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 Securities and Deliverable Warehouse Receipts as Margin  for NYMEX and COMEX Transactions

DATE:
June 1, 2001
===========================================================

1. Implementation of Rule Amendments. As previously announced in Notice to Members #01-147 (May 4, 2001), this Notice is to remind NYMEX and COMEX Clearing Members of rule amendments that become effective today, June 1, 2001, that expand the types of non-cash assets that customers may deposit with their Clearing Members for margin purposes.

2. Exchange Form for Pass-Through Letters of Credit. Clearing Members are further advised that a form has been prepared by the Exchange that will serve as the authorized  uniform form for irrevocable letters of credit for use on a pass-through basis at the Exchange.  This form may be obtained from the Exchange's Clearing Department.

3. Exchange Form for Pass-Through Letters of Credit: Specification of Joint Beneficiary. The Pass-Through Letter of Credit differs from the Standard Letter of Credit in that the Pass-Through Letter of Credit provides for Joint Beneficiaries.  In this regard, a Pass-Through Letter of Credit to be used as margin on the NYMEX Division should specify NYMEX as one of the Joint Beneficiaries.  By comparison, a Pass-Through Letter of Credit to be used as margin on the COMEX Division should specify the COMEX Clearing Association as one of the Joint Beneficiaries.

4. Restriction on Issuers of Letters of Credit. Please note that, under  applicable NYMEX and COMEX rules, a Clearing Member that is a bank subsidiary or is an affiliate of a bank may not deposit with the applicable Clearing House a letter of credit issued or confirmed by such bank, bank parent or affiliate bank.




As to the actual rule amendments, which are attached below, these rule changes permit the use of letters of credit, certain securities and deliverable warehouse receipts by customers to meet their margin requirements. The rule changes provide for consistent treatment in the use of such assets for both NYMEX and COMEX Divisions.

Letters of Credit.  As a result of the rule changes, letters of credit (LCs) now will be allowed for customer margin on both divisions.

Use of Letters of Credit on Pass-Through Basis.  In addition, the rule changes allow letters of credit to be used on a "pass-through" basis on both divisions.  In other words, Clearing Members on both divisions will be able to pledge to the applicable clearinghouse certain LCs posted by customers. It should be noted that while securities and deliverable warehouse receipts, as detailed below, may be used by customers for margin purposes, such assets may not be used on a pass-through basis by a Clearing Member to meet its margin obligations with the clearinghouse.

Securities. Customers also will be able to deposit with their Clearing Members certain types of securities as margin. The types of acceptable securities are the kinds of securities that have been accepted for some time on the COMEX Division.  Specifically, the rule changes will permit customers to deposit the following types of securities as margin with Clearing Members on either division:

securities listed for trading on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc., or which are traded in the over-the-counter market approved for margin by the Board of Governors of the Federal Reserve Board except that such securities must be free from liens and encumbrances; can represent no more than 5% of the issued and outstanding shares of any one issuer; and will be valued for purposes of margin at 75% of their market value.

Deliverable Warehouse Receipts. On both divisions, deliverable warehouse receipts for any of the commodities traded on the Exchange will be accepted as customer margin provided that such receipts will be valued as margin at no more than 75% of the value of the commodity.

If you have any questions concerning this change, please contact Bernard Purta, Senior Vice President, Regulatory Affairs and Operations, at (212) 299- 2380; Arthur McCoy, Vice President, Financial Surveillance Section, NYMEX Compliance Department, at (212) 299-2928; or Charles Bebel, Vice President, Clearing Department, at (212) 299-2130.


AMENDMENTS TO NYMEX RULE 4.01 ("CUSTOMER'S MARGINS"), NYMEX RULE 9.05 ("MARGINS") AND TO COMEX CLEARING ASSOCIATION RULE 48 ("DEPOSIT OF SECURITIES 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 required of all customers. In no case shall a customer's initial margin be less than a specified amount per contract, or a specified percentage of the market value at which any commodity is bought or sold, such customer's margin to be determined and announced by the Board of Directors or its designee.

 (B) Once the required initial margin has been deposited for each individual transaction, such trade and such margin shall, for the purposes of this rule, lose their individual identity and be commingled with all other trades and margins in the same commodity for the same customer account.

