Section (C) of this Rule, no clearing member shall be assessed if there would be a deficiency after all clearing members (excluding the defaulting clearing member and any insolvent clearing member) pay the Maximum Assessment.

(E) Charges Against Guaranty Fund

In the event it shall become necessary as provided in subsections (B)(2) and (3) of this Rule to apply all or part of the Guaranty Fund to meet any clearing member's obligations to the Clearing House, each clearing member shall be liable to restore its deposit to the amount required by Rule 9.03, upon demand by the Clearing House.

(F) Insolvent Members

In the event that clearing members are assessed as provided in Section (C) of this Rule, any insolvent clearing member who has been excluded from the assessment shall nonetheless be liable to the Clearing House for the amount of the assessment that otherwise would have been imposed on such clearing member.

(G) Recovery of Losses

If a loss for which Guaranty Fund deposits have been applied or clearing members have been assessed is afterward recovered by the Exchange or the Clearing House in whole or in part, the net amount of such recovery (after deducting legal fees and any other costs of collection incurred by the Exchange or the Clearing House) shall be paid as follows:

(1) First, to clearing members who made payments to the Clearing House pursuant to paragraphs (C) or (F) of this Rule, whether or not they are still clearing members, in proportion to the amounts so assessed, until all such clearing members shall have been repaid the full amount so assessed or the net amount of such recovery shall have been exhausted;

(2) Second, to clearing members against whose Guaranty Fund deposits the deficiency was charged pursuant to subsections (B)(2) and (3) of this Rule, whether or not they are still clearing members, in proportion to the amounts charged against their respective deposits but limited to the amounts so charged; and

(3) The balance, if any, to any purpose the Board, in its discretion, may approve.

(H) Clearing Member Definition

For the purpose of this Rule, the term "clearing member" shall include any person from whom the Clearing House accepted a futures or options contract for clearance within the six-month period preceding the date on which the default occurred, whether or not such person is a member of the Clearing House at the time of the default or at the time when this Rule is applied to pay deficiencies or to allocate amounts recovered pursuant to Section (G) of this Rule.
Should you have any questions or require any further information, please contact exchangeinfo@nymex.com