ICE Futures U.S. and Russell Stock Index Contracts

Transcription

1 ICE Futures U.S. and Russell Stock Index Contracts Cross Margining Reference Guide This material may not be reproduced or redistributed in whole or in part without the express, prior written consent of IntercontinentalExchange, Inc. Copyright Intercontinental Exchange, Inc All Rights Reserved.

2 Table of Contents INTRODUCTION... 2 ELIGIBLE PARTICIPANTS... 2 PROPRIETARY ACCOUNTS OF BROKER/DEALERS, MARKET-MAKERS, SPECIALISTS AND REGISTERED TRADERS... 2 AFFILIATES OF CLEARING MEMBER FIRMS... 2 MEMBERS OF ICE FUTURES US... 3 MEMBERS OF OTHER EXCHANGES... 3 CLEARING ARRANGEMENTS... 4 CLEARING FIRM DOCUMENTS... 4 MARKET PROFESSIONAL DOCUMENTS... 4 CONTRACTS ELIGIBLE IN THE ICE CLEAR US/OCC CROSS-MARGIN ARRANGEMENT... 6 OCC OPTIONS CONTRACTS... 6 ICE CLEAR US CONTRACTS... 6 OPERATIONAL REQUIREMENTS... 6 SETTLEMENT PROCEDURES... 7 MID-DAY VARIATION PAY/COLLECT... 7 FINAL VARIATION PAY/COLLECT... 7 MARGIN REQUIREMENTS... 8 NET CAPITAL IMPLICATIONS THE(C)(2)(X)UNDER-MARGINED CHARGE... 8 COLLATERAL FOR CROSS-MARGIN CLEARING ACCOUNT... 9 CASH... 9 GOVERNMENT SECURITIES DEPOSITS WITHDRAWALS MATURING GOVERNMENT SECURITIES LETTERS OF CREDIT SEGREGATION REQUIREMENTS RISK BASED CAPITAL REQUIREMENTS SHORT OPTION VALUE CAPITAL CHARGE EQUITIES IN CUSTOMER/NON-CUSTOMER ACCOUNTS INCLUDING THE RECORDING OF DEBIT/DEFICITS DOCUMENTS REFERENCED IN MANUAL AND WEB LOCATION ICE Cross Margining Reference Guide 1 February 20, 2008

3 Introduction ICE Clear US and the Options Clearing Corporation ("OCC") have entered into a cross-margin arrangement to offer potentially reduced margins on equity index products traded in various markets. The ICE Clear US is the successor clearing organization of the New York Clearing Corp and clears the trades of the ICE Futures US. The OCC clears the trades of all securities options presently listed and traded on national securities exchanges. The ICE Clear US/OCC cross-margin program allows for cross margining of certain equity index futures and option contracts for proprietary, non-customer, and market professional accounts. By combining eligible equity index futures and options into one account, the crossmargin program allows eligible participants to potentially reduce their margin requirements and to net their settlement obligations. The cross-margin program recognizes all components of a related portfolio using the Standard Portfolio Analysis of Risk Performance Bond System ("SPAN ") and OCC s System for Theoretical Analysis and Numerical Simulations (STANS). The reduced margin benefit is available at both the account and clearing levels, respectively. Eligible Participants Prior to April 1, 1998, Federal Reserve Regulation T (Extension of Credit to Customers) limited cross-margin participation. Until that time, Regulation T only recognized futures and options on futures as a reduction in security margin requirements for registered market makers and specialists, not futures locals. Thus, clearing firms were prohibited from giving futures traders a margin reduction on their securities positions based on offsetting futures contracts. The amendments adopted in April 1998 to Regulation T allow commodities and foreign exchange positions in non-securities credit accounts to be considered in the calculation of margin for any securities transactions. Furthermore, the amendments allow securities exchanges to override Regulation T by adopting rules permitting "portfolio margining." The ICE Clear US/OCC cross-margin program has been approved for proprietary, non-customer, and market professional accounts. Proprietary accounts of broker/dealers, market-makers, specialists and registered traders These entities are the most common participants in the cross-margin program. These accounts are defined by the following: 1. CFTC Regulation 1.3(y) for ICE Clear US contracts; 2. For OCC contracts any accounts: a. Any accounts not defined as customer by SEC Rules 8c-1 and 15c2-l; or b. Any Accounts which are permitted under OCC rules to be carried in the proprietary cross-margin account. Affiliates of Clearing Member Firms Although clearing member affiliates are considered non-customer accounts under CFTC regulation 1.3(y), they are considered customer accounts under SEC rules. Consequently, affiliates of clearing members must make certain elections under OCC rules in order to be eligible for participation in the cross-margin program. ICE Cross Margining Reference Guide 2 February 20, 2008

