Notice to Members
Notice No. 432
08/04/2006
CFTC Grants Permanent Order Allowing NYMEX Floor Members to Trade Specified OTC Transactions
The Commodity Futures Trading Commission ("CFTC") has granted NYMEX a permanent "Order" which recognizes registered NYMEX Floor Traders and Floor Brokers acting in a proprietary capacity as "eligible contract participants" ("ECPs") qualified to enter into specified over-the-counter transactions if their trades are cleared at the Exchange and guaranteed by an Exchange clearing member subject to certain requirements, summarized below. The Order supersedes the existing Order, effective since February 4, 2006, which had extended the terms of the original order, granted February 4, 2003, until August 4, 2006. An amendment to NYMEX Rule 6.21G codifies the provision that the program is now in effect until the Exchange announces otherwise.

Background


Trading in off-Exchange, over-the-counter ("OTC") products is generally limited by statute to firms and persons that qualify for the statutory category of an "Eligible Contract Participant" ("ECP"). As a general matter, individuals can qualify as an ECP only if they have total assets exceeding $10 million.

However, the Exchange has now obtained permanent CFTC regulatory relief that allows Exchange Floor Members who may not otherwise qualify as ECPs, under certain conditions and with a specific FCM guarantee, to trade certain OTC products that are then brought to the Exchange for clearing (e.g., via EFS transactions). This special program is set forth in NYMEX Rule 6.21G, "Participation by NYMEX Floor Members in Special Program for Over-the-Counter Trading with FCM Guarantee," which can be found on the Exchange website. (As a note, compliance with the requirements of the Rule 6.21G special program is unnecessary for those Exchange Floor Members who can meet the financial assets test to qualify as ECPs in their own right.)

NYMEX Rule 9.41, Special Provisions for Clearing Members Guaranteeing and Clearing OTC Contracts Executed by Floor Members, requires Clearing Members participating in the program to maintain a minimum working capital of at least $20 million.

Accordingly, please be reminded that prior to the commencement of trading under the Rule 6.21G program, all applicable NYMEX Floor members must first:

(1) obtain a financial guarantee from their PCM (see attached document)
and
(2) formally notify the Compliance Department of the intention to trade eligible OTC products pursuant to this special program,

The Compliance Department will deem the receipt of the attached Financial Guarantee as the appropriate notification that a Floor Member intends to trade OTC products under this special program. The Financial Guarantee should be submitted to the attention of the Vice President of Financial Surveillance and Risk Management.

New York Mercantile Exchange
FCM Financial Guarantee –
Special Program for Trading in OTC Contracts
By NYMEX Floor Members


_______________________________ (Name of Clearing Member), a clearing member of the New York Mercantile Exchange, Inc. ("NYMEX" or "Exchange"), hereby agrees to unconditionally guarantee to the Exchange and all of its Members the full and prompt payment of all obligations of ___________________________ (Name of Floor Member) which arise out of any transactions of business on the Exchange pertaining to transactions in certain over-the-counter ("OTC") contracts submitted to NYMEX for clearing under the special program provided pursuant to NYMEX Rule 6.21G. During the term of this Guarantee _________________________ (Name of Clearing Member) must at all times remain a registered Futures Commission Merchant and further must clear all of the transactions executed pursuant to the special program provided by Rule 6.21G transacted by ______________________(Name of Floor Member).

This Guarantee, prepared in accordance with NYMEX Rule 6.21G ("Participation by NYMEX Floor Members in Special Program for Over-the-Counter Trading with FCM Guarantee"), shall continue in effect until it is revoked in writing by either party and such written revocation is submitted and accepted by the Exchange's Vice President of Financial Surveillance and Risk Management.

Agreed to by:


____________________________
(Print Name of Clearing Member)


____________________________
(Signature and title of Senior Officer of Clearing Member)


____________________________
(Date)


____________________________
(Print Name of Floor Member)


____________________________
(Signature of Floor Member)


____________________________
(Date)



Amendment to NYMEX Rules 6.21G
(Bold italics indicates additions; strike-outs indicate deletions)


Rule 6.21G, Participation by NYMEX Floor Members in Special Program for Over-the-Counter Trading with FCM Guarantee

(A) In accordance with the CFTC's Order effective August 4, 2006, tThis program is effective until August 4, 2006, or until such other date as announced by the Exchange. The over-the-counter (OTC) contracts, agreements or transactions must be executed pursuant to Section 2(h)(1) of the Commodity Exchange Act (Act), which in effect provides among other things that such transactions shall be subject to CFTC anti-fraud and anti-manipulation authority and also may not be entered into on a trading facility. This program generally allows a NYMEX Floor Member to enter into trading in certain OTC contracts on the basis of a FCM guarantee without needing to satisfy the total assets requirements otherwise necessary under the Act for such trading. In order to maintain eligibility for this program, a NYMEX Floor Member must continue to satisfy all of the conditions contained in this rule.

(Sections (B) through (F) remain unchanged.)
Should you have any questions or require any further information, please contact exchangeinfo@nymex.com