The intention of this notice is to inform you of the upcoming amendments to the Trading Rules of NASDAQ OMX Commodities Markets (the “COM Trading Rules”) and the Clearing Rules of NASDAQ OMX Commodities Markets (the “COM Clearing Rules”).
The amendments presented herein will enter into effect during the weekend prior to, and at the latest upon, the completion of the merger of NOS Clearing ASA (“NOS”) into NASDAQ OMX Clearing AB (“NOMX”), planned to Monday 7 April 2014, subject to regulatory consent.
Please note that the amendments referenced herein are subject to changes, including further discussions with the relevant regulatory authorities and comments thus are welcome.
Background
In connection with the merger of NOS into NOMX, a number of new products will be cleared by NOMX (which were previously cleared by NOS). In addition, there will also be some changes in the method of reporting certain existing commodities products. These changes are described in the Trade Reporting Service Description, available here:
Following the implementation of these changes to the Trading and Clearing Rules, the products and new trade reporting services will be available either via the electronic order book (ETS and MTS), the Block Trade Facility, as Non Exchange Transactions (currently only in iron ore) or as seafood transactions executed on Fish Pool ASA (“Third Party Exchange Transactions”).
To reflect the changes described above, NASDAQ OMX has updated the Trading and Clearing Rules and caused changes to the following documents:
• Joint Trading and Clearing Appendix 1 – Definitions
• Joint Trading and Clearing Appendix 2 - Contract Specifications
• Clearing Appendix 2a – Contract Specifications Clearing Listed Products
• Joint Trading and Clearing Appendix 3 – Trading and Clearing Schedule
• Trading Appendix 4 – Trading Procedures
• Trading Appendix 8 – Block Trade Facility Procedure
• Joint Trading and Clearing Appendix 6 – Market Conduct Rules
• Clearing Rules – General Terms
• Clearing Appendix 14 – Block Trade, EFP and EFS Clearing Procedures
• Clearing Appendix 15 – Third Party Exchange Transactions Clearing Procedure
• Clearing Appendix 4 – Non Exchange Clearing Procedures
• Clearing Appendix 9 – Default Fund Rules
• Non Exchange Broker Agreement
• Block Broker Agreement
Below follows a summary of the changes that are being made to the Trading and Clearing Rules.
Changes to the Joint Trading and Clearing Appendix 1 – Definitions
The definitions are adjusted to reflect the changes of the other parts of the Trading and Clearing Rules. The concept of block brokers, transaction types, control measures, new currencies, references to third party exchange etc. have been implemented. Further, there are references added to the so called combined order book, enabling for members of NASDAQ OMX Stockholm AB to trade commodities products.
Changes to Joint Trading and Clearing Appendix 2 - Contract Specifications
The Contract Specifications for all contracts listed for both trading and clearing are regulated in the Joint Trading and Clearing Appendix – Contract Specifications. The clearing listed contracts, iron ore and seafood, are regulated in Clearing Appendix 2a – Contract Specifications.
Part A – General provisions
To calculate the Expiration Day Fix and the Option Fix for the freight, fuel oil, seafood and iron ore contracts, section 4.3 introduces the term Index to describe the underlying price source instead of the term Spot Reference Fix.
The freight, fuel oil, seafood and iron ore contracts have all Daily Market Settlement in accordance with section 5.1. Further details on the settlement follow each Individual Contract Specifications in Part D.
Part B – Special Provisions Relating to Certain Product Types
Part B is divided into specific sections for the separate markets. Freight and fuel oil were previously regulated in Appendix 2a, but is now instead incorporated under section 5.
Two definitions have been added:
“Index Delivery Period” means the cycle of when the indexes are set by Platts, Baltic Exchange, The Steel Index or Fish Pool ASA.
“Forced Termination” is an additional tool to strengthen the default management of the option contracts.
Sections 5.4 - 5.7 have been amended according to the settlement of the freight and fuel oil contracts.
Forced Termination of the option contracts is reflected by section 5.8 et seq.
Part C– Quotation List
The quotation list for freight and fuel oil in the current Appendix 2a has been adjusted to the current format for the other commodities products, but has not been materially changed.
