12/03/2003
The new rule, which is effective Thursday, January 1, 2004, is attached.
At this time no Exchange computer records, including clearing records, will distinguish Copper EFS transactions from Copper EFP transactions. The Exchange will use an existing Exchange information slip to assist in distinguishing Copper EFS transactions at the time of execution. This slip must be submitted to the COMEX Division floor staff by the Comex Division Floor Member as part of the responsibility of reporting the EFS transaction to the Exchange. The slip will indicate that the transaction being reported involved an exchange of Copper futures for copper swaps. In addition to reporting the pertinent details of the trade, such as the contract month, quantity and price, the slip will identify the Clearing Member(s) to the transaction and will further identify the buyer and seller in the transaction.
Brokers are further required to identify these transactions as an "EFS" on their trading cards. As noted, though, these transactions will be entered into and processed on OLTE as EFP'S.
The Exchange's Daily Futures Summary, which includes EFP volume and which is provided both to the Commission and to the public, will not include a separate column for EFS volume. Instead a footnote on this report will indicate that EFP volume for Copper contracts may also include EFS transactions. In addition, please be advised that COMEX Division EFP data transmitted to market participants via the Exchanges Price Reporting System may include data for both Copper EFP and Copper EFS transactions.
Approved COMEX Rule 4.36B
Rule 4.36B Exchange of Futures for, or in Connection with, Swap Transactions
(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 4.36B. Termination of the pilot program shall not void or otherwise affect EFS transactions entered into prior to such termination of the pilot program.
(2) The EFS program in Copper futures will continue in effect until terminated by the Board of Directors or its desginee.
(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). Such transactions are currently permissible in the following contracts and contract months: Copper Futures – 13th to 24th contract months.
(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) 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) Each EFS transaction shall be posted by the Floor Members and cleared through the Exchange in accordance with normal procedures, 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 4.36B(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.