4 OCC rules define a member affiliate as an affiliated entity of a clearing member that controls, is controlled by, or under common control with, the clearing member. OCC rules also indicate that member affiliates can qualify as a non-customer if they have: (1) consented to having their accounts at the clearing member treated as non-customer accounts; and (2) executed a non-standard conforming subordination agreement which have been filed with and approved by the clearing member's designated examining authority. Within such non-standard conforming subordination agreement, the member affiliate has: agreed to subordinate its claims against the clearing member to the claims of SEC Rule 15c3-3 customers, provided written acknowledgment that its securities account is not covered by the Securities Investors Protection Act ("SIPA") and that any credit balances in the account are not subject to foreign investor protection (including appropriate disclosure of these two points if the member affiliates assets are not proprietary); and provided a written representation that the subordinated assets (funds and securities) are not those of U.S customers. An opinion of counsel that the member affiliate is legally authorized to subordinate its claims against the clearing member to the claims of SEC Rule 15c3-3 customers must be attached to the non-standard conforming subordination agreement. Further, the OCC requires evidence that the clearing member's designated examining authority has approved the non-conforming subordination agreement. Under the above requirements a member affiliate which has elected to treat itself as a noncustomer, may participate in proprietary cross-margins. Members of ICE Futures US Members of ICE Futures US are considered customer accounts under CFTC and SEC regulations. However, under the adopted Reg T amendments, ICE Futures US members are considered market professionals and, therefore, are entitled to portfolio margining through a cross-margin program. Although the amended Reg T rules permit ICE Futures US members to receive the benefit of cross-margining, security exchanges have not modified their rules to allow them to participate in the program. The ICE Clear US and OCC are actively working with the security exchanges to implement the necessary modifications to their rules to allow ICE Futures US members to participate in the cross-margin program. Members of other exchanges Individual members and member firms of other exchanges can participate in the ICE Clear US/OCC cross margin program by becoming a Cross-Margin Participant of ICE Futures US. To qualify as a Cross-Margin Participant, members of other exchanges must complete an application (Exhibit A). In the application, the member stipulates the following: 1. agrees to comply with all ICE Futures US and ICE Clear US rules and regulations; 2. warrants he is in good standing with the other exchange; and 3. agrees to inform ICE Futures US if any information on the application changes. Eligible participants are entitled to use a portfolio-based calculation to determine their margin requirements in their equity and futures trading account. Market participants who are not ICE Cross Margining Reference Guide 3 February 20, 2008

5 eligible for cross-margining can potentially receive reduced margins on their futures account through inter-exchange spread credits. ICE Futures US has entered the applicable spread credits into its cross-margin SPAN risk parameter file. Clearing Arrangements To clear cross-margin activity, a firm and/or an affiliate of the firm must hold memberships in the ICE Clear US and OCC. Cross-margin arrangements can be structured as either "Joint Cross Margins" or "Affiliated Cross Margins." A firm that is a member of both clearing organizations participating in the cross-margin program is known as a Joint Clearing Member. An organization participating in the cross-margin program with one affiliate holding a clearing membership of either ICE Clear US or OCC and a different affiliate holding a clearing membership at the other clearing organization is known as an Affiliate Clearing Member. Clearing Firm Documents In order to participate, a Joint Clearing Member or an Affiliated Clearing Member must execute a Cross-Margin Account Agreement and Security Agreement with the two clearing organizations. In order to clear proprietary and non-customer activity, clearing firms must execute one of the following two agreements: Joint Clearing Member (Exhibit B) o Proprietary Cross-Margin Account Agreement and Security Agreement Affiliated Clearing Members (Exhibit C) o Proprietary Cross-Margin Account Agreement and Security Agreement To clear activity of market professionals, clearing firms must execute one of the following two agreements: Joint Clearing Member (Exhibit D) o Non-Proprietary Cross-Margin Account Agreement and Security Agreement Affiliated Clearing Members (Exhibit E) o Non-Proprietary Cross-Margin Account Agreement and Security Agreement Market Professional Documents In addition to their standard account forms, clearing members must obtain one of the following cross-margining agreements from the market professionals they clear: Market Professional's Agreement for Cross-Margining - Joint Clearing Member (Exhibit F) Market Professional's Agreement for Cross-Margining - Affiliated Clearing Members (Exhibit G) ICE Cross Margining Reference Guide 4 February 20, 2008

