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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
| Description | SCFI cash settled container freight swap agreements based on the following routes:
|
| Lot size | 1 TEU 20ft container (CMD and CNW)
1 FEU 40ft container (CSE and CSW) |
| Currency | US Dollars |
| Pricing | US $ per TEU (CMD and CNW)
US $ per FEU (CSE and CSW) |
| Minimum tick | US $ 0.01 to account for final settlement |
| Fixed price | The 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 price | In 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.
|
| Delivery | Cash settled monthly against the arithmetic average of all the indices in the contract month |
| Final Payment | The first UK business day following the last trading day |
| Business days | Chinese 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 [email protected]. All 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 [email protected] 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