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Originating department:Commercial Services
Company Circular No:LCH.Clearnet Ltd Circular No 2630
 Service Circular No: LCH EnClear No 288
Date:03 June 2010
To:All LCH.Clearnet EnClear Clearing Members

Launch of OTC Clearing Service for Containers

LCH.Clearnet will launch an OTC Clearing service for Container Freight Swap Agreements (CFSAs) within the next few weeks.  The contracts will fall within the LCH EnClear OTC Clearing service for Freight.

The CFSAs will be cash settled monthly against the established Shanghai Containerized Freight Index (SCFI), which is published by the Shanghai Shipping Exchange (SSE).  They will be cleared using the ECS system.

The service will allow for CFSAs, previously concluded by bilateral parties through OTC Brokers, to be registered with LCH.Clearnet for clearing.  Positions that subsequently remain open at a contract’s expiry will be financially settled against the SCFI.

This circular sets out in more detail how the clearing service will operate and includes:

1. Contract offering
2. Expiry Calendar
3. Contract codes
4. Clearing system used
5. Clearing Member participation
6. Margin Methodology
7. Fees

This circular does not include updates to the Clearing House’s Rulebook (General Regulations, Default Rules, Settlement Finality Regulations and Procedures).  These will be available from the LCH.Clearnet website (www.lchclearnet.com) prior to launch.

1. Contract Offering


SCFI cash settled container freight swap agreements based on the following routes:
CNW (Shanghai – North West Europe)
CMD (Shanghai – Mediterranean)
CSW (Shanghai – US West Coast)
CSE (Shanghai – US East Coast)

Lot size 1 TEU 20ft container (CMD and CNW)
1 FEU 40ft container (CSE and CSW)
Currency US Dollars
PricingUS $ per TEU (CMD and CNW)
US $ per FEU (CSE and CSW)
Minimum tickUS $ 0.01 to account for final settlement
Fixed priceThe traded price or the previous day’s settlement price as supplied end of day by Approved OTC Brokers, or any other such source as LCH may determine
Floating priceIn respect of daily settlement, the floating price will be the end of day price as supplied by Approved OTC Brokers or any other such source as LCH may determine. In respect of final settlement, the floating price will be the mean of the relevant prices for the contract route as published by the Shanghai Shipping Exchange each Friday during the contract month.
Contract Series

Front 3 months, front quarter + following 3 quarters, 1 whole calendar year (out to a maximum of 23 months)

Last Trading Day

Last publication day of the relevant index in the contract month ie the last Chinese business Friday of every month.
Where the last Friday of the month is a UK business day but a Chinese holiday, the last trading day will be the previous publication day.
Where the last Friday of the month is a Chinese business day but a UK holiday, the last trading day will be the previous UK business day.

DeliveryCash settled monthly against the arithmetic average of all the indices in the contract month
Final PaymentThe first UK business day following the last trading day
Business daysChinese business days for the purpose of Index publication
UK business days for the purpose of trade registration, confirmation and final payment

2. Expiry Calendar for 2010 

Month Last trading day

 Final settlement day

July 30 Jul 2 Aug
August 27 Aug 31 Aug
September 17 Sep 20 Sep
October 29 Oct 1 Nov
November 26 Nov 29 Nov
December 31 Dec 4 Jan 2011

3. Contract Codes

Contract Contract Code
Shanghai – North West Europe CNW
Shanghai – Mediterranean CMD
Shanghai – US West Coast CSW
Shanghai – US East Coast CSE

4. Clearing System Used

• The Container Freight contracts will be cleared using the existing ECS system – the system used for Freight, Iron Ore, Fertilizer and Emissions
• ECS will be open for trade registration or CFSAs from 07:30 to 18:00 hrs UK time and until 18:30 for member confirmation

5. Clearing Member Participation

Clearing of Container Freight contracts is open to any member approved by the Clearing House to clear trades in the LCH EnClear OTC Clearing Service for Freight.  Those members who are currently not so approved and who wish to participate in clearing should contact the LCH.Clearnet Ltd Membership department at membership@lchclearnet.comAll Clearing Members will be required to fill in a position account static data form to activate existing accounts or to request new accounts for these contracts.  Please contact the Membership department at the above address to request a static data form.

6. Margin Methodology

The new contracts will be margined using London SPAN version 4.  Details of all margin obligations will be included in the standard suite of member reports that are available through the extranet website.  All margins will also be posted to the LCH.Clearnet Banking system and details will be included in all the usual Banking reports and screens.
LCH.Clearnet will publish margin rates for the new contracts in a separate circular.  Details will be found under the ‘Risk Management’ section of the LCH.Clearnet website.

7. Fees

The clearing fee charged by LCH.Clearnet for the Container contracts will be US$3 per lot.  No settlement fees will be charged.
If you have any questions relating to this circular, please do not hesitate to contact me on Isabella.kurek-smith@lchclearnet.com or +44 20 7426 7460.  A follow up circular announcing the confirmed launch date will be sent out in the next couple of weeks.

Yours sincerely

Isabella Kurek-Smith
Director, Head of Energy and Freight Markets
Commercial Services