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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: exchangeinfo@nymex.com X-To: tana.jones@enron.com X-cc: X-bcc: X-Folder: \Tanya_Jones_June2001\Notes Folders\All documents X-Origin: JONES-T X-FileName: tjones.nsf Notice # 01-186 June 1, 2001 TO: All NYMEX Division and COMEX Division Clearing Members FROM: Neal L. Wolkoff, Executive Vice President RE: Implementation of Amendments on Use of Letters of Credit, Certain Securitie= s=20 and Deliverable Warehouse Receipts as Margin for NYMEX and COMEX Transacti= ons DATE: June 1, 2001 =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D 1. Implementation of Rule Amendments. As previously announced in Notice to= =20 Members #01-147 (May 4, 2001), this Notice is to remind NYMEX and COMEX=20 Clearing Members of rule amendments that become effective today, June 1,=20 2001, that expand the types of non-cash assets that customers may deposit= =20 with their Clearing Members for margin purposes. 2. Exchange Form for Pass-Through Letters of Credit. Clearing Members are= =20 further advised that a form has been prepared by the Exchange that will ser= ve=20 as the authorized uniform form for irrevocable letters of credit for use o= n=20 a pass-through basis at the Exchange. This form may be obtained from the= =20 Exchange=01,s Clearing Department. 3. Exchange Form for Pass-Through Letters of Credit: Specification of Joint= =20 Beneficiary. The Pass-Through Letter of Credit differs from the Standard=20 Letter of Credit in that the Pass-Through Letter of Credit provides for Joi= nt=20 Beneficiaries. In this regard, a Pass-Through Letter of Credit to be used = as=20 margin on the NYMEX Division should specify NYMEX as one of the Joint=20 Beneficiaries. By comparison, a Pass-Through Letter of Credit to be used a= s=20 margin on the COMEX Division should specify the COMEX Clearing Association = as=20 one of the Joint Beneficiaries. 4. Restriction on Issuers of Letters of Credit. Please note that, under =20 applicable NYMEX and COMEX rules, a Clearing Member that is a bank subsidia= ry=20 or is an affiliate of a bank may not deposit with the applicable Clearing= =20 House a letter of credit issued or confirmed by such bank, bank parent or= =20 affiliate bank. As to the actual rule amendments, which are attached below, these rule=20 changes permit the use of letters of credit, certain securities and=20 deliverable warehouse receipts by customers to meet their margin=20 requirements. The rule changes provide for consistent treatment in the use = of=20 such assets for both NYMEX and COMEX Divisions. Letters of Credit. As a result of the rule changes, letters of credit (LCs= )=20 now will be allowed for customer margin on both divisions. Use of Letters of Credit on Pass-Through Basis. In addition, the rule=20 changes allow letters of credit to be used on a "pass-through" basis on bot= h=20 divisions. In other words, Clearing Members on both divisions will be able= =20 to pledge to the applicable clearinghouse certain LCs posted by customers. = It=20 should be noted that while securities and deliverable warehouse receipts, a= s=20 detailed below, may be used by customers for margin purposes, such assets m= ay=20 not be used on a pass-through basis by a Clearing Member to meet its margin= =20 obligations with the clearinghouse. Securities. Customers also will be able to deposit with their Clearing=20 Members certain types of securities as margin. The types of acceptable=20 securities are the kinds of securities that have been accepted for some tim= e=20 on the COMEX Division. Specifically, the rule changes will permit customer= s=20 to deposit the following types of securities as margin with Clearing Member= s=20 on either division: securities listed for trading on the New York Stock Exchange, Inc. or the= =20 American Stock Exchange, Inc., or which are traded in the over-the-counter= =20 market approved for margin by the Board of Governors of the Federal Reserve= =20 Board except that such securities must be free from liens and encumbrances;= =20 can represent no more than 5% of the issued and outstanding shares of any o= ne=20 issuer; and will be valued for purposes of margin at 75% of their market=20 value. Deliverable Warehouse Receipts. On both divisions, deliverable warehouse=20 receipts for any of the commodities traded on the Exchange will be accepted= =20 as customer margin provided that such receipts will be valued as margin at = no=20 more than 75% of the value of the commodity. If you have any questions concerning this change, please contact Bernard=20 Purta, Senior Vice President, Regulatory Affairs and Operations, at (212)= =20 299- 2380; Arthur McCoy, Vice President, Financial