Part D – Individual Contract Specifications
The following freight route has been added to section 5.1 Dry Capesize Future:
C9 AVG*: Capesize, Continent/Mediterranean – Far East
Apart from the above, we are not introducing any new contracts or instruments. Nevertheless, the current freight and fuel oil option contracts will change from being cash settled to being delivery of futures type options, meaning that the options will be settled by delivery of a futures contract. The settlement of the future contract will however not change and this will not have any economic impact. By making this change, we ensure that the option contracts are not considered swap contracts according to the US Dodd Frank Act. The Contract Specifications of the new option contracts is reflected by section 6.1 et seq.
Changes to Clearing Appendix 2a – Contract Specifications for Clearing Listed Products
The general and individual contract specifications of the iron ore and seafood contracts are stated in Clearing Appendix 2a. These are drawn up according to the same model as the other commodities contracts.
Changes to Joint Trading and Clearing Appendix 3 – Trading and Clearing Schedule
The Trading and Clearing Schedule have been updated in respect of the opening hours for Block Trades and EFP/EFS which is CET 07:45 – 19:00.
Clearing Opening Hours for all markets is CET 07:00 - 19.00.
The opening hours have been adjusted in the Joint Trading and Clearing Appendix 3 – Trading and Clearing Schedule. Freight, fuel oil and seafood have been added to sections 1.5-1.7 and 2.
Changes to Trading Appendix 4 – Trading Procedures
In the current Trading Appendix 4, the regulations of Block Trades are placed in section 13. These sections have now been moved to section 7. A new section 8 regulates the Exchange of Future for Physical (EFP) and Exchange of Future for Swap (EFS) and refers to the Block Trade Facility Procedure in respect of the material conditions for such contracts.
Further, Block Trades and EFP/EFS are incorporated in a way corresponding to ETS/MTS transactions in section 9, Transaction Confirmation and Clearing. In Genium INET the Transaction Confirmation is automatically generated, making the previous Transaction Confirmation Deadline redundant and section 9.2 has therefore been removed.
According to section 9.3, possible changes to clearing transactions will lead to a corresponding change of the exchange transactions, and further that an exchange transaction will be deleted or cancelled if a complaint is approved. For more information in relation to the above, please see the Clearing Rules, General Terms section 4.7.1.
The procedures in the event of trading errors in MTS (Manual Trading System) under section 12 have been expanded and apply also to Block Trades and EFP/EFS. Section 12.7 is new and regulates the process of complaints related to Block Trades and EFP/EFS.
Sections 12.9 -12.11 are equal to the ETS regulations in chapter 11 (sections 11.4, 11.5 and 11.7) and added with the intention to harmonize the error complaint regulation for all transaction types.
Section 14.6 states that the Exchange has the right to suspend trading via the Block Trade Facility when the ETS (Electronic Trading System) has been suspended.
Changes to Trading Appendix 8 – Block Trade Facility Procedure
This Appendix regulates the reporting of Block Trades and EFP/EFS, Block Trades in Part A and EFS/EFP in Part B.
According to sections 2 and 6, Block Trades shall be reported according to the Market Conduct Rules. It is explicitly stated that transactions outside the opening hours must be reported within 15 minutes (corresponding to the current requirement for OTC transactions).
The 15 minutes requirement does not apply to EFP/EFS.
In addition, reporting requirements for single sided and two sided registrations have been added.
Sections 2.8, 2.9, 6.5 and 6.6 have been extended and now include a reference to the «Co-operating Exchange» specifying the cooperation between NASDAQ OMX Stockholm AB and NASDAQ OMX Oslo ASA allowing the Stockholm members to trade commodities products.
For an EFP/EFS to be reported as a futures contract, the underlying contract must be cancelled. Section 8.2 specifies the requirements of the exchange to allow an EFP/EFS.
Changes to Joint Trading and Clearing Appendix 6 – Market Conduct Rules
The Market Conduct Rules continue to cover both exchange and clearing members, ref. section 1.2.
In general, the wording under the Market Conduct Rules has been adjusted to be consistent with the rest of the rulebook and to adjust to the new transaction types like the following:
The definition Exchange Opening Hours is used instead of the current Opening Hours under section 2.3.
The definition Exchange Listed Products is used instead of Listed Products under sections 3.1 and 4.1 including Enclosure 1 and 2.
