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ICE Sets Position Limits for Swaps Contracts
The IntercontinentalExchange (ICE ) Friday notified over-the-counter (OTC) financial gas market participants of the position limits and accountability levels it is putting in place beginning with the expiration of the September 2010 contract (Aug. 25, 2010) for seven natural gas basis swaps that were designated for the treatment by the Commodity Futures Trading Commission (CFTC).
The seven natural gas basis swaps that have been designated as significant price discovery contracts (SPDC) are:
The contract position limits; single month position accountability levels; and all month position accountability levels are:
The position limits apply on both an inter-day and intra-day basis. ICE also warned market participants that it is a violation of ICE OTC Rules to enter a bid or offer that, if accepted, would exceed the applicable position limit. ICE already has position and accountability levels in effect for the ICE Henry Hub Fixed Price LD1 contract.
Participants may request and apply for exemption from position limits for bona fide hedging, arbitrage, risk management or spread positions.
In addition, participants may contact ICE OTC Market Regulation to apply for a conditional limit up to two times the spot month position limit if they are able to demonstrate that they have no activity or position in the physically-settled CME/NYMEX futures contract (NG) during the last three days of trading in the expiring contract and have no cash position at the related basis hub, and provide information on related OTC positions during the last seven days of trading in the expiring contract.
Participants without an exemption who exceed their position limit will be required to reduce position size and may be in violation of ICE OTC Rules. At its discretion, ICE may require a Participant over a position accountability level to justify or reduce its position.
After finding the ICE Henry Hub contract to be an SPDC requiring a position limit and accountability levels, CFTC followed up with the seven other ICE natural gas contracts.
“Each of these contracts is accepted in the industry as a key reference price for natural gas at a particular important location in the U.S. or Canada. These contracts offer additional pricing information not provided by the active Nymex and ICE SPDC Henry Hub contracts — that is, they provide critical information about the value of natural gas at a future point in time at a geographically dispersed location, each of which has unique supply and demand characteristics,” Richard Shilts, director of the CFTC’s Division of Market Oversight, said at the time (see NGI, May 3).
“These contracts also have significant open interest and trading volume and are widely used by cash markets participants for hedging price risks, as well as being key sources of price information.”
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