Merging Logical Commodity Codes of ICE Henry Hub Natural Gas and ICE Penultimate Henry Hub Natural Gas Swap Products to Improve Margin Offsets

The purpose of this circular is to inform Members of the plan to merge the logical code for the ICE Henry Hub Natural Gas Swap (HNG) and the ICE Penultimate Henry Hub Natural Gas Swap (PHH) into one logical code (HNG) to improve margin offsets between the two products.

On TRS/CPS commodity codes are grouped at logical or family level and below that at physical level.

Penultimate Henry Hub Natural Gas Swap (PHH) and Henry Hub Natural Gas Swap (HNG) are economically the same contract except for the fact that PHH expires one day before HNG. However as they are set up as separate contracts (logical codes) in TRS/CPS, SPAN margining treats them as separate contracts.

As they are so similar in nature we plan to merge them together for purposes of margin offsets. Therefore all positions in PHH, PHE and H physical codes will be netted together under the logical code HNG for purposes of calculating initial margin liabilities.

The physical codes will remain the same, namely

• H - Henry Hub Natural Gas Swap 
• PHH - Penultimate Henry Natural Gas Swap and Option 
• PHE – Premium Paid Up Penultimate Henry Hub Natural Gas Option

The following amendments will be made within the TRS /CPS databases:

1. All PHH positions under tender will have their logical commodity changed from PHH to HNG;
2. All the auto exercise settings for PHH and PHE option contracts will be changed so that their logical commodity settling is HNG;
3. All current day PHH and PHE positions and previous day positions will have their logical commodity setting changed from PHH to HNG;
4. All Initial Margin and Variation Margin totals for H, PHH, and PHE will be shown on Banking reports under the logical code of HNG.

We are planning to implement this change after the clearing processing has been completed on close of business Thursday, 30 November 2006 and after Members’ have downloaded SPAN and other data from TRS/CPS via the TSCS feed but no later than 2:00 am on the Friday morning.

Please note that:

• TSCS downloads have to be completed by 2:00 am Friday, 1st December 2006.
• Historical position data will not be altered so therefore will not be viewable through TRS in the usual way.
• New contract details files should be downloaded on Friday morning via TSCS direct or via PC Gateway.

For further information please contact the undersigned by telephone on +44 (0)20 7426 7582 or by email at david.farrar@lchclearnet.com.

Yours sincerely

David Farrar
Senior Manager
Exchange & Commodity Derivatives