Launch of OTC Clearing Service for Coal Swap Contracts Settled Against Argus/McCloskey API 2* and API 4* Indexes

LCH.Clearnet will launch its OTC Clearing service for Coal Swaps settled against the API 2 and API 4 indexes published in Argus/McCloskey’s Coal Price index Report on the 13 September 2010.  The inherent link between bulk commodities and dry freight swaps make the new coal contracts a natural extension to the existing clearing service for freight – strong product correlation will result in greater collateral efficiency for Clearing Members.

These contracts will fall within the LCH EnClear OTC Clearing service for Freight.

The service will allow for Coal Swap contracts, previously concluded by bilateral parties through OTC Brokers, to be registered with LCH.Clearnet for clearing.  Contracts will be cleared using the ECS system and positions that remain open at expiry will be financially settled on a monthly basis against the underlying API 2 or API 4 index price as published in the Argus/McCloskey’s Coal Price Index Report.

Clearing of Coal Swap contracts is open to any member approved by the Clearing House to clear trades in the LCH EnClear OTC Clearing Service for Freight. Freight Clearing Members wishing to participate in this market are required to fill in a position account Static Data Form to activate existing accounts or to request new accounts for these contracts.

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

1. Contract specifications
2. Contract listing at launch
3. Contract codes
4. Clearing system used
5. Clearing Member participation
6. Margin methodology
7. Clearing 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 Specifications

2. Contract Listing at Launch

3. Contract Codes

4.Clearing System Used

• The Coal Swap 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 of Coal Swap contracts from 07:30 to 17:00 hrs UK time and until 18:30 for member confirmation

5. Clearing Member Participation

Clearing of Coal Swap 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.

Additionally, Clearing Members should also complete the relevant sections of the ECS User Account Request Form to extend the product coverage of their existing users for coal contracts or to request new ECS users for the Coal Swap contracts specifically.

Please contact the Membership department at the above address to request a Static Data Form or ECS User Account Request Form. 

6. Margin Methodology

The new Coal Swap 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.

http://www.lchclearnet.com/risk_management/ltd/margin_rate_circulars/enclear/default.asp

7. Fees

The clearing fee charged by LCH.Clearnet for the Coal contracts will be US$5 per lot.  No settlement fees will be charged.

If you have any questions relating to this circular, please do not hesitate to contact Jason LaBrooy on 020 7426 6323 or [email protected]. 

Yours sincerely

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

*Trademark and copyright notice

API 2 and API 4 are trademarks and are used under license from Argus Media Limited and IHS Global Limited.  All copyrights and database rights in the API 2 and API 4 indices belong exclusively to Argus Media Limited and IHS Global Limited and are used herein under license.  LCH.Clearnet Ltd is solely responsible for the API 2 cif ARA and API 4 fob Richards Bay (Argus/McCloskey) Coal Swap Contracts.  Argus and IHS take no position on the purchase or sale of such API 2 cif ARA and API 4 fob Richards Bay (Argus/McCloskey) Coal Swap Contracts.