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Enron Mail |
November 30, 2001
Notice No. 01-411 TO: NYMEX DIVISION MEMBERS AND MEMBER FIRMS NYMEX DIVISION CLEARING MEMBERS FROM: J. Robert Collins, Jr., President SUBJECT: NEW NYMEX LARGE ORDER EXECUTION RULE FOR NATURAL GAS FUTURES ____________________________________________________________________________ _____ Yesterday, the Exchange distributed Notice to Members No. 01-411, which summarized a new large order execution (LOX) that begins today in the first two months of the natural gas futures contract. As an informational follow-up to yesterday's notice, this notice includes the text of the new LOX rule. NEW NYMEX RULE 6.58 Rule 6.58. LARGE LOT TRADING OF FUTURES CONTRACTS (PILOT PROGAM) A Floor Member may buy or sell a large lot quantity of futures contracts at or above the minimum amount specified below at a single price on an all or none basis, provided that each such transaction is conducted on the Exchange trading floor in accordance with the large order execution ("LOX") procedures specified in this rule. (A) Eligible Futures Contract and Minimum LOX Transaction Size. LOX transactions may be effected only for transactions in the following NYMEX Division futures contracts and for no less than the following minimum LOX transaction quantities: Futures Contract Contract Months Minimum LOX Transaction Size Natural Gas 1st and 2nd nearby 250 (Six-Month Pilot Program) (B) Eligible Orders. A member may not execute any order by means of a LOX transaction unless the LOX bid or Offer price is the best price available to satisfy the terms of the order or unless the order includes specific instructions to execute a LOX transaction. (C) Request for Quote. To make a request for quote (RFQ) for a LOX transaction, an initiating Floor Member (Initiating Member) will announce an interest in executing a LOX transaction either by requesting a LOX Bid or Offer or both, from a specified location in the ring. In addition, the Initiating Member must specify to the ring the total quantity and contract month of the RFQ. All terms of the RFQ including the identity of the Initiating Member will be recorded by the LOX Book Holder (LBH). In any case that a LOX RFQ results in a response deemed by the LBH to be reasonable, the Initiating Member will incur RFQ fees, regardless of whether or not that Floor Member executes a trade. There shall be only one active RFQ for a contract month at a time. The maximum quantity allowed for a LOX RFQ is 5,000 contracts. (D) Bids and Offers in Response to a LOX RFQ. Any Floor Member that has bid and/or offered the best price in response to the LOX RFQ for the full quantity stated in the LOX RFQ and has been recognized by the LBH as making a reasonable bid or offer will be the Initial Respondent. Any Floor Member responding to a LOX RFQ must indicate that the responding LOX bid or LOX offer is in response to such RFQ (LOX Bid or Offer). Once a LOX Bid and/or Offer has been made and deemed by the LBH to be an acceptable bid and/or offer, such bid or offer will be recorded by the LBH and will be active for 30 seconds from the time it has been recognized by the LBH or until it has been expressly withdrawn, with acknowledgement from the LBH, by the Floor Member making such bid or offer. All LOX bids and offers must be quoted in half cent or full cent increments. (1) LOX Bids and Offers Outside Non-LOX Spread. A LOX Bid (Offer) may be at or above (below) the instant bid (offer) for non-LOX trading being bid or offered in the ring for that futures contract month. (2) Aggregation of Orders by Brokers. Floor Members acting as brokers may bundle limit orders to bid and/or offer in response to the LOX RFQ. If the total of the orders is less than the requested amount, the responding broker can trade for his own account or an account which he controls, the difference between the requested amount and the total of the orders. In the event that a broker bundles limit orders in connection with a LOX execution, all bundled limited orders must receive the LOX execution price. (3) Aggregation by Floor Members Trading for Proprietary Accounts. In response to a LOX RFQ, Floor Members trading for their proprietary accounts may join together in bidding and/or offering for the full quantity of the LOX RFQ. Such proprietary accounts either may be a personal account in the case of an individual member or a house proprietary account in the case of a Member Firm or Clearing Member with a representative on the Trading Floor. (4) Secondary Trading Right for Proprietary Accounts. In response to a LOX RFQ, only a Floor Member