• Core Principle 9(B)(iii) Trades

      • To
      • Members, Member Firms and Market Users
      • From
      • Market Regulation Department
      • #
      • NYMEX RA1201-6
      • Notice Date
      • 26 September 2012
      • Effective Date
      • 12 October 2012
    • Pending all relevant regulatory review periods, effective on October 12, 2012, NYMEX will introduce a new trade type. The new trade type will be called a 9(B)(iii) Trade based on Section 5(d)(9)(B)(iii) of the Commodity Exchange Act. 9(B)(iii) Trades will be governed by NYMEX Rule 525 and the information provided in this Advisory Notice.
       
      9(B)(iii) Trades will be allowed only in NYMEX energy futures and options products, including all products in the following categories: coal, crude oil, electricity, emissions, ethanol, freight, natural gas, petrochemicals and refined products, with the exception of Light Sweet Crude Oil futures (CL), Light Sweet Crude Oil options (LO), Henry Hub Natural Gas futures (NG), Henry Hub Natural Gas options (ON), RBOB Gasoline futures (RB) and New York Harbor ULSD Heating Oil futures (HO).
       
      Prior to the effective date, the marketplace will be provided additional information concerning the requirements attendant to the submission of 9(B)(iii) Trades to the Exchange, including information on the new trade type indicator applicable to such trades.
       
      1.         Definition of 9(B)(iii) Trades
       
      9(B)(iii) Trades are privately negotiated futures, options, or futures and/or options spread or combination transactions which are permitted to be executed apart from the public auction market. All 9(B)(iii) Trades are subject to the conditions set forth in NYMEX Rule 525 and in this Advisory Notice. There are no minimum quantity threshold requirements applicable to 9(B)(iii) Trades.
       
      2.         Participation in and Solicitation of 9(B)(iii) Trades
       
      Each party to a 9(B)(iii) Trade must be an Eligible Contract Participant as that term is defined in Section 1a(18) of the Commodity Exchange Act. Eligible Contract Participants generally include exchange members and member firms, broker/dealers, government entities, pension funds, commodity pools, corporations, investment companies, insurance companies, depository institutions and high net-worth individuals. 
       
      Commodity trading advisors and investment advisers who are registered or exempt from registration, and foreign persons performing a similar role and subject as such to foreign regulation, may also participate in 9(B)(iii) Trades provided they have total assets under management exceeding $25 million and the 9(B)(iii) Trade is suitable for their customers.
       
      A customer order may be executed by means of a 9(B)(iii) Trade only if the customer has specified that the order be executed as a 9(B)(iii) Trade.
       
      As with all other futures and options on futures traded on a U.S. exchange, all parties soliciting or accepting orders from U.S. domiciled persons, or soliciting or accepting orders from a location within the U.S. with respect to participation in 9(B)(iii) Trades must have appropriate futures industry registration pursuant to existing Exchange, CFTC and NFA Rules.     
       
      3.         Time and Prices of 9(B)(iii) Trades
       
      9(B)(iii) Trades may be executed at any time when CME ClearPort is open for operation. CME ClearPort is regularly open Sunday – Friday from 6:00 p.m. to 5:15 p.m. Eastern Time (“ET”), with a 45 minute closure from 5:15 p.m. to 6:00 p.m. Monday – Thursday. CME ClearPort is closed from Friday at 5:15 p.m. through Sunday at 6:00 p.m. For holiday hours, please consult the CME Group Holiday Calendar on the CME Group website.
       
      The price at which a 9(B)(iii) Trade is executed must be fair and reasonable in light of: (i) the size of the 9(B)(iii) Trade; (ii) the prices of other transactions in the same contract at the relevant time; (iii) the prices of transactions in other relevant markets at the relevant time of the 9(B)(iii) Trade, including, without limitation, the futures markets and any related cash or OTC markets; and (iv) the circumstances of the markets or the parties to the 9(B)(iii) Trade.
       
      The 9(B)(iii) Trade price must be consistent with the minimum tick increment for the product in question.
       
      Additionally, each outright 9(B)(iii) Trade and each leg of any 9(B)(iii) Trade executed as a spread or combination transaction must be executed at a single price.
       
      9(B)(iii) Trade prices will be reported independently of transaction prices in the regular market and will not be included as part of the daily trading range. 9(B)(iii) Trade prices will not elect conditional orders (e.g., stop orders) or otherwise affect orders in the regular market.
       
      4.         9(B)(iii) Trade Reporting Requirements
       
      a) Price Reporting
       
      The Exchange will price report 9(B)(iii) Trades upon receipt by the Exchange of the submission of the trades by the counterparties. Accordingly, market participants have no additional price reporting requirements to the Exchange with respect to participation in 9(B)(iii) Trades.
       
      b) Trade Submission Methods
       
      9(B)(iii) Trades must be submitted to the Exchange solely via one of the three methods described below.
       
      i) CME ClearPort
       
      9(B)(iii) Trades may be electronically submitted directly to CME Clearing via CME ClearPort. For information on reporting 9(B)(iii) Trades through CME ClearPort, please contact customer service at 1.800.438.8616 or via email at ClearPort@cmegroup.com.
       
      ii) CME Direct
       
      9(B)(iii) Trades may be electronically submitted to CME Clearing via entry on the CME Direct platform. The CME Direct platform is directly connected to CME ClearPort. For information on reporting 9(B)(iii) Trades through CME Direct, please contact CME Direct Support at CMEDirectSupport@cmegroup.com.
       
