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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: "Semenza, Jenifer" <JSemenza@NYMEX.com< X-To: Exchange Information <Marketing@NYMEX.com< X-cc: X-bcc: X-Folder: \Tanya_Jones_Dec2000\Notes Folders\All documents X-Origin: JONES-T X-FileName: tjones.nsf Notice No. 00-400 November 20, 2000 MEMORANDUM TO: ALL NYMEX AND COMEX MEMBERS FROM: Neal L. Wolkoff Executive Vice President DATE: November 20, 2000 RE: Notice of CFTC Approval of New COMEX Rule 4.36A and Related Implementation of Aluminum EFS Program ____________________________________________________________________ Please be advised that the CFTC has approved new COMEX Rule 4.36A ("EXCHANGE OF ALUMINUM FUTURES FOR, OR IN CONNECTION WITH, SWAP TRANSACTIONS"). The new rule, which is shown below, permits the exchange of futures for swaps ("EFS") for Aluminum futures contracts. The EFS program for Aluminum futures has been approved on a three-year pilot basis and will go into effect on Monday, November 27, 2000. Under the terms of the rule, only "commercial market participants" are eligible to enter into Aluminum EFS transactions. In addition, a person or entity seeking to participate in an EFS transaction must qualify as an eligible swap participant under the terms of Part 35 of the CFTC's rules. Until the switch of COMEX to TMS and Clearing 21 is completed, no Exchange computer records, including clearing records, will distinguish Aluminum EFS transactions from Aluminum EFP transactions. The Exchange will use an existing Exchange information slip to assist in distinguishing Aluminum EFS transactions from Aluminum EFP transactions at the time of execution. This slip must be submitted to COMEX Division floor staff by the COMEX Division Floor Member as part of the responsibility of reporting the EFS transaction to the Exchange. The slip will indicate that the transaction being reported involved an exchange of Aluminum futures for aluminum swaps. In addition to reporting the pertinent details of the trade, such as contract month, quantity and price, the slip will identify the Clearing Member(s) to the transaction and will further identify the buyer and seller in the transaction. Brokers are further required to identify these transactions as an "EFS" on their trading cards. As noted, though, these transactions will be entered into and processed in OLTE as EFPs. The Exchange's Daily Futures Summary, which includes EFP volume and which is provided both to the Commission and to the public, will not include a separate column for EFS volume. Instead, a footnote on this report will indicate that EFP volume for Aluminum contracts may also include EFS transactions. In addition, please be advised that COMEX Division EFP data transmitted to market participants via the Exchange's Price Reporting System may include data for both Aluminum EFP and Aluminum EFS transactions. Please note that, in addition to Rule 4.36A, it is also necessary for market participants to comply with the CFTC's EFP-related reporting and recordkeeping regulations as if these regulations applied to EFS transactions. Specifically, the Exchange will require: 1) Each Exchange member, futures commission merchant ("FCM"), and introducing broker ("IB") to comply with the requirements of Commission Regulation 1.35(a) as if this regulation applied to EFS transactions and will further require each Exchange member, FCM, and IB to provide the required records to the Exchange for inspection upon request; 2) Each customer to comply with the requirements of Commission Regulation1.35(a-2)(2) as if this regulation applied to EFS transactions and will further require each customer to provide the required records to the Exchange for inspection upon request; 3) Each Exchange clearing member, FCM, and foreign broker to comply with the requirements of Commission Regulations 17.00(a)(1) and (2) as if these regulations applied to EFS transactions, and NYMEX will further require each Exchange clearing member, FCM, and foreign broker to file the required records with the Exchange; 4) Each trader who holds or controls a reportable futures position to comply with the requirements of Commission Regulation 18.05 as if this regulation applied to EFS transactions, and NYMEX will further require each trader to provide the required records to the Exchange for inspection upon request; and 5) Upon the request of the Commission, each FCM, IB, foreign broker, and trader to comply with the requirements of Commission Regulations 24.03(e)(1)(iii) and (e)(2)(iv), and NYMEX will further require each FCM, IB, foreign broker, and trader to file the required records at the place and within the time frame specified by the Exchange. If you have