Margin and Delivery Processing for Delivered Natural Gas Futures Information Update #2

This advisory updates and replaces Advisory 11-132, originally published on April 8, 2011.

On Monday, July 25th, 2011, CME Clearing launched clearing services for the Pine Prairie Energy Center Physically Delivered Natural Gas Monthly Basis Future (PPE) contract. This advisory details the margin and delivery processing for this new contract and related updates to the CSV-format datafiles.

The basis future trades and settles at a differential to the Henry Hub Natural Gas (NG) future of the same contract month. For example, assume that the October Henry Hub Natural Gas contract is trading at $5/MMBtu, a trade price of -$1/MMBtu in the October Pine Prairie basis represents a delivery price of $4/MMBtu. Conversely, a trade price of 1 in the basis represents a delivery price of $6/MMBtu. The basis will also settle (including final settlement) at a differential.

The basis future, in terms of trading hours and delivery schedule, will behave exactly the same as the existing Pine Prairie Monthly (PPM) contract. The key difference, however, is how CME Clearing calculates the invoice amount for delivery obligations. The invoice amount, normally calculated as a function of the contract quantity, the contract value factor and the final settlement price of the maturing futures contract, will instead be calculated by multiplying the contract quantity, the contract value factor and an invoice price, which will be determined by taking the sum of the settlement price of the Henry Hub Natural Gas futures contract and the Basis future’s final settlement price.

For the full text of this advisory, please click here.