Business Streams
| Originating department: | Commercial Services |
| Company Circular No: | LCH.Clearnet Ltd Circular No 2527 |
| Service Circular No: | LCH EnClear No 267 |
| Date: | 29 September 2009 |
| To: | All LCH.Clearnet EnClear Clearing Members |
Launch of LCH EnClear OTC Clearing Service for Fertilizer Swaps
LCH.Clearnet is pleased to announce that it intends to launch its OTC clearing service for the Fertilizer market on Friday 16 October 2009. The contracts will fall within the LCH Enclear OTC Clearing service.
The Fertilizer swaps will be cash settled monthly against published industry indices. They will be cleared using the ECS system.
The service will allow for Fertilizer swaps, previously concluded by bilateral parties through OTC Brokers (namely Freight Investor Services), to be registered with LCH.Clearnet for clearing. Positions that subsequently remain open at a contract’s expiry will be financially settled against official published indices.
This circular follows LCH EnClear circular number 251 which contained full details of the service.
ECS Contract Codes
The Fertilizer contracts will be cleared using the existing ECS system- the system used for Freight, Iron Ore and Emissions.
| Contract | Contract Code |
| UREA - New Orleans | UNO |
| UREA- Yuzhnyy | UYZ |
| DAP - Tampa | DTA |
| UAN - NOLA | UAN |
Contract Specification
| Description | Fertilizer swap contracts cash settled against: UREA - New Orleans (UNO) UREA - Yuzhnyy (UYZ) DAP - Tampa (DTA) UAN - NOLA (UAN) |
| Contract size | 500mt |
| Currency | US Dollars |
| Minimum tick | US $0.01 |
| Fixed price | The traded price or the previous day’s settlement price as supplied end of day by FIS brokers |
| Floating price | In respect of daily settlement, the floating price will be the end of day price as supplied by FIS brokers In respect of final settlement, the floating price will be the arithmetic average of the relevant weekly indices for that contract as supplied by FIS for that month The index publishers are FertilizerWEEK, Fertecon and FMB |
| Contract series | Front 6 months, front 4 quarters |
| Expiry | Last publication day of the relevant index in the contract month ie the last business Thursday of every month Exception – December contracts will expire on the penultimate Thursday, as there is no publication of an index in the week prior to New Year Where the last Thursday of the month is a non-business day, the expiry day will be the first business day preceding |
| Settlement | The first business day following the expiry day |
| Delivery | Cash settled monthly against the average of all the relevant indices for that contract during the month |
| Margining | Initial margin will be calculated using Span 4 Daily variation margin will be applied |
Clearing Member Readiness
Clearing of Fertilizer contracts is open to any Member approved by LCH.Clearnet to clear trades in the LCH EnClear OTC Clearing service for Freight, subject to completing a static data form. Please contact membership@lchclearnet.com or +44 (0) 207 426 7063 / 7627 / 7891 to request the form. The completed form must be returned no later than Tuesday 13 October 2009, if Clearing Members wish to commence trading Fertilizer contracts on launch.
Those members who are currently not approved to clear trades in the LCH EnClear Freight service and who wish to participate in clearing Fertilizer swaps should contact the LCH.Clearnet Membership department at membership@lchclearnet.com.
Margin Methodology
The new contracts will be margined using London SPAN version 4. 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.
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.
Fees
The clearing fee charged by LCH.Clearnet for the fertilizer contracts will be US$25 per lot. No settlement fees will be charged
If you have any questions relating to this circular or to this market, please do not hesitate to contact me on Isabella.kurek-smith@lchclearnet.com or +44 207 426 7460
Yours sincerely
Isabella Kurek-Smith
Director, Head of Energy and Freight Markets
Commercial Services
