Notice to Members
Notice No. 22 01/13/2006
Increase — Maximum Letters of Credit
At its January 11, 2006 meeting, the Board of Directors reviewed and approved an amendment to NYMEX Rule 9.24(E), Original Margin Depositories and Originators of Letters of Credit, which increases the maximum for Letters of Credit, effective Tuesday, January 17, 2006. Currently, NYMEX Rule 9.24(E) limits the dollar value of Letters of Credit issued by "approved" banks on behalf of our Clearing Members to the lesser of 10% of such bank's capital or $200 million. It does allow an increase to $300 million, but only after such bank establishes an account at another financial institution, for the benefit of the Exchange, and posts collateral in an amount equal to the excess over $200 million. No bank has ever established such an account. This Rule was established during 1989. Since that time our marketplace has greatly changed and demands for margin financing increased. NYMEX Staff has witnessed an increase in the usage of Letters of Credit as a margin instrument by our Clearing Members at a time that we have seen record-setting volume, volatility, and margin requirements. The amendments to Rule 9.24(E) increase the maximum dollar value of Letters of Credit to $500 million, and retain the percentage basis at 10%. This provides the Exchange with the comfort that a bank which has issued to our Clearing Members Letters of Credit totaling $500 million would be required to maintain capital of $5 billion. The amendments also increase the collateralized maximum to $600 million. * * * * * NYMEX Rule 9.24, Original Margin Depositories and Originators of Letters of Credit (Deletions are in bold/strikethrough, and additions in bold/italics) (E) No approved original margin depository or issuer of a letter of credit may commit, with respect to Exchange contracts, more than the lesser of ten percent (10%) of its capital and surplus or $200 500 million, provided, however, that an issuer may issue letters of credit up to $300 600 million, if such issuer establishes, to the satisfaction of the Exchange, an account at another financial institution and deposits in such account, for the benefit of the Exchange, collateral in the form of U.S. Government obligations of maturities of less than ten (10) years valued at 95% of par value, for the excess over $200 500 million. Such collateral shall be deemed to secure any and all obligations of such issuer under letters of credit issued by the issuer in favor of the Exchange. The Board of Directors, upon the application of an issuer of letters of credit, may grant a waiver of the $300 600 million ceiling, upon such terms and conditions as it deems appropriate.
Should you have any questions or require any further information, please contact exchangeinfo@nymex.com