Surveillance Section,=20 NYMEX Compliance Department, at (212) 299-2928; or Charles Bebel, Vice=20 President, Clearing Department, at (212) 299-2130. AMENDMENTS TO NYMEX RULE 4.01 ("CUSTOMER'S MARGINS"), NYMEX RULE 9.05=20 ("MARGINS") AND TO COMEX CLEARING ASSOCIATION RULE 48 ("DEPOSIT OF SECURITI= ES=20 AND LETTERS OF CREDIT AS ORIGINAL MARGIN") (Asterisks indicate additions; brackets indicate deletions.) Rule 4.01. CUSTOMER'S MARGINS (A) Initial margin at least equal to the level set for customers shall be= =20 required of all customers. In no case shall a customer's initial margin be= =20 less than a specified amount per contract, or a specified percentage of the= =20 market value at which any commodity is bought or sold, such customer's marg= in=20 to be determined and announced by the Board of Directors or its designee. (B) Once the required initial margin has been deposited for each individua= l=20 transaction, such trade and such margin shall, for the purposes of this rul= e,=20 lose their individual identity and be commingled with all other trades and= =20 margins in the same commodity for the same customer account. (C) When the margin (Net Liquidating Value plus Non-Cash Deposits) in a=20 customer's account declines below the maintenance margin requirement=20 applicable to the open positions carried in such account, the Member Firm= =20 carrying said account is required to collect (call) from the customer such= =20 funds, which when deposited, will restore it to the then prevailing initial= =20 margin requirement. (D) A Member Firm shall not accept orders for new trades on behalf of an= =20 undermargined customer account other than those which reduce its initial=20 margin requirement unless such Member Firm has been given assurances by sai= d=20 customer that funds sufficient to restore the account to its then prevailin= g=20 initial margin requirement are forthcoming and will be received in a=20 reasonable amount of time not to exceed one business day for Floor Members= =20 and three business days for all other customers. (E)(1) A Member Firm may accept deposits from its customers in one or more = of=20 the following forms as margin to cover open NYMEX Division positions: (a) United States Currency; or any currency freely convertible to United= =20 States currency; provided that if foreign currency is deposited, its value= =20 shall be calculated so that at the current rate of exchange the U.S. dollar= =20 equivalent of the foreign currency satisfies the customer's margin obligati= on. (b) securities issued by the Department of the Treasury of the United Stat= es=20 maturing within ten (10) years of the date of the deposit and guaranteed as= =20 to principal and interest by the United States Government. Such securities= =20 shall be valued at ninety five percent (95%) of par value. *© securities which are listed for trading on the New York Stock Exchange= ,=20 Inc. or the American Stock Exchange, Inc., or which are traded in the=20 over-the-counter market approved for margin by the Board of Governors of th= e=20 Federal Reserve Board provided that such securities; (i) are free from lien= s=20 and encumbrances; (ii) represent no more than 5% of the issued and=20 outstanding shares of any one issuer; and (iii) are valued at 75% of the=20 market value thereof; (d) a letter of credit in favor of a clearing member carrying an account, o= r=20 in the case of any letter or credit to be used on a pass-through basis with= =20 the Clearing House a letter of credit in favor of the Exchange. All letter= s=20 of credit shall be issued in such form as may be prescribed by the Exchange= =20 and by a depository which has been approved by the Exchange for issuance an= d=20 confirmation of letters of credit drawn in favor of the Clearing Members or= =20 in favor of the Exchange, as applicable. (e) deliverable warehouse receipts for commodities traded on the Exchange= =20 provided that such receipts will be valued as margin at no more than 75% of= =20 the value of the commodity.