Under the current Market Conduct Rules, the separate types of membership are listed in sections 1.3, 3.3, 4.2, 4.3 and Enclosure 2. This has been harmonized and only the terms Account Holder and Exchange Members are hereinafter used.
The reporting requirements in section 2 have been changed and apply to Block Trades and EFP/EFS instead of OTC transactions. In line with the practice of the Market surveillance, it is now stated that the underlying clients of Account Holders shall be revealed. Apart from that, there are no material changes to this section.
Changes to the Clearing Rules – General Terms
As of the implementation of the new transaction types, the General Terms are supplemented by Appendix 14 – Block Trade, EFP and EFS Clearing Procedures, Appendix 15 – Third Party Exchange Transactions Clearing Procedure and Appendix 4 – Non Exchange Clearing Procedures.
In addition to the material changes described in the following, there have been changes to the wording in order to adjust to the new transaction types and the new systematics:
Section 1.6 presumes that a successful registration under the so called combined order book/combined Block Trade Facility between the exchanges in Stockholm and Oslo requires the transaction to be registered successfully both according to the COM Clearing Rules and the FIN Clearing Rules.
Section 1.7 has been inserted to address certain U.S. regulatory issues and sets out certain restrictions in respect of trading by or for the account of so-called U.S. Persons.
In section 3.1.1, the requirement that a General Clearing Member must also be an Exchange Member has been removed.
In section 3.1.3, we have for the sake of clarity added the alternative that one can demonstrate that the licensing requirements do not apply to its activity.
In section 3.6.5, the term Margin Currency has been changed to the term Risk Currency. The definition of Risk Currency reflects that NOK, SEK, DKK and USD are accepted currencies and that Margin Requirements are calculated for each Clearing Account and not per Account Holder. One Account Holder can hereinafter have a different Risk Currency for different Clearing Accounts.
When transactions are successfully registered for clearing, they are continuously registered in the Clearing Workstation. This procedure replaces the Final Trade List and the reference to the Final Trade List is thus removed in section 3.9.1 and also in the definitions.
As we are now clearing also for Third Party Exchanges, it has been added in section 3.11.2 that the relevant «Third Party Exchange» shall be informed in case of a member suspension.
Section 4.1.1 has been modified for the sake of clarity. Instead of referring to section 4.1.2 in respect of when the transactions are deemed to be registered, it is now clear directly from section 4.1.1, that a transaction is deemed to be registered for the purpose of the Clearing Rules at the time the transaction was created through a Registration of an Exchange or a Clearing Transaction. Consequently, section 4.1.2 has been removed. The reference to registration errors according to the OTC Clearing Procedure has also been removed, as all registration errors are handled according to section 4.7 (please see below).
Section 4.2.2 is generic and covers all exchange transactions, also the Block Trades and EFP/EFS. The section refers hereinafter to the Trading System and not only the ETS as the Trading System includes ETS, MTS and the Block Trade Facility according to its respective regulations.
Sections 4.2.3 and 4.2.4 make a distinction between ETS, MTS and Block Trades, EFP/EFS.
In section 4.2.3, the wording «notification» has been changed to « registration» to reflect that trading and clearing are integrated in the same technical system and that there is only one operation and not two as the wording “notification” may currently indicate.
Section 4.2.4 applies to Block Trades and EFS/EFP and refers to Block Trade Facility for the registration of such transactions. There are different regulations as to when a transaction is registered for clearing according to the different transaction types and the different markets, ref. the regulation of pre-novation and exposure limits under the respective clearing procedures.
Section 4.3 applies to Third Party Exchange Transactions. These are transactions entered into on other market places, for the time being transactions from Fish Pool ASA. These transactions are subject to affirmation, pre-novation and exposure limits and are being regulated by the new Clearing Appendix 15 – Third Party Exchange Transaction Clearing Procedure.
Section 4.4 applies to Non Exchange Transactions. These are for the time being only iron ore transactions being subject to affirmation, pre-novation and exposure limits according to Appendix 4 –Non Exchange Clearing Procedure.