       
       
      iii) CME ClearPort Facilitation Desk
       
      9(B)(iii) Trades may also be submitted to the CME ClearPort Facilitation Desk by calling 866.246.9639.
      Regardless of the method of trade submission, appropriate CME ClearPort registration is required of all principal counterparties to a 9(B)(iii) Trade as well as by any intermediary facilitating the execution and submission of the 9(B)(iii) Trade.
       
      c) Time Requirements
       
      Regardless of whether the 9(B)(iii) Trade is intermediated or negotiated bilaterally directly between the counterparties, trade submission to the Exchange must occur without delay upon consummation of the trade, but in no event later than five minutes after being executed. Notwithstanding the foregoing, market participants are expected to submit the trade via an eligible submission method as soon as practicable upon execution, and may not delay the submission in reliance on the five-minute window. Failure to comply with this requirement will be the basis for disciplinary action.
       
      d) Information Required when Reporting 9(B)(iii) Trades
       
      When reporting a 9(B)(iii) Trade, the following information will be required:
       
      ·         Contract, contract month and contract year for futures, and, additionally for options, strike price and put or call designation;
      ·         Quantity of the trade or, for spreads and combinations, the quantity of each leg of the trade;
      ·         Price of the trade or, for spreads and combinations, the price of each leg of the trade;
      ·         Time of execution of the trade (to the nearest minute);
      ·         Buyer’s clearing firm and seller’s clearing firm; and
      ·         Any other information that CME ClearPort may require when submitting the trade
      5.         9(B)(iii) Trade Recordkeeping
       
      Complete order records for 9(B)(iii) Trades must be created and maintained pursuant to NYMEX Rule 536 and applicable CFTC regulations.
       
      6.         Dissemination of 9(B)(iii) Trade Information
       
      In addition to the prices and times of 9(B)(iii) Trades being distributed by the Exchange via normal market data distribution methods, including to various price reporting vendors, the date, execution time, contract month, price and quantity of 9(B)(iii) Trades will be displayed on the CME Group website.
       
      9(B)(iii) Trade volume will also be published separately in the daily volume reports provided by the Exchange.
       
      7.         Pre-Execution Communications
       
      The prohibition on prearranged trading and the requirements related to pre-execution communications with respect to certain Globex trades as set forth in Rule 539 do not apply to 9(B)(iii) Trades.
       
      8.         Eligible Products:
       
      9(B)(iii) Trades may be executed in any NYMEX Energy futures or options product, including all products in the following categories: coal, crude oil, electricity, emissions, ethanol, freight, natural gas, petrochemicals and refined products, with the exception of:
       
      ·         Light Sweet Crude Oil futures (CL) and options (LO)
      ·         Henry Hub Natural Gas futures (NG) and options (ON)
      ·         RBOB Gasoline futures (RB)
      ·         New York Harbor ULSD Heating Oil futures (HO)
       
      9.         Contact Information
       
      Questions regarding this advisory may be directed to the following individuals:
       
      Market Regulation:        Robert Sniegowski, Senior Director, 312.341.5991
       
      CME Clearing:               CME Clearing Support 312.207.2525
       
      For media inquiries concerning this Advisory Notice, please contact CME Group Corporate Communications at 312.930.3434 or news@cmegroup.com.
       
      10.        Text of NYMEX Rule 525
       
      Rule 525.          9(B)(iii) Trades  
       
      The Exchange shall designate the products in which 9(B)(iii) Trades shall be permitted. The following shall govern 9(B)(iii) Trades:
       
      A.         Each party to a 9(B)(iii) Trade must be an Eligible Contract Participant as that term is defined in Section 1a(18) of the Commodity Exchange Act.
      B.         A member shall not execute any order by means of a 9(B)(iii) Trade for a customer unless such customer has specified that the order be executed as a 9(B)(iii) Trade.
      C.         The price at which a 9(B)(iii) Trade is executed must be fair and reasonable in light of: (i) the size of the 9(B)(iii) Trade; (ii) the prices of other transactions in the same contract at the relevant time; (iii) the prices of transactions in other relevant markets at the relevant time of the 9(B)(iii) Trade, including, without limitation, the futures markets and any related cash or OTC markets; and (iv) the circumstances of the markets or the parties to the 9(B)(iii) Trade.
      D.         9(B)(iii) Trades shall not set off conditional orders (e.g., Stop Orders and MIT Orders) or otherwise affect orders in the regular market.
      E.         The buyer and seller must ensure that each 9(B)(iii) Trade is submitted to the Exchange without delay upon execution of the trade, but in no event later than five (5) minutes after execution via an approved submission method. The report must include the contract, contract month, price, quantity of the transaction, time of execution, the respective clearing members and, for options, strike price, put or call and expiration month, as well as any other information that the Exchange may require. The Exchange shall promptly publish price and volume information separately from the reports of transactions in the centralized market.
      F.         Clearing members and members involved in the execution of 9(B)(iii) Trades must maintain a record of the transaction in accordance with Rule 536.
      G.         A commodity trading advisor ("CTA") registered or exempt from registration under the Act, including, without limitation, any investment adviser registered or exempt from registration under the Investment Advisers Act of 1940, shall be the applicable entity for purposes of Sections A., B. and C, provided such advisers have total assets under management exceeding $25 million and the 9(B)(iii) Trade is suitable for the customers of such advisors.
      H.         A foreign Person performing a similar role or function to a CTA or investment adviser as described in Section I, and subject as such to foreign regulation, shall be the applicable entity for purposes of Sections A., B. and C., provided such Persons have total assets under management exceeding $25 million and the 9(B)(iii) Trade is suitable for the customers of such Persons.

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