* [©] *(f)* The net liquidating value in a customer's account over the=20 initial margin requirements for the positions carried for such account. (2) A Member Firm may accept deposits from its customers in one or more of= =20 the following forms as margin to cover open COMEX Division positions: (a) United States currency, checks payable in United States currency, or=20 currency freely convertible to United States currency; provided that if=20 foreign currency is deposited, its value shall be calculated so that at the= =20 current rate of exchange the U.S. dollar equivalent of the foreign currency= =20 satisfies the customer's margin obligations; (b) the net liquidating value in a customer's account over the initial marg= in=20 requirements for the positions carried for such account; © securities issued or guaranteed by the United States, provided that suc= h=20 securities shall be valued at the lower of the par or market value thereof; (d) securities which are listed for trading on the New York Stock Exchange,= =20 Inc. or the American Stock Exchange, Inc., or which are traded in the=20 over-the-counter market approved for margin by the Board of Governors of th= e=20 Federal Reserve Board provided that such securities; (i) are free from lien= s=20 and encumbrances; (ii) represent no more than 5% of the issued and=20 outstanding shares of any one issuer; and (iii) are valued at 75% of the=20 market value thereof; (e) *deliverable* warehouse receipts *for commodities traded on the Exchang= e=20 provided that such receipts will be valued as margin at no more than 75% of= =20 the value of the commodity*; [provided that such warehouse receipts shall b= e=20 valued in accordance with the following: (i) if the warehouse receipt is for a deliverable grade of the commodity=20 underlying either the futures contract sold or the futures contract which i= s=20 the subject of the call options sold, not more than 90% of the value of the= =20 commodity may be considered as margin; and; (ii) if the warehouse receipt is for a deliverable grade of the futures=20 contract purchased or the put options sold, not more than 75% of the value = of=20 the commodity may be considered as margin; and; (iii) if the warehouse receipt is for either: (A) deliverable grade of a=20 commodity other than the commodity underlying the futures contract or optio= n=20 to be margined; or (B) a form of silver or gold not deliverable under a=20 futures contract, then not more than 75% of the value of the warehouse=20 receipt may be considered as margin.] (f) physical commodities (but not forward contracts therefor) if the carryi= ng=20 member is in possession and control of negotiable documents covering such= =20 commodities, provided, however, that the value of such commodities shall be= =20 based upon the contract market price for the grade of such commodity or if= =20 the commodity is not of a grade deliverable on a contract market, then at t= he=20 price for the grade of such commodity on the spot market; (g) a letter of credit in favor of a clearing member carrying an account*, = or=20 in the case of any letter or credit to be used on a pass-through basis with= =20 the Clearing House a letter of credit in favor of the Exchange. All letter= s=20 of credit shall be* issued in such form as may be prescribed by the Exchang= e=20 and by a depository which has been approved by the Exchange for issuance an= d=20 confirmation of letters of credit drawn in favor of the Clearing Members *o= r=20 in favor of the Exchange, as applicable.* (3) Calls issued by Member Firms for additional margin from customers may= =20 only be met by: deposits conforming to the requirements of Rule 4.01(E)(1)= =20 for open NYMEX Division positions, or conforming to the requirements of Rul= e=20 4.01(E)(2) for open COMEX Division positions, or, for open positions on=20 either division of the Exchange, favorable market movements which, when tak= en=20 into consideration and combined with any other monies available, enable the= =20 customer's margin to equal or exceed the then prevailing initial margin=20 requirement. (F) Withdrawals of margin from a customer's account may only be permitted = by=20 a Member Firm carrying such account if the remaining funds in such account= =20 are equal to or in excess of the then prevailing initial margin required of= =20 the applicable open positions at the time of said withdrawal request. (G) The customer's response to a margin call issued by a Member Firm must b= e=20 timely and complete. A Member Firm may call, at any time, for margins above= =20 and beyond the minimums required by the Exchange. A Member Firm may liquida= te=20 any or all positions maintained by a customer for failure to meet a margin= =20 call. The customer will be liable for any loss or deficiency resulting=20 therefrom. (H) The margin requirements established by the Board or its designee may= =20 vary for different commodities and may be changed from time to time by the= =20 Board or its designee, and in the discretion of the Board or its designee,= =20 may be made applicable to all open trades as well as new trades. (I) Arbitrage (1) For the purposes of Exchange margin requirements, an arbitrage position= =20 is a purchase or sale of an Exchange futures contract in one delivery month= =20 which futures contract is offset by a futures contract to sell or to purcha= se=20 a similar quantity of a related commodity in the same or