6 The primary purpose of this agreement is to specify how cross-margin segregated funds will be distributed in the event of a clearing member bankruptcy. Such distribution is defined in Appendix B to CFTC Part Special Bankruptcy Distributions (Exhibit H) and is designed to ensure that non-cross-margin customers will never receive less than cross-margin customers during a clearing member bankruptcy. In accordance with Appendix B to CFTC Part 190, in the event of a clearing member bankruptcy, the bankruptcy trustee will: Determine whether or not there exists a deficiency in non-cross-margin or cross-margin segregation and calculate such deficiency as a percentage of segregation requirements. Combine the non-cross-margin and cross-margin segregated assets for pro-rata distribution under the following scenarios: o No deficiency in either non-cross-margin or cross-margin segregation. o Only a deficiency in non-cross-margin segregation. o Percentage of deficiency in non-cross-margin segregation is greater than the percentage of deficiency in cross-margin segregation. o Equal percentage of deficiency in both non-cross-margin and cross-margin segregation. In these situations, cross-margin market professionals have an equal claim to the segregated assets as non-cross-margin customers. Not combine the non-cross-margin and cross-margin segregated assets for pro-rata distribution under the following scenarios: o Only a deficiency in cross-margin segregation. o Percentage of deficiency in cross-margin segregation is greater than the percentage of deficiency in non-cross-margin segregation. In these situations, cross-margin market professionals have a lesser claim to the segregated assets than the non-cross-margin customers do. ICE Cross Margining Reference Guide 5 February 20, 2008

7 Contracts Eligible in the ICE Clear US/OCC Cross-Margin Arrangement The following contracts are eligible for the ICE Clear US/OCC cross-margin arrangement: OCC Options Contracts Put and Call Options on: Russell 1000 Index Russell 2000 Index ishares Russell 1000 Index Fund ishares Russell 1000 Value Index Fund ishares Russell 1000 Growth Index Fund ishares Russell 2000 Index Fund ishares Russell 2000 Value Index Fund ishares Russell 2000 Growth Index Fund ishares Russell 3000 Index Fund ProShares Ultra Russell 1000 Value Index Fund ProShares UltraShort Russell 1000 Value Index Fund ProShares Ultra Russell 1000 Growth Index Fund ProShares UltraShort Russell 1000 Growth Index Fund ProShares Ultra Russell MidCap Value Index Fund ProShares UltraShort Russell MidCap Value Index Fund ProShares Ultra Russell MidCap Growth Index Fund ProShares UltraShort Russell MidCap Growth Index Fund ProShares Ultra Russell 2000 Index Fund ProShares Short Russell 2000 Index Fund ProShares UltraShort Russell 2000 Index Fund ProShares Ultra Russell 2000 Value Index Fund ProShares UltraShort Russell 2000 Value Index Fund ProShares Ultra Russell 2000 Growth Index Fund ProShares UltraShort Russell 2000 Growth Index Fund ICE Clear US Contracts Puts and Call Options and Futures on: Russell 1000 Index Russell 1000 Value Index Russell 1000 Growth Index Russell 2000 Index Russell 2000 Value Index Russell 2000 Growth Index Russell 3000 Index Operational Requirements All cross-margin activity is conducted through joint cross-margin clearing accounts. A joint clearing member or affiliated clearing members will have an additional clearing number specific to cross-margins. Further, such clearing accounts are designated as customer or house origin. ICE Cross Margining Reference Guide 6 February 20, 2008