trading for his proprietary account, or for proprietary accounts joined together as per section (D)(3) of this rule, may bid and/or offer for a portion of the LOX RFQ, provided, however, that such quantity bid and/or offered must be for an amount no less than the Minimum LOX Transaction Size and that such bid and/or offer can only be submitted if an Initial Respondent has been identified by the LBH and that Initial Respondent is a Floor Member acting as a broker. This right will be known as a Secondary Trading Right. In order to exercise the Secondary Trading Right, each Member must state his/her intentions to the LBH. For purposes of the Secondary Trading Right, Floor Members trading for their proprietary trading accounts may exercise this right by joining a bid or offer at any time prior to execution of the LOX transaction and will be entitled to an aggregate amount of up to 50% of the quantity stated in the RFQ. When a Floor Member combines customer orders with proprietary business and is recognized as the Initial Respondent, any reduction in the ultimate allocation that results from an exercise of a Secondary Trading Right will result in fills first allocated to the customer(s) with any remainder to the Floor Member. In addition, if, as the result of such an exercise, a broker does not have a quantity sufficient to fill each of the orders that were aggregated, the broker shall allocate fills according to the following requirements: a) the fills shall be allocated pursuant to a predetermined allocation methodology made available to the customers prior to the execution; b) the allocation shall be made as soon as practicable after the transaction is executed; c) the allocation shall be fair and equitable and no account or group of accounts may receive consistently favorable or unfavorable treatment; d) the allocation methodology shall be sufficiently objective and specific so that it can verified for any given trade; and e) the allocation methodology must be consistently applied. Floor Members may not exercise a Secondary Trading Right if such Floor Member is the Initial Respondent acting as a broker. (5) Trading Priority. Any Floor Member who becomes the Initial Respondent willing to trade the full quantity stated in the LOX RFQ at the ultimate best bid and, or best offer will have a right of trading priority which will entitle him to the full quantity stated in the RFQ, except in the case when a Secondary Trading Right is exercised. (E) LOX Execution. 1. Time Limit Restriction. Once an Initial Respondent has been recognized by the LBH, only the Initiating Member requesting the LOX RFQ, may hit such LOX Bid or Offer (or both) and must do so within 30 seconds of LBH recognition of the Initial Respondent subject to the following conditions: 2. Exercise of Secondary Trading Rights. If one or more Floor Members exercises the Secondary Trading Rights provided by this rule, the LBH will enforce such rights in the following manner: Each Floor Member responding to the LOX RFQ (either as an Initial Respondent or in exercise of a Secondary Trading Right) shall receive an allocation equal to a weighted proportion based on the number of contracts bid or offered by such Member as a percentage of the total quantity of all contracts bid or offered in response to the LOX RFQ, as the case may be, at the price accepted by the Initiating Member, provided, however, If, as a result of the allocation specified above, an Initial Respondent acting as a broker would receive less than 50% of the total quantity, then the LBH instead shall allocate no less than 50% of the total quantity to such Initial Respondent with the remainder allocated to those exercising their Secondary Trading Rights based on the number of contracts bid or offered by each such Floor Member as a percentage of all contracts bid or offered pursuant to the exercise of Secondary Trading Rights. Following execution of the LOX transaction, the LBH will confirm the parties to the transaction and the quantity allocated to each respondent. (F) Responsibility for LOX Orders. A Floor Member shall not be liable for failure to execute an order as a LOX order unless such order was designated by the customer as a LOX order. (G) Impact on Non-LOX Orders. In no event shall a LOX order elect stop loss, market-if-touched or other contingency orders, or otherwise affect orders in the regular non-LOX market. (H) Closing Period and Post-Close Prohibition. LOX transactions will neither be allowed during the closing period nor during the post-close session for applicable contracts.
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