different delivery= =20 month which offsetting futures contract is executed on or subject to the=20 rules of a different exchange. In order to qualify as an arbitrage position= ,=20 each contract long and short must be carried by the same member firm for th= e=20 same account. (2) The Board of Directors, by resolution, may identify those futures=20 contracts, that are executable on and/or subject to the rules of a differen= t=20 exchange, which shall be deemed to qualify as part of an arbitrage position= . (3) The Board of Directors or its designee may set levels of margin for=20 arbitrage positions at a rate less than applicable to outright positions;= =20 provided, however, that except for interdivision straddles, no such rate=20 shall be lower than the rates established for clearing members' margins. Rule 9.05. MARGINS * * * * (E) Clearing Members may meet original margin calls by depositing: (1) Cash (U.S. Currency); (2) Original Margin Certificates issued by an original margin depository, i= n=20 form acceptable to the Clearing House, for delivery to the order of the=20 Clearing House, representing securities issued by the Department of Treasur= y=20 of the United States of America maturing within ten (10) years from the dat= e=20 of the deposit and guaranteed as to principal and interest by the United=20 States Government; such securities shall be valued at ninety five percent= =20 (95%) of the par value; or (3) Subject to a maximum limit of 50% of the Clearing Member's total origin= al=20 margin obligations, Irrevocable Letters of Credit payable to the order of t= he=20 Clearing House *including such Letters of Credit that are deposited with th= e=20 Clearing Member in accordance with Exchange procedures by a customer*, in= =20 form acceptable to the Clearing House, issued by or confirmed by an origina= l=20 margin depository and having an expiration date of not less than three (3) = or=20 more than eighteen (18) months from the date of issuance; provided, however= ,=20 that such Letter of Credit may not be used to meet original margin=20 obligations during the fifteen calendar days prior to the expiration date= =20 thereof (if the fifteenth day prior to the expiration of the Letter of Cred= it=20 is not a business day, the period during which such Letter of Credit may no= t=20 be used to meet original margin obligations shall begin on the business day= =20 immediately preceding that day); and, provided further, that on the busines= s=20 d! ay! ! preceding the fifteenth calendar day prior to the expiration of the Letter= =20 of Credit, the Clearing House shall issue a call for original margin to be= =20 deposited in a form and manner acceptable to the Clearing House for positio= ns=20 held open as of the close of business on that day and margined by the Lette= r=20 of Credit. The Clearing House shall have the unqualified right to call on a= ny=20 Letter of Credit at any time prior to expiration. CCA Rule 48. DEPOSIT OF SECURITIES AND LETTERS OF CREDIT A ORIGINAL MARGIN * * * * (b) Irrevocable Letters of Credit. (i) The Corporation will accept as original margin for the full face amount= =20 thereof a letter of credit in favor of the Corporation issued by any=20 institution selected by the depositor *including such Letters of Credit in= =20 favor of the Corporation that are deposited with the Clearing Member in=20 accordance with Exchange procedures by a customer*, provided that (A) such institution has been approved by the Board as an approved=20 depository or such institution is organized under the laws of the United=20 States or the laws of any state and the letter of credit issued by such=20 institution has been confirmed by an approved depository; (B) that the aggregate amount of letters of credit which may be accepted at= =20 any time from any one approved depository, or for the account of any one=20 Clearing Member may be limited by the Board from time to time; (C) that a letter of credit issued on behalf of a Clearing Member by an=20 institution which is an affiliated firm of such Clearing Member must be=20 confirmed by an institution which is not an affiliated firm of such Clearin= g=20 Member; and (D) such letter of credit shall be in form and substance approved by the=20 Board and shall be in such denominations as may be determined by the Board= =20 from time to time; shall be irrevocable, shall be available to be drawn upo= n=20 by the Corporation by a clean sight draft(s) or written demand(s) and shal= l=20 run for a period of not less than ninety (90) days from the date of issue. __________________________________________________ Please click on the link below to indicate you have received this email. 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