8 Cross-margin trades are subject to the same operational requirements as non-cross-margin trades, including trade entry, trade submission timeframes, give-ups, exercises, assignments, and outtrades. The clearing systems will not allow non-cross-margin trades (ineligible contracts) in a designated cross-margin account. Trades can be executed directly into the cross-margin account or given-up to the cross-margin account. Positions can be transferred between a clearing member's primary clearing account and the clearing member's cross-margin clearing account (e.g. type "8" transfers at ICE Clear US). Finally, each clearing member should submit a separate Position Change Sheet ("PCS") report the cross-margin firm. Settlement Procedures The clearing member will receive a margin detail report (i.e. trade register) and clearing reports jointly from the OCC for the combined cross-margin positions. The clearing member will also receive a trade register and clearing reports for ICE Clear US only positions for informational purposes. OCC will create the instructions for all settlements into and out of a bank account it jointly owns with ICE Clear US ( Joint Account ). Mid-Day Variation Pay/Collect ICE Clear US will calculate a mid-day variation margin and will provide the amounts for crossmargin clearing accounts to OCC. ICE Clear US will give OCC the mid-day pays in excess of $100,000 (rounded to the next higher $500). OCC will debit clearing firms for this amount. ICE Clear US allocates collects proportionally to appropriate clearing firms. ICE Clear US will deposit mid-day collects in excess of $250,000 (rounded to the next lower $500) to the Joint Account. However, OCC may not pass the full-value of the mid-day collect from the Joint Account to the clearing member. OCC will evaluate the change in value of the clearing member s option portfolio, which may result in creased margin. Any collect will be used to fund any resulting deficit (defined as collateral value less margin requirement before OCC pays the clearing firms. Final Variation Pay/Collect ICE Clear US will also calculate the final variation pay/collect for each clearing firm and provide them to OCC to settle through the joint ICE Clear US/OCC bank account. Final variation is combined with any option premium settlement amounts, exercise/assignment cash settlement amounts and any miscellaneous pay/collect to arrive at a Net Daily Settlement (Pay/Collect) total which is processed through the normal Morning Settlement process. OCC will debit any clearing firm with a final pay; the clearing member s settlement bank must approve the debit instruction by 8:00 am Central Time. Clearing firms with a final collect in their cross-margin account may not receive any funds. OCC will calculate the margin requirement for the clearing firm s cross-margin activity. Any collect will be used to fund any deficit (defined as collateral value less margin requirement) before it is paid to the clearing firm. For the joint clearing member and affiliated clearing members there is one variation pay/collect from a joint OCC/ICE Clear US bank account. Such bank accounts are designated as customer or house origin. Affiliated clearing members are responsible to pass variation pays and collect related to the cross-margin program between themselves. ICE Cross Margining Reference Guide 7 February 20, 2008

9 Margin Requirements The cross-margin program combines commodity and security positions into one account to compute a margin requirement. At the clearing organization level, OCC will calculate the margin requirement for the cross-margin account utilizing a net Risk Management methodology called STANS, System for Theoretical Analysis and Numerical Simulations. In addition, OCC will re-calculate the value of clearing firm portfolios (including both option and futures positions) using current market prices throughout the trading day. If this revaluation reveals a significant deterioration of risk margin, there is potential for an intraday call for additional collateral. This call would equal the amount of the calculated loss; any clearing firm receiving an intraday margin call will be notified by the OCC. The cross-margin account (combined commodity and security positions and account equity) is considered a commodity account for regulatory purposes. Thus, individual members of ICE Futures US, market professionals and non-customer accounts are subject to the same margin requirements as any other commodity accounts. The SPAN margin system is the only acceptable margin system for market professional and noncustomer accounts. Within SPAN, the cross-margin exchange complex is XNY. Both commodity and security positions should be entered into SPAN. Under cross-margins, the commodity and security positions and account equity are combined in one account to determine margin status. Excess margin disbursements and margin deficiencies (calls) are based on the SPAN margin requirements. A clearing member must issue, age, and delete calls for margin. A cross-margin account in margin deficiency for an unreasonable period of time cannot continue to trade. A reasonable period of time is defined as less than five business days for customer market professional accounts and four business days for non-customer accounts. Customer cross-margin accounts fall under segregation requirements. Therefore, in determining margin status, a member of ICE Futures US and a market professional's cross-margin account is considered separately from their non-cross-margin account. Excess equity in one origin cannot meet the margin requirements in the other origin. The clearing member must transfer equity between the market professional's accounts. As there are no segregation requirements, a non-customer's cross-margin account may be combined with its non-cross-margin commodity account in determining margin status. If a firm s bookkeeping system cannot maintain both commodity and security equity positions in one account, clearing members could manually combine the accounts and enter the positions in PC-SPAN to determine the margin status of an account. Please consult with your service bureau regarding their capabilities with respect to cross-margins. Net Capital Implications The(c)(2)(x)Under-margined Charge A market professional's and/or non-customer's cross-margin account may be subject to either the (c)(2)(x) charge or the under-margined charge to capital. The (c)(2)(x)/under-margined charge equals the greater of the (c)(2)(x) deduction (based on Appendix A to SEC Rule 15c6-1) or the ICE Cross Margining Reference Guide 8 February 20, 2008

