08/17/2005
New NYMEX Division Rule 6.21B, "Inter-Exchange Arbitrage Transactions" will become effective on trade date August 22, 2005, and is attached for review.
This Rule is intended to address the processing of the NYMEX "Light Sweet" or "CL" leg of what is typically referred to as a Brent/TI transaction where the "Brent leg" is executed on another board of trade. Specifically, the Rule addresses any Brent/TI transaction that is privately-negotiated on the basis of a stated price differential, and for which the NYMEX "CL" leg is 50 contracts or larger.
The mechanism detailed in this memorandum and the attached Rule for the "Inter-Exchange Arbitrage Transaction" or "IXA" trade is very similar in nature to the existing procedures for EFP and EFS postings on the trading floor today.
It is intended that ALL "Brent/TI" transactions utilize this facility commencing on its effective date. Any other handling or trading of the NYMEX CL leg of a privately-negotiated "Brent/TI" transaction, specifically an outright cross transaction in NYMEX CL, will be subject to review by the Compliance Department.
Details
- The IXA transaction is a privately negotiated transaction away from the centralized market and thus, the pricing of the transaction will not be specifically price reported to vendors and will not be a part of the Lo/Hi or settlement price computations.
- The price at which an IXA transaction is executed must be fair and reasonable.
- The IXA transaction will be uniquely identified in all Clearing Member trade reports with the designation B-BLK.
- Generally, each party (ultimate customer) to an IXA transaction must be either a NYMEX Division Member of an Eligible Contract Participant (“ECP”) as defined in Section 1a(12) of the Commodity Exchange Act. (See Section (B)(3) for more details of the Rule.)
- The minimum size of an IXA transaction is 50 lots.
- All IXA transactions must be posted within 5 minutes of the time of execution or if executed after the close of Regular Trading Hours, within 15 minutes from the commencement of the opening range the next business day.
- Both legs of such Brent/TI spreads (a NYMEX CL and a Brent future on another board of trade) must be executed within 5 minutes of each other.
- NYMEX Compliance Staff will conduct random inquiries as to the bona fides of IXA transactions.
- An order ticket must be created when the applicable terms are determined and must include: identification of “IXA” on the order ticket(s), delivery month, identity of the counterparty(s), and the differential of the CL leg to that of the Brent leg on the other board of trade (marked as “DIF” with the appropriate value). The order ticket(s) must be time stamped when received and upon execution.
- See Exhibit A (below) as an example of an order ticket.
- An executing floor member shall record the IXA transaction on his/her trading pad, as shown in Exhibit B (below).
- After submission of the IXA trade by the floor member(s), the trade will appear in TMS for authorization with the trade type "B-BLK."
- NYMEX will conduct random inquiries as to the bona fides of the IXA transactions.
- Documentation responsive to our inquiries will include: floor order tickets from executing brokers, customers' account statements from Clearing Members for both legs of the transactions (CL and Brent), and documentation submitted to other boards of trade related to the Brent leg.
- NYMEX Compliance Staff will review all documentation submitted in response to any IXA inquiry for compliance with NYMEX Rule 6.21B.
