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CCorp Cleared OTC Options on SO2 Emission Allowances
As part of its Concero service platform for over-the-counter (OTC)
derivatives clearing, The Clearing Corporation has launched an initiative
for Cleared OTC Options on SO2 Emission Allowances. This page describes The Clearing
Corporation’s new SO2 emission product which is available as part
of the Concero initiative.
OTC SO2 Option Specifications
CCorp
cleared OTC Call and Put Options on SO2 Allowances for designated Vintage
Years. Each Clearing Participant will be responsible to fulfill its
delivery obligations via the EPA registry on the business day following last
clearing day.
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Item
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Specifications
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Exchange Code:
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03
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Commodity Code
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GA
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Vintage 2007
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GB
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Vintage 2008
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Underlying
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EPA SO2 Allowances representing 500 tons for the named Vintage
year or earlier
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Quotation
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US Dollar and cents per ton
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Minimum Price Fluctuation
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$0.10 per ton
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Strike Prices
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Increments of $25 per Allowance starting at $400 to $550. More
strike prices may be added by CCorp
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Contract Months
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January of the named Vintage year through February of the year
following the named Vintage year. Monthly 12 months from current month.
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Option Style
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Full premium pass through occurs at the inception of the
trade, however exercise style is European; meaning that option
positions can only be exercised on the last trading day.
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Last Clearing Day
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The 15th day of the expiration month. If the 15th
is not a business day the Last Clearing Day shall be the following
business day.
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Exercise submission and Expiration
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1:00 p.m. Chicago
Time on Last Clearing Day. Each Clearing Participant holding a net open
Long Position (by option strike) in CCorp
Cleared OTC Options on SO2 must notify CCorp
prior to 1:00 p.m. Chicago Time on Last Clearing Day if it wishes to
exercise. NOTE: Long positions will NOT be automatically exercised.
Clearing Participants must instruct CCorp
via Position Management to exercise. Any options that have not been
exercised by a Clearing Participant will expire worthless.
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Assignment
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CCorp shall
assign exercises to Clearing Participants holding net open short
positions (by option strike) on a random basis. CCorp
will inform Clearing Participants of the quantity of exercises assigned
to them. In order to facilitate bookkeeping, exercised and assigned
positions will result in bookkeeping futures contracts at the specific
strike prices. CCorp will
thereafter assign deliveries between Clearing Participants based on
their net long or net short bookkeeping futures position(s). CCorp will inform Clearing Participants
required to make delivery and those required
to take delivery of their counterparty Clearing Participant for
delivery of Allowances. Delivery of allowances will be made at a price
determined by CCorp (based
on the underlying cash market*.)
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Delivery
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CCorp
shall calculate the delivery payment amount for each Clearing
Participant obligated to take delivery of Allowances as part of its CCorp OTC SO2 option exercise/assignment
cycle beginning at approximately 1:00 p.m. on the Last Clearing Day.
For Clearing Participants obligated to take delivery such amounts will
be incorporated into the end of day settlement process. Each Clearing
Participant obligated to make delivery of Allowances shall deliver or
insure its client(s) deliver SO2 Allowances of the named Vintage year
or earlier to its assigned Clearing Participant’s account or
Clearing Participant’s designated client(s) account at the EPA
registry on the Business Day following the Last Clearing Day. Each
Clearing Participant obligated to take delivery shall fax confirmation
that it or its designated client(s) have received delivery of the EPA
Allowances from the Clearing Participant(s) obligated to make delivery.
Upon receipt of such fax CCorp
shall incorporate payment to the Clearing Participant whom effected delivery in CCorp’s
next payment cycle. (Midday or Final)
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* As part of the
final clearing process on the Last Clearing Day, CCorp
will create bookkeeping futures contracts to offset the net bookkeeping positions.
Such offsetting bookkeeping futures contracts will be at a price
determined by CCorp (based on
the underlying cash market).
Clearing Participant Trade
Submission
Clearing
Participants that wish to participate in clearing CCorp
Cleared OTC SO2 Options must complete the appropriate clearing
authorization form for The Clearing Corporation OTC products, if they
have not completed it previously, to insure they meet the eligibility
requirements. Eligible CCorp
Clearing Participants may only submit CCorp
Cleared OTC SO2 call or put options transactions that have been executed
by eligible contract participant(s) within the meaning of Section 1a (12)
of the Commodity Exchange Act, as amended. All OTC Cleared Options on
SO2 will be cleared in the non-customer origin.
Clearing Participants can submit an OTC Cleared SO2 Option trade
through the CCorp ACT OTC
Trade initiate screen. The submission of an OTC SO2 Option trade is a
single side entry through ACT by the initiating Clearing Participant
(usually sell side), who allocates the transaction to the opposing
Clearing Participant. The opposing Clearing Participant claims the trade
in the ACT accept screen.