10 margin deficiency (based on the SPAN margin system) of the combined commodity and security cross-margin account. A cross-margin account is never subject to both charges. In computing the (c)(2)(x)/under-margined charge: The (c)(2)(x) charge for a cross-margin account is computed separately from the noncross-margin security account. The under-margined charge is computed on the day the account becomes under-margined. It is an immediate charge to capital. Unlike other commodity accounts, there is no grace period for cross-margin accounts in margin deficiencies before a capital charge applies. Current calls cannot reduce an under-margined charge for cross-margin accounts. Excess equity in the cross-margin account may reduce the (c)(2)(x) charge for the non-crossmargin security account. Excess equity in the non-cross-margin security account may reduce the (c)(2)(x) charge for the cross-margin account. Excess equity in the non-cross-margin security account may not reduce the under-margined charge for the cross-margin account. Thus, if the under-margined charge is greater than the (c)(2)(x) charge, the clearing member is subject to an under-margined charge that can only be reduced once funds are transferred into the cross-margin account. Only an equity system transfer is required provided the clearing member maintains excess segregated funds in the cross-margin and non-cross-margin origins. Due to bankruptcy/subordination concerns, excess equity in the member of ICE Futures US or market professional's cross-margin account may not reduce the under-margined charge for the non-cross-margin commodity account. Funds must be transferred into the non-cross-margin commodity account in order to reduce the under-margined charge. Only an equity system transfer is required provided the clearing member maintains excess segregated funds in the cross-margin and non-cross-margin origins. Further, excess equity in the member of ICE Futures US or market professional's non-crossmargin commodity account may not reduce the (c)(2)(x)/under-margined charge for the crossmargin account. Funds must be transferred into the cross-margin account in order to reduce the (c) (2)(x)/under-margined charge. Only an equity system transfer is required provided the clearing member maintains excess segregated funds in the cross-margin and non-cross-margin origins. Collateral for Cross-Margin Clearing Account Clearing Members may deposit various forms of collateral to satisfy margin requirements for their cross-margin accounts. Eligible types of collateral are Cash, Government Securities and Letters of Credit. Cash Clearing Members may request to be drafted between 6:00 a.m. -12:00 p.m. CST in order to release other types of collateral. Interest is not paid on cash deposits. ICE Cross Margining Reference Guide 9 February 20, 2008

11 Government Securities Deposits Clearing members may pledge approved U.S. securities via a cross-margin approved government depository bank. The bank must inform OCC of approved government securities deposited for cross-margin joint accounts by 2:00 p.m. Once OCC receives bank confirmation of a government security pledge OCC will apply a government security haircut to the participant s security with the following collateral valuations which are applied against the market value of the security: Government Securities Maturities < 1 Year COLLATERAL VALUATIONS Maturities Between 1 & 5 Years Maturities Between 5 & 10 Years Maturities > 10+ Years 99.5% 98% 96.5% 95% Withdrawals Clearing members may request the release of government securities via OCC s Encore System until 2:00 p.m. OCC will send ICE Clear US a spreadsheet daily at 3:00 p.m. reflecting all cross-margin Government security deposits and withdrawals that have been processed throughout the day. Neither ICE Clear US nor OCC are responsible for the payment of coupon interest related to any debt security deposited as collateral. Clearing members should contact their depository organization for coupon interest payments. Maturing Government Securities Government securities that reach maturity while deposited as collateral will be returned by OCC to the clearing member s government depository bank. Maturing securities will be automatically returned if the clearing member has adequate collateral pledged in their account to cover the withdrawal of the maturing security. If the clearing member does not have adequate collateral pledged to cover the maturing security withdrawal then the clearing member has until 1:00 pm to pledge additional collateral. At 1:00 pm OCC will draft for cash the settlement accounts of all clearing members who have not pledged additional collateral to cover up to the collateral amount needed to facilitate the release of any maturing securities. ICE Cross Margining Reference Guide 10 February 20, 2008