Section 4.5 regulates the possibility to allocate transactions. For the sake of clarity, the section refers to the Clearinghouse Opening Hours and the section defines that an Allocation Deadline is considered the final deadline in order to point out the Clearing Account for the transactions on the Intraday Account according to section 4.5.3.
The current section 5.5.5 in the OTC Clearing Procedure for registration of a Clearing Request also applies to Give Ups and Take Ups.
Because of the different transaction types, section 4.6.2 (second sentence) is changed to refer to the respective Clearing Procedures; Block Trade, EFP and EFS Clearing Procedures, Third Party Exchange Transactions Clearing Procedure and Non Exchange Clearing Procedures. According to Section 4.6.2 (third sentence), ETS/MTS are registered according to the Block Trade, EFS and EFP Clearing Procedure.
Section 4.7 comprehends registration errors. Section 4.7.1 (second sentence) applies to ETS. Section 4.7.1 (third sentence) applies to MTS. The closing time for submitting complaints for ETS/MTS transactions will remain in the current wording. For Block Trades, EFP and EFS transactions complaints have to be submitted within ten minutes.
Sections 4.7.2 - 4.7.5 have been moved over from the current Clearing Appendix 4 – OTC Clearing Procedure sections 6.1 et seq. In section 6.1.b, the current deadline is 60 minutes after clearing opening hours. With the new clearing opening hours (i.e. until CET 19:00) this deadline is no longer feasible and the new deadline is set to CET 19:00.
Sections 6.5 and 6.6 have been removed.
Correction of errors have been harmonized with the FIN rules and are now solely regulated in section 4.7. According to Section 6.5.4, the Clearinghouse can correct or change errors to a Spot Reference Fix and an Index.
In section 6.6.4, it is stated that the section does not apply to delay fees in accordance with the Fee List.
The wording of sections 8.1 and 8.2 as regards Default Events has been amended to include Third Party Exchange and Non Exchange Transactions.
Section 9.2.2 includes Non-Exchange Trading Broker, for the time being only Brokers for iron ore transactions.
In section 12.2 b in respect of information sharing it is stated that the Clearinghouse may share information also with a Third Party Exchange.
Changes to the Trading Rules – General Terms
Section 1.5 has been inserted to address certain U.S. regulatory issues and sets out certain restrictions in respect of clearing by or for the account of so-called U.S. Persons.
Changes to Clearing Appendix 4 - Non Exchange Clearing Procedures
Non Exchange Clearing Procedures build on the current Appendix 4 - OTC Clearing Procedures, but will only cover transactions that are listed for clearing, for the time being only iron ore.
As these transactions are subject to affirmation by both parties, it is not adequate to allow Brokers or the other party to deal on behalf of the party in this respect and therefore, Section 3.2c and 4.3b have been removed.
In section 4, the requirements to label the transaction as kombi, old, internal, correction etc. have been removed as the transparency requirements do not cover the iron ore transactions.
The regulation of affirmation, pre-novation and exposure limit follow Sections 5.3 – 5.11.
Error management has been moved to the General Terms, section 5.13.
Changes to Clearing Appendix 14 – Block Trade, EFP/EFS Clearing Procedure
Clearing Appendix 14 applies to Block Trades and EFP/EFS, Chapter 3 - the electricity, gas, allowance and El-Cert contracts, Chapter 4 - freight and fuel oil contracts.
As Block Trades of electricity, gas, allowance and El-Cert contracts replace the current OTC market, the principles and registration time for clearing will not change. According to section 3.3, the Clearinghouse has 120 minutes to accept a Clearing Request. Under the current rulebook, this is reflected by the OTC Clearing Procedure in section 5.3.
In respect of freight and fuel oil the Clearinghouse has imposed pre-novation and exposure limits checks. The procedures reflect section 4.3 et seq. Before the Clearing Request can be rejected, section 4.10 allows the Clearinghouse to continue with such checks until the end of the day after the Clearing Request was received.
Changes to Clearing Appendix 15 – Third Party Exchange Transaction Clearing Procedure
Clearing Appendix 15 applies to Third Party Exchange Transactions. According to section 3.2, a Clearing Request must be confirmed by both parties of the transaction, however, should the parties fail to confirm within the deadline, the Third Party Exchange is allowed to confirm on behalf of the parties according to section 3.2 (third and last sentence).