MQM add duplication messages will be sent to the initiating
Clearing Participant’s back office system in the TREX record format
upon entering the trade through the ACT OTC initiate screen. MQM add
duplications messages will be sent to the accepting Clearing
Participant’s back office system in the TREX record format when the
trade is accepted on the ACT OTC trade accept screen. Clearing
Participants are reminded that there are no alert messages sent to their
back office queue when an opposing Clearing Participant initiates a trade
to them. Clearing Participants will need to actively monitor the ACT
system for allocations that need to be claimed for their customers.
Changes to the original trade record can only be accomplished
through the ACT OTC trade initiate screen. Clearing Participants can only
delete an unaccepted initiated OTC trade record. MQM change or delete
records will not be accepted from a Clearing Participant.
Position Management
All OTC SO2 option future trades will clear as non-segregated
(origin 02), under CCorp
exchange 03. All positions will be held net at CCorp.
Details of the OTC trade will appear on the daily trade and position
register report and register data file (regdata).
Clearing Participants can mark OTC trades as give-up
transactions directly from the ACT OTC trade deal screen or by creating a
give-up summary record in the ACT give-up system. Current GAPI message
processing between CCorp and
the Clearing Participant will be used for OTC trades that are marked as
give-ups.
Transfer and misclear transactions
will also use the ACT system and the established MQM API message
processing.
Broker Trade Submission
Clearing Participants may authorize CCorp
to accept transactions from Amerex Brokers LLC
on their behalf, by completing the appropriate CCorp
form. In such case, Amerex will enter both the selling
Clearing Participant and the buying Clearing Participant of the
transaction on the Trade Management deal entry screen. When a transaction
is entered by Amerex the opposing side of the
trade will remain anonymous to the Clearing Participants of the deal. Amerex will not be able to change, delete or mark the
OTC trade as a give-up. In this case the Opposite Clearing Participant on
the trade will be indicated as “990” on all screens, reports
and data files.
When a trade is submitted for a Clearing Participant by Amerex, the Clearing Participant will receive an MQM
add duplication record to their back office system queue in the TREX
record format. Clearing Participants will be able to change non-critical
data on the trade record or mark a trade for give-up by submitting an MQM
change record to CCorp or by
making the changes directly on the Trade Management update screen. Trades
that are marked as give-up will load into the ACT give-up system. Current
GAPI message processing between CCorp
and the Clearing Participant will be used for OTC trades that are marked
as give-ups.
Reporting
Please note that for OTC products Clearing Participants are not
required to submit open interest or large trader reporting.
Deliveries
Either the Clearing Participants or their clients trading the
OTC SO2 option contract need to have an SO2 allowance tracking accounts
established with EPA for delivery. Please see the time line and detail of
delivery information below:
Last Clearing Day
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12:45 p.m.
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As a reminder all trade data and post trade activity in the
expiring contract should be completed. (The CCorp
system will include activity received until 1:00 p.m.) Clearing
Participants should begin entering exercise instructions into Position
Management
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12:50 p.m.
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Option position reports will be available to Clearing
Participants (Please note that the system will process activity
received until 1:00 p.m. and therefore a Clearing Participant’s
final positions may differ from this report)
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1:00 p.m.
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Deadline for exercise submission in the expiring contract
month
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1:30 p.m.
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Option assignments will be available to Clearing Participants.
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2:00 p.m.
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Delivery assignments and Invoices will be available to
Clearing Participants
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2:00 p.m.
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Clearing Participants should begin exchanging and verifying
the following information:
• Seller to provide description of the allowances to be
delivered, e.g. vintage
• Buyer should provide Allowance Tracking System (ATS)
account number.
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4:00 p.m.
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The Clearing Participant making delivery, or its client,
should have the appropriate emission allowances deposited in the ATS
account.
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One business day after
last clearing day:
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10:00 a.m.
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Deadline for participant making delivery to electronically
submit the allowance transfer instructions via the EPA’s Clean
Air Markets Division Business System (CAMD)
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Approximately 10:30 a.m.
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Once the Clearing Participant obligated to take delivery confirms
that they or their designated client(s) have received delivery of the
EPA Allowances, the Clearing Participant obligated to take delivery
shall fax the delivery confirmation form to Client Services and Support
(CSS ) at 312-986-3444. Upon receiving such fax notice, CCorp will incorporate the delivery proceeds
to the delivering participant in the next payment cycle, mid-day or
final. The delivery confirmation form can be found on CCorp’s web page css@clearingcorp.com
Delivery deadline is 4:00 p.m.
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Payment
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Fax delivery confirmation forms received by CCorp prior to 12:15 p.m. Chicago time, will be released in the
mid-day variation cycle. Fax delivery confirmation forms received after
12:15 p.m. Chicago
time will be released after final clearing and available at 6:40 a.m.
next business day. *
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* At the Clearing Corporations discretion, Mid-day variations
may be run earlier than the regularly scheduled settlement. Delivery proceeds
to a selling clearing member will be released during the earlier mid-day
settlement provided the applicable confirmation(s) are received prior to
the earlier mid-day settlement. Otherwise delivery proceeds will be
released in the final.
Should you have any questions, please call or e-mail one of the
following Client Services and Support Representatives:
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