Notice to Members
Notice No. 75 02/06/2006
CFTC Extends Order Allowing NYMEX Floor Members to Trade Specified OTC Transactions
The Commodity Futures Trading Commission ("CFTC") has granted NYMEX a six-month extension of its "Order" originally effective February 4, 2003, 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. An amendment to NYMEX Rule 6.21G memorializes this extension to August 4, 2006. 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"). Individuals basically can qualify as an ECP only if they have total assets exceeding $10 million. However, the Exchange has successfully obtained 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 (seen here) 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. * * * * * Amendment to NYMEX Rules 6.21G (Italics in bold indicates additions; bold strike-outs indicate deletions.) Rule 6.21G, Participation by NYMEX Floor Members in Special Program for Over-the-Counter Trading with FCM Guarantee (A) This program is effective until February 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.)
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