02/28/2008
In August 2006, the CFTC provided permanent regulatory relief to the Exchange, which allows NYMEX Floor Members who do not otherwise meet the ECP minimum asset requirement, under certain conditions and with a specific FCM guarantee, to engage in OTC transactions that are then brought to the Exchange for clearing. This special program is set forth in Exchange Rule 6.21G.
Floor Members guaranteed pursuant to Exchange Rule 6.21G may not enter into OTC transactions with other Floor Members trading pursuant to an FCM guarantee under that rule [see Exchange Rule 6.21G(E)]. Such Floor Members are, however, permitted to trade opposite Floor Members who meet the ECP minimum asset requirement.
Floor Members are reminded that the principals to the OTC transaction (i.e., the Floor Members) are ultimately responsible for ensuring that the transaction meets the requirements of Exchange Rule 6.21G, including the requirement that Floor Members guaranteed pursuant to Exchange Rule 6.21G may not enter into OTC transactions as counterparties. This is true even if the OTC transaction is intermediated by a voice broker.
It should be noted in this regard that Floor Members can take measures to lessen the likelihood of trading opposite other Rule 6.21G guaranteed Floor Members in brokered transactions. A Floor Member can, for example, include on any faxes, electronic messages, and instant messages sent to voice brokers a statement indicating that the Floor Member is engaging in OTC transactions pursuant to a Rule 6.21G guarantee and that the Floor Member may not enter into OTC transactions with another Floor Member also trading pursuant to a Rule 6.21G guarantee. Including such a statement will not operate to disclaim a Floor Member's obligations under Exchange Rule 6.21G, but it can assist voice brokers in avoiding the pairing of Rule 6.21G guaranteed Floor Members as counterparties.
Effective March 3, 2008, the Exchange will implement the following summary disciplinary procedures for violations of the prohibition on entering into OTC transactions with other Floor Members trading pursuant to a Rule 6.21G guarantee: 1) a warning letter for the first occurrence of a violation; 2) a $1,000 fine and an order to cease and desist for a second violation within 12 months of any previous violation; and 3) for each occurrence of an additional violation within 12 months of any previous violation, either (i) a $2,500 fine, or (ii) referral of any violation deemed to constitute a severe abuse of Exchange rules to the Business Conduct Committee for additional penalties, including termination of the Floor Member's eligibility to enter into OTC transactions under Rule 6.21G.