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| Originating department: | Commercial Services |
| Company Circular No: | LCH.Clearnet Ltd Circular No 2696 |
| Service Circular No: | LCH EnClear No 305 |
| Date: | 12 October 2010 |
| To: | All LCH.Clearnet EnClear Clearing Members |
Launch of LCH EnClear OTC Clearing Service for Hot Rolled Coil Steel Swap contracts
LCH.Clearnet is pleased to announce that it will be launching an OTC Clearing service for three Steel Swap contracts on Monday 18 October 2010. These contracts will fall within the LCH EnClear OTC Clearing service for Freight and Iron Ore.
Clearing of Steel contracts is open to any member approved by the Clearing House to clear trades in the LCH EnClear OTC Clearing Service for Freight and Iron Ore. 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. Please contact the Membership department on the details below to request a static data form.
The three contracts will be cash settled monthly; the European contracts against The Steel Index (TSI) and the Chinese contract against the Cleartrade China Steel Index (provided by Umetal). They will be cleared using the ECS system.
The service will allow for the hot rolled coil contracts, 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.
This circular sets out in more detail how the clearing service will operate and includes:
- Contract offering
- Contract codes
- Clearing system used
- Clearing Member participation
- Margin Methodology
- Fees
This circular does not include updates to the Clearing House’s Rulebook (General Regulations, Default Rules, Settlement Finality Regulations and Procedures). These are available from the LCH.Clearnet website (www.lchclearnet.com).
1. Contract Offering
| Description | European Hot Rolled Coil Steel swaps, cash settled against The Steel Index:
Hot Rolled Coil – Northern Europe, domestic (SCN) Hot Rolled Coil – Southern Europe, domestic (SCS) |
| Lot size | 20 mt |
| Currency | Euros |
| Pricing | € per metric tonne |
| Minimum tick | €0.0001 to account for final settlement |
| Fixed price | The traded price or the previous day’s settlement price as supplied end of day by FIS, or any other such source as LCH.Clearnet may determine |
| Floating price | In respect of daily settlement, the floating price will be the end of day price as supplied by FIS, or any other such source as LCH.Clearnet 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 Steel Index each Monday during the contract month. |
| Contract Series | Front 1 or 2 months (remaining from front quarter), 5 whole quarters, 2 whole calendar years |
| Expiry / Last Trading Day | Last publication day of the relevant index in the contract month.
Where the last business day of the month is a Monday, this will be the last publication day. Where the last business day of the month is not a Monday, the last publication day will be the following Monday. Where the last Monday of the month / first of the next is a non-business day, last publication will be the following business day. |
| Delivery | Cash settled monthly against the arithmetic average of all the indices in the contract month |
| Final payment | The first business day following the expiry day |
| Business days | UK business days |
| Description | Chinese Hot Rolled Coil Steel swap, cash settled against the Cleartrade China Steel Index (provided by Umetal):
Hot Rolled Coil (SCC) |
| Lot size | 20 mt |
| Currency | US Dollars |
| Pricing | US $ per metric tonne |
| Minimum tick | US $0.0001 to account for final settlement |
| Fixed price | The traded price or the previous day’s settlement price as supplied end of day by FIS, or any other such source as LCH.Clearnet may determine |
| Floating price | In respect of daily settlement, the floating price will be the end of day price as supplied by FIS, or any other such source as LCH.Clearnet may determine.
In respect of final settlement, the floating price will be the arithmetic average of all the daily Cleartrade China Steel Index (provided by Umetal) indices for that month. |
| Contract Series | Front 1 or 2 months (remaining from front quarter), 5 whole quarters, 2 whole calendar years |
| Expiry / Last Trading Day | Last Chinese business day of the contract month.
Where the last Chinese business day is a UK holiday, last trading day will be the previous UK business day. |
| 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 expiry 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. Contract Codes
| Contract | Contract Code |
| Hot Rolled Coil – Northern Europe | SCN |
| Hot Rolled Coil – Southern Europe | SCS |
| Hot Rolled Coil – China | SCC |
3. Clearing System Used
- The Steel contracts will be cleared using the existing ECS system – the system used for Freight, Container Freight, Iron Ore, Fertilizer, Coal and Emissions
- ECS will be open for trade registration from 07:30 to 18:00 hrs UK time and until 18:30 for member confirmation
4. Clearing Member Participation
Clearing of Steel 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.
5. 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.
6. Fees
The clearing fee charged by LCH.Clearnet for the European Steel contracts will be €1.50 per lot; the fees for the Chinese Steel contract will be $2 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.
Yours sincerely
Isabella Kurek-Smith
Director, Head of Energy and Freight Markets
Commercial Services