The pre-novation and exposure limits checks are regulated in sections 3.3 - 3.10, same as for freight and fuel oil above.
Changes to Clearing Appendix 9 – Default Fund Rules
The Default Fund Rules have been updated in order to add a Seafood Default Fund in addition to the current Financial Default Fund and Commodity Default Fund.
Changes to Trading and Clearing Appendix 7 - Fee list
The Fee List has been restructured and adjusted to the new transaction types and the NOS migration.
Broker Agreements
The current Broker Agreement with the Clearinghouse has been replaced by a new Block Broker Agreement with the Exchange for brokers reporting Block Trades and EFS/EFP. In addition there is a Non Exchange Broker Agreement with the Clearinghouse for brokers reporting iron ore contracts for clearing.
For updated rulebooks and appendices please see:
http://www.nasdaqomx.com/commodities/marketaccess/legalframework/upcoming-changes-to-rules
For further information, please contact NASDAQ OMX Commodities:
Your contact:
Mette Steinsland, Associate Legal Counsel, phone +47 6752 8071/+47 4003 5118, mette.steinsland@nasdaqomx.com
Adam Göransson, Associate Legal Counsel, phone +46 8 405 6109 /+46 73 449 6109
Media contact:
Sara Aadnesen, Director Corporate Communications, phone +47 9060 0759, sara.aadnesen@nasdaqomx.com
About NASDAQ OMX
The inventor of the electronic exchange, The NASDAQ OMX Group, Inc., fuels economies and provides transformative technologies for the entire lifecycle of a trade - from risk management to trade to surveillance to clearing. In the U.S. and Europe, we own and operate 26 markets including 3 clearinghouses and 5 central securities depositories supporting equities, options, fixed income, derivatives, commodities, futures and structured products. Able to process more than 1 million messages per second at sub-40 microsecond average speeds, our technology drives more than 70 marketplaces in 50 developed and emerging countries, powering 1 in 10 of the world’s securities transactions. Our award-winning data products and worldwide indexes are the benchmarks in the financial industry. NASDAQ OMX is home to more than 3,300 listed companies with a market value of over $8 trillion, whose innovations shape our world. We give the ideas of tomorrow access to capital today. Welcome to where the world takes a big leap forward, daily. Welcome to the NASDAQ OMX Century. To learn more, visit www.nasdaqomx.com. Follow us on Facebook (http://www.facebook.com/NASDAQ) and Twitter (http://www.twitter.com/nasdaqomx). (Symbol: NDAQ and member of S&P 500)
About NASDAQ OMX Commodities
NASDAQ OMX Commodities is the brand name for the NASDAQ OMX Group’s worldwide suite of commodity related products and services. The NASDAQ OMX Commodities offerings include power, natural gas and carbon emission markets and clearing services. NASDAQ OMX Commodities is a trademark of the NASDAQ OMX Group, Inc.
NASDAQ OMX Commodities Europe is the trade name of NASDAQ OMX Oslo ASA which is authorized as a commodity derivatives exchange by the Norwegian Ministry of Finance and supervised by the Norwegian Financial Supervisory Authority. All trades with NASDAQ OMX Commodities Europe are subject to clearing with NASDAQ OMX Clearing.
NOS Clearing ASA is the leading clearing house for the freight market and a specialist clearing provider to the commodities markets. The company is wholly owned by the NASDAQ OMX Group Inc. The clearinghouse, which is situated in Oslo, has more than 300 members.
NASDAQ OMX Clearing AB is authorized and supervised as a multi-asset clearinghouse by the Swedish Financial Supervisory Authority in Sweden as well as authorized to conduct clearing operation in Norway by the Norwegian Ministry of Finance.
For more information, visit www.nasdaqomx.com/commodities
NASDAQ OMX's Cautionary Note Regarding Forward-Looking Statements
The matters described herein contain forward-looking statements that are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements about NASDAQ OMX's products and offerings. We caution that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements involve a number of risks, uncertainties or other factors beyond NASDAQ OMX's control. These factors include, but are not limited to factors detailed in NASDAQ OMX's annual report on Form 10-K, and periodic reports filed with the U.S. Securities and Exchange Commission. We undertake no obligation to release any revisions to any forward-looking statements.
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