 (C) When the margin (Net Liquidating Value plus Non-Cash Deposits) in a customer's account declines below the maintenance margin requirement applicable to the open positions carried in such account, the Member Firm carrying said account is required to collect (call) from the customer such funds, which when deposited, will restore it to the then prevailing initial margin requirement.

 (D) A Member Firm shall not accept orders for new trades on behalf of an undermargined customer account other than those which reduce its initial margin requirement unless such Member Firm has been given assurances by said customer that funds sufficient to restore the account to its then prevailing initial margin requirement are forthcoming and will be received in a reasonable amount of time not to exceed one business day for Floor Members and three business days for all other customers.

(E)(1) A Member Firm may accept deposits from its customers in one or more of the following forms as margin to cover open NYMEX Division positions:

 (a) United States Currency; or any currency freely convertible to United States currency; provided that if foreign currency is deposited, its value shall be calculated so that at the current rate of exchange the U.S. dollar equivalent of the foreign currency satisfies the customer's margin obligation.

 (b) securities issued by the Department of the Treasury of the United States maturing within ten (10) years of the date of the deposit and guaranteed as to principal and interest by the United States Government. Such securities shall be valued at ninety five percent (95%) of par value.

*(c) securities which are listed for trading on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc., or which are traded in the over-the-counter market approved for margin by the Board of Governors of the Federal Reserve Board provided that such securities; (i) are free from liens and encumbrances; (ii) represent no more than 5% of the issued and outstanding shares of any one issuer; and (iii) are valued at 75% of the market value thereof;

(d) a letter of credit in favor of a clearing member carrying an account, or in the case of any letter or credit to be used on a pass-through basis with the Clearing House a letter of credit in favor of the Exchange.  All letters of credit shall be issued in such form as may be prescribed by the Exchange and by a depository which has been approved by the Exchange for issuance and confirmation of letters of credit drawn in favor of the Clearing Members or in favor of the Exchange, as applicable.

(e) deliverable warehouse receipts for commodities traded on the Exchange provided that such receipts will be valued as margin at no more than 75% of the value of the commodity.*

[(c)] *(f)* The net liquidating value in a customer's account over the 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 the following forms as margin to cover open COMEX Division positions:

(a) United States currency, checks payable in United States currency, or currency freely convertible to United States currency; provided that if foreign currency is deposited, its value shall be calculated so that at the current rate of exchange the U.S. dollar equivalent of the foreign currency satisfies the customer's margin obligations;

(b) the net liquidating value in a customer's account over the initial margin requirements for the positions carried for such account;

(c) securities issued or guaranteed by the United States, provided that such 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, Inc. or the American Stock Exchange, Inc., or which are traded in the over-the-counter market approved for margin by the Board of Governors of the Federal Reserve Board provided that such securities; (i) are free from liens and encumbrances; (ii) represent no more than 5% of the issued and outstanding shares of any one issuer; and (iii) are valued at 75% of the market value thereof;

(e) *deliverable* warehouse receipts *for commodities traded on the Exchange provided that such receipts will be valued as margin at no more than 75% of the value of the commodity*; [provided that such warehouse receipts shall be valued in accordance with the following:

(i) if the warehouse receipt is for a deliverable grade of the commodity underlying either the futures contract sold or the futures contract which is the subject of the call options sold, not more than 90% of the value of the commodity may be considered as margin; and;

(ii) if the warehouse receipt is for a deliverable grade of the futures contract purchased or the put options sold, not more than 75% of the value of the commodity may be considered as margin; and;

(iii) if the warehouse receipt is for either: (A) deliverable grade of a commodity other than the commodity underlying the futures contract or option to be margined; or (B) a form of silver or gold not deliverable under a futures contract, then not more than 75% of the value of the warehouse receipt may be considered as margin.]

(f) physical commodities (but not forward contracts therefor) if the carrying member is in possession and control of negotiable documents covering such commodities, provided, however, that the value of such commodities shall be based upon the contract market price for the grade of such commodity or if the commodity is not of a grade deliverable on a contract market, then at the 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 in the case of any letter or credit to be used on a pass-through basis with the Clearing House a letter of credit in favor of the Exchange.  All letters of credit shall be* issued in such form as may be prescribed by the Exchange and by a depository which has been approved by the Exchange for issuance and confirmation of letters of credit drawn in favor of the Clearing Members *or in favor of the Exchange, as applicable.*

 (3) Calls issued by Member Firms for additional margin from customers may only be met by: deposits conforming to the requirements of Rule 4.01(E)(1) for open NYMEX Division positions, or conforming to the requirements of Rule 4.01(E)(2) for open COMEX Division positions, or, for open positions on either division of the Exchange, favorable market movements which, when taken into consideration and combined with any other monies available, enable the customer's margin to equal or exceed the then prevailing initial margin requirement.

 (F) Withdrawals of margin from a customer's account may only be permitted by a Member Firm carrying such account if the remaining funds in such account are equal to or in excess of the then prevailing initial margin required of 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 be timely and complete. A Member Firm may call, at any time, for margins above and beyond the minimums required by the Exchange. A Member Firm may liquidate any or all positions maintained by a customer for failure to meet a margin call. The customer will be liable for any loss or deficiency resulting therefrom.

 (H) The margin requirements established by the Board or its designee may vary for different commodities and may be changed from time to time by the Board or its designee, and in the discretion of the Board or its designee, 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 is a purchase or sale of an Exchange futures contract in one delivery month which futures contract is offset by a futures contract to sell or to purchase a similar quantity of a related commodity in the same or different delivery month which offsetting futures contract is executed on or subject to the rules of a different exchange. In order to qualify as an arbitrage position, each contract long and short must be carried by the same member firm for the same account.

(2) The Board of Directors, by resolution, may identify those futures contracts, that are executable on and/or subject to the rules of a different 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 arbitrage positions at a rate less than applicable to outright positions; provided, however, that except for interdivision straddles, no such rate 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, in form acceptable to the Clearing House, for delivery to the order of the Clearing House, representing securities issued by the Department of Treasury of the United States of America maturing within ten (10) years from the date of the deposit and guaranteed as to principal and interest by the United States Government; such securities shall be valued at ninety five percent (95%) of the par value; or

(3) Subject to a maximum limit of 50% of the Clearing Member's total original margin obligations, Irrevocable Letters of Credit payable to the order of the Clearing House *including such Letters of Credit that are deposited with the Clearing Member in accordance with Exchange procedures by a customer*, in form acceptable to the Clearing House, issued by or confirmed by an original margin depository and having an expiration date of not less than three (3) or more than eighteen (18) months from the date of issuance; provided, however, that such Letter of Credit may not be used to meet original margin obligations during the fifteen calendar days prior to the expiration date thereof (if the fifteenth day prior to the expiration of the Letter of Credit is not a business day, the period during which such Letter of Credit may not be used to meet original margin obligations shall begin on the business day immediately preceding that day); and, provided further, that on the business d!
ay!
!
 preceding the fifteenth calendar day prior to the expiration of the Letter of Credit, the Clearing House shall issue a call for original margin to be deposited in a form and manner acceptable to the Clearing House for positions held open as of the close of business on that day and margined by the Letter of Credit. The Clearing House shall have the unqualified right to call on any 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 thereof a letter of credit in favor of the Corporation issued by any institution selected by the depositor *including such Letters of Credit in favor of the Corporation that are deposited with the Clearing Member in accordance with Exchange procedures by a customer*, provided that

(A)	such  institution has been approved by the Board as an approved depository or such institution is organized under the laws of the United States or the laws of any state and the letter of credit issued by such institution has been confirmed by an approved depository;
(B)	that the aggregate amount of letters of credit which may be accepted at any time from any one approved depository, or for the account of any one 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 institution which is an affiliated firm of such Clearing Member must be confirmed by an institution which is not an affiliated firm of such Clearing Member; and
(D)	such letter of credit shall be in form and substance approved by the Board and shall be in such denominations as may be determined by the Board from time to time; shall be irrevocable, shall be available to be drawn upon by the Corporation by  a clean sight draft(s) or written demand(s) and shall run for a period of not less than ninety (90) days from the date of issue.



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