Introduction
The DME Oman Crude Oil Futures
Contract
is physically deliverable, with a minimum delivery size
of one contract, or 1,000 barrels. A customer may close
a position at any time prior to termination, or during
the EFP period directly after contract termination at a
negotiated prevailing market price; not the Final
Settlement Price.
When writing the DME Oman Crude Oil
Futures Contract, the DME leveraged NYMEX’s experience
of almost thirty years in developing and managing
physically delivered energy contracts. NYMEX will
continue to support the DME by providing clearing when
trading of the DME Oman Crude Oil Futures Contract begins.
In addition, the DME and NYMEX Compliance departments,
the Dubai Financial Services Authority (DFSA) and the
Commodity Futures Trading Commission (CFTC) will have
regulatory oversight of the respective Exchanges and
customers trading on the DME. NYMEX, DME, and the
Ministry of Oil and Gas,
Oman, in cooperation with the
industry, have constructed a delivery mechanism for the
DME Oman Crude Oil Futures Contract that is in line with the
current delivery process at Mina al Fahal,
Oman, and in full
compliance with current PDO operating procedures.
The DME has put together a short
descriptive of this process for all potential users to
better enable them to understand and be confident in the
process and the safeguards that are in place.
Proactive, Tried-and-Tested Process
Since the DME Oman Crude Oil
Futures Contract will be cleared through the NYMEX
Clearinghouse, the DME will benefit from tried and
tested safeguards that have developed from NYMEX’s
almost thirty-year experience in clearing and trading
physically deliverable futures contracts. These
safeguards are designed to ensure as level a playing
field as possible. All market participants must have an
account with a Clearing Member, who guarantees all
financial performance for their customers’ transactions
to the Clearing House. This protection is strengthened
by the continuous monitoring and open dialogue between
the NYMEX and DME Compliance departments, Clearing
Members and their customers, to ensure a seamless
delivery process. This monitoring complements and
reinforces each individual customer’s own internal risk
management controls.
DME Contract Settlement and Delivery Sequence
1. Position monitoring
The DME compliance department, in coordination with the NYMEX compliance department, will monitor all open positions in the
DME Oman Crude Oil Futures Contract. This is done through Financial, Market and Trade Surveillance functions and interaction with Clearing Members and their respective customers; long established and customary practices of the NYMEX.
2. Clearing Member Diligence
Clearing Members guarantee the financial performance of the DME Oman Crude Oil
Futures Contract as the contracting party, therefore they inform all of their customers who are holding open positions of their imminent obligations, and thereby reduce the risk of a customer unintentionally holding an open position going into expiry.
3. Delivery Margin Assessments
During the last three trading days
prior to expiry, customers holding positions will be
required to post additional margin, called the Spot
Month Assessment. The Spot Month Assessment is applied
to each open contract in addition to the initial and
maintenance margins, and is typically $3000 per
contract, but the amount can vary from time to time.
The Spot Month Assessment provides additional delivery
collateral, and will alert the customer to an imminent
physical delivery position. After expiry, the
Clearinghouse will continue to hold the margin and Spot
Month Assessment for each contract that is matched for
physical delivery. Then, one business day prior to
the actual delivery month, long delivery position
holders will be required to post additional collateral
with the Clearing House so that margin will equal the
full value of the delivery position. The delivery
margins will be maintained at the Clearing House until
notification of payment has been made to the Clearing
House.
4. Confirmation of Ability to Deliver: pre-contract termination
No later than one hour before
contract termination, each customer holding a short
position must confirm to their Clearing Member their
ability to deliver physical oil.
5. Notices of Intention to Deliver / Receive
Post contract termination, the
Exchange will require Clearing Members whose customers
hold open positions in the DME Oman Crude Oil Futures
Contract to provide:
- Notice of Intent to Receive, for all long positions
- Notice of Intent to Deliver, for all short positions
The requirement to provide these
Notices ensures that every customer of a Clearing Member
is consolidated for matching by the Exchange. These
notices are due no later than 02:00 (Singapore),
19:00 (Dubai/Oman), and 14:00 (New
York).
6. Exchange Matching
Upon receipt of the Notices from
the Clearing Members, the Exchange then matches the
total of the Clearing Member positions by an
optimization algorithm between 14:00 and 15:00 New York
time, and issues these matched positions to the Clearing
Members, who, in turn, notify their customers of who
their matched counterparty(ies) are.
7. Request for Lay Day Procedure and Final Delivery
The customers of the Clearing
Members then begin the standard industry practice for
Oman
scheduling, by the buyer/receiver to request his
preferred lay days from his supplier who passes this
request to PDO. This process operates between the 1st
to the 10th of the month prior to delivery of
the oil. Between the 11th and the 15th
of the month, PDO schedules the requests into a loading
program and notifies each supplier of the laydays
allocated to them, who in turn, notify their receiver of
same. Thereafter, the normal vessel nomination procedure
is followed, the ship is loaded, and the payment for the
cargo is made 30 days from Bill of Lading Date.
Confirmation of this is received by the Clearing Members
and Exchange, and margin deposits are released to the
respective customer accounts.
Aspects of Physical Delivery
Petroleum Development Oman (PDO),
the terminal operator, has a minimum loading volume per
vessel (or “stem size”) of 200,000 barrels. If a
customer in the futures market has a position that is
less than the minimum stem size of 200,000 barrels (or
200 lots) going into expiry of the contract, then the
customer must be able to demonstrate that he has access
to additional oil by way of OTC supply or co-loading to
make up the minimum stem size of 200,000 barrels to his
Clearing Member, and by extension, to the Exchange.
Failing to do so will enable the Clearing Member and/or
Exchange to have the Customer liquidate his position
ahead of contract expiry, execute an EFP trade
post-expiry, or perform an ADP during the delivery
process to ensure performance of the contract.
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