12 Letters of Credit Clearing members may deposit Letters of Credit ( LC ) from approved issuing banks denominated in U.S. dollars as collateral. Letters of Credit have expiry dates of March 1 st and September 1 st. Cross-margin participants can elect to have their LC s extended beyond March 1 st via an amendment to the existing LC on deposit. LC s expiring on September 1 st cannot be extended further and must be replaced with new Letters of Credit. All Letters of Credit deposits and withdrawals must be submitted between 6:00 a.m. 2:00 p.m. and can only be deposited and amended by cross-margin approved LC banks. OCC will send ICE Clear US a spreadsheet daily at 3:00 p.m. reflecting all cross-margin LC deposits and withdrawals that have been processed throughout the day. Segregation Requirements A clearing member must prepare a separate daily segregation statement for its market professional participants. One cross-margin segregation statement should be prepared for all market professional cross-margin programs involving equity index futures and options contracts. Thus, the ICE Clear US/OCC cross-margin programs would be combined on a single crossmargin segregation statement. The combined commodity and security positions and account equity of all cross-margin customers, including the equity option value of the OCC positions, must be included on the segregation statement. At all times a clearing member must maintain excess segregated funds in the cross-margin origin. Excess segregated funds in the cross-margin or non-cross-margin origin may not offset a segregation deficiency in the other origin. A clearing member must provide immediate written notice to the ICE Futures US Financial Surveillance Department and its Designated Self- Clearing Organization (DSRO) if it fails to maintain excess segregated funds in either origin. For financial statement submission purposes, balances in the cross-margin and non-cross-margin segregation statements should be aggregated and submitted as a single segregation statement. For distributions in the event of bankruptcy, refer to the above - Market Professional Agreement and the discussion of Appendix B to CFTC Part Special Bankruptcy Distributions. A clearing member must open segregated cross-margin bank, clearing organization, and carrying broker accounts. These accounts must be separate from a clearing member's non-cross-margin accounts. Funds deposited by a member of ICE Futures US or a market professional for crossmargins must be deposited in a cross-margin segregated account. Such account should be identified as "cross-margins customer segregated." The standard segregation acknowledgment letter may be used for cross-margin segregated accounts. A blanket segregation letter covering all accounts (non-cross-margin and cross-margin) at a bank, clearing organization, or carrying broker is acceptable. For affiliated cross-margins, both affiliates must prepare separate cross-margin segregation statements. Generally, the OCC clearing member will prepare the cross-margin segregation ICE Cross Margining Reference Guide 11 February 20, 2008

13 statement for the individual market professional accounts. The cross-margin segregation requirement is included in the computation of the net capital requirement. The ICE Clear US clearing member will prepare a cross-margin segregation statement for the omnibus account of the OCC clearing member, the equity option value of the OCC clearing member must be included on the ICE Clear US clearing member's segregation statement both as an asset and requirement/liability. The equity option value is included as I) the equity option positions are available to reduce the margin requirements at the ICE Clear US clearing member and 2) the ICE Clear US clearing member has the authority to liquidate the equity option positions. The crossmargin segregation requirement is included in the computation of the net capital requirement. Risk Based Capital Requirements Customer and non-customer cross-margin accounts are included in the risk based capital requirement adopted by ICE Futures US. The cross-margin margin requirements included in risk based capital should equal the greater of the risk-based haircut (RBH) requirement or the SPAN margin system requirement of the combined commodity and security cross-margin accounts. The greater of the RBH or SPAN margin system requirement of cross-margin accounts is included as it represents the risk of the combined commodity and security positions. Short Option Value Capital Charge While the CFTC eliminated the 4% capital charge for customer short options held by FCMs in July 1998, the SEC still requires firms dually registered as FCMs and broker/dealers to take the charge. However, relief from the short option charge was granted by the SEC for cross-margin accounts in February Pursuant to an SEC no-action letter, broker/dealers are no longer required to take the 4% short option value charge for accounts of market-makers and specialists when the account owner holds a securities index option position that is hedged with short futures options and the related capital charge is computed in accordance with paragraph (c)(2)(x) and Appendix A of SEC Rule 15c3-1. Equities in Customer/Non-customer Accounts including the Recording of Debit/Deficits The cross-margin account (combined commodity and security positions and account equity) is considered a commodity account and its credit or debit net liquidating value should be reflected accordingly on the financial statements. Further, for balance sheet and segregation statement recording, a customer's net liquidating equity is computed separately for their cross-margin and non-cross-margin accounts. However as no segregation or subordination requirements exist for non-customers, the cross margin and non-cross-margin commodity accounts of non-customers may be combined in determining balance sheet presentation. As stated above, debit/deficits for cross-margin accