Introduction of Clearing for Premium Paid Option on Penultimate Henry Hub Natural Gas Swap Contract Traded on the IntercontinentalExchange, Inc. (ICE)

Introduction

ICE and LCH.Clearnet Ltd (“the Clearing House”) are currently preparing for the launch of the Premium Paid Option on Penultimate Henry Hub Natural Gas Swap contract. This circular provides information about the new contract, and includes:

• Launch Information;
• Contract Details;
• Systems used for Clearing;
• Trading and Trade Confirmation Procedures;
• Clearing Procedures;
• London SPAN Parameters;
• PPS and Banking Procedures;
• Fees;
• The Clearing House Rulebook;
• Training;
• Clearing Members Participation in Clearing;
• Margin Methodology.

Launch Information

The Premium Paid Option on the Penultimate Henry Hub Natural Gas Swap contract will be launched on 13 October 2006.

Contract Details

Contracts: Premium Paid Option on Penultimate Henry Hub Natural Gas Swap

Systems used for Clearing

Clearing of ICE trades will utilise the current version of TRS/CPS system for ICE Futures.

TRS codes for the contract are as follows: -

• TRS Physical and Logical codes will be: PHE.
• The contract code will be: 'O'.

Trading and Trade Confirmation Procedures

The ICE trading platform will permit the trade of both bilateral and cleared transactions in the above contracts. For full details of the access and operation of the ICE trading platform members should contact the following at ICE directly: -

Where clearing member arrangements exist for the clearing of eligible trades, such transactions will be fed in real time, subject to service opening times, from the ICE trading platform to the current version of TRS/CPS utilised for ICE Futures.

The opening times for this service will be from 07.00 hours to 23.00 hours for trade acceptance and until 23.20 hours for any post trade administration. All stated times are London time.

Clearing members should note that any trades transacted outside of the hours stated above, intended for clearing, will be held in suspense for entry into TRS on the next available business day.

Trade matching allocations and sub-account assignments will take place within the Trade Registration System (TRS) in the same way as existing ICE contracts.

The ICE TRS/CPS system will be upgraded to include details of the new contract from 13 October 2006. PC Gateway users are reminded that they will need to download a new Contracts File (CONTRACT.DAT) for the ICE exchange on that date before downloading any trade data for that day. If you have any questions with regard to this please contact the ICE Help Desk 020 7488 5100 (London).

Clearing Procedures

These contracts will be processed by the Clearing and Processing System (CPS) in the same way as existing ICE contracts.

London SPAN Parameters

The contract will be margined using London SPAN. The London SPAN Parameters are available on the LCH.Clearnet website under the ‘Data Downloads’ section.

PPS and Banking Procedures

Standard Clearing House PPS and banking procedures will apply to this contract. If you have any queries regarding PPS arrangements please contact Siobhan White on +44 (0)20 7426 7044.

Fees

The Clearing House will collect from clearing members trading fees associated with cleared trades; these are passed on to ICE. (Clearing members should note that the Clearing House will not collect those ICE fees, pertaining to non-cleared bilateral trades).

The fees for these contracts are as follows:

Fees will be included in the usual month end Fee invoices and collected through PPS in the normal way on the payment date.

The Clearing House Rulebook

Amendments and additions to the Clearing House Rulebook (General Regulations, Default Rules Settlement Finality Regulations and Procedures) for these contracts will be available on LCH.Clearnet Ltd website (www.lchclearnet.com/limited) in due course, under the section ‘Rulebook’, under sub-heading 'Recent and Forthcoming Rulebook Changes' A separate circular will be issued advising clearing members of their availability.

Training

There are no plans to hold training or briefing sessions specifically for these products. The Clearing House will, however, update the ICE Reference Guide to include this product. The ICE Reference Guide can be accessed from the Clearing House website.

Clearing Member Participation in Clearing

Clearing of ICE OTC contracts is open to any LCH EnClear Clearing Member approved by the Clearing House to clear trades originating from the ICE platform. Those clearing members who are currently not so approved and who wish to participate in clearing, either for their own business or for that of another ICE participant, should contact the LCH.Clearnet Ltd Membership department.

Contact: Jane Cleaves +44 (0)20 7426 7078

Margin Methodology

Contracts will be margined using London Span in the same way as ICE Futures contracts. Details of all margin obligations will be included in the same TRS/CPS reports as for the ICE Futures. Also all margins will be posted to the Clearing House Banking system and details will be included in all the usual Banking reports.

Margin rates will be announced by circular, and will also be made available on the LCH.Clearnet Ltd website www.lchclearnet.com.

Miscellaneous

Questions relating to the topics covered in this circular should be directed to the following:

Yours sincerely

Richard Heyman
Director, Exchange & Commodity Derivatives