any questions concerning the operation of this program, please contact Tom LaSala, Vice President, Compliance Department, at (212) 299-2897, or Michael Campanelli, Vice President of COMEX Floor Operations, Floor Department, at (212) 299-2072. Approved New COMEX RULE 4.36A (Pilot Program) (Entire rule is new.) Rule 4.36A. EXCHANGE OF ALUMINUM FUTURES FOR, OR IN CONNECTION WITH, SWAP TRANSACTIONS (a) (1) An exchange of Aluminum futures for, or in connection with, a swap (EFS) consists of two discrete, but related, transactions; a swap transaction and a futures transaction. At the time such transaction is effected, the buyer and seller of the futures must be, respectively, the seller and the buyer of the swap. (2) The pilot program is available only to commercial market participants. For purposes of this rule, a Acommercial market participant@ shall include a person or entity that transacts business in the normal channels of commerce in the cash commodity or related commodity underlying the EFS posted on the Exchange and also shall include an entity that regularly maintains a book of and acts as a dealer in swap transactions. (b) The swap component shall involve the commodity underlying the futures contract (or a derivative, by-product or related product of such commodity). The quantity covered by the swap must be approximately equivalent to the quantity covered by the futures contracts. The swap component of an EFS transaction must comply with the requirements of Commission Regulation Part 35 (Exemption of Swap Agreements). The initial term of the pilot program shall be three years from the effective date of this Rule 4.36A. © (1) The report of an Aluminum EFS transaction shall be given on the Floor of the Exchange during the hours of futures trading. (2) Aluminum EFS transactions are permitted until 12:00 p.m. on the day following the last day of trading of an expiring futures contract. (d) A report of such Aluminum EFS transaction shall be submitted to the Exchange by each Clearing Member representing the buyer and/or seller. Such report shall identify the EFS as made under this Rule and shall contain the following information: a statement that the swap component of the EFS complied with the requirements of Part 35 at the time the EFS was entered into between the buyer and seller, a statement that the EFS has resulted or will result in a change of payments or other such change, the kind and quantity of the futures, the price at which the futures transaction is to be cleared, the names of the Clearing Members and customers and such other information as the Exchange may require. Such report (form) shall be submitted to the Compliance Department by 12:00 noon, no later than two (2) Exchange business days after the day of posting the EFS on the Floor of the Exchange. (e) Each buyer and seller must satisfy the Exchange, at its request, that the transaction is a legitimate Aluminum EFS transaction. Upon the request of the Exchange, all documentary evidence relating to the EFS, including a master swap agreement and any supplements thereto, shall be obtained by the Clearing Members from the buyer or seller and made available by the Clearing Members for examination by the Exchange. (f) A report of each Aluminum EFS transaction shall be given, and notice thereof shall be posted on the Floor of the Exchange, on the day that the transaction thereto was made, or if such agreement was made after the close of trading, then on the next business day. EFS transactions shall be cleared through the Exchange in accordance with normal procedures, shall be clearly identified and marked in the same manner as EFP transactions, and shall be recorded by the Exchange and by the Clearing Members involved. (g) All omnibus accounts and foreign brokers shall submit a signed EFS reporting agreement in the form prescribed by the Exchange to the Exchange=s Compliance Department. Such Agreement shall provide that any omnibus account or foreign broker identified by a Clearing Member (or another omnibus account or foreign broker) as the buyer or seller of an EFS pursuant to this rule, shall supply the name of its customer and such other information as the Exchange may require. Such information shall be submitted to the Exchange=s Compliance Department by 12:00 noon no later than two (2) Exchange business days after the day of posting the EFS on the Floor of the Exchange. Failure by an omnibus account or foreign broker to submit either the agreement or the particular EFS information to the Exchange may result in a hearing by the Business Conduct Committee to limit, condition or deny access of such omnibus account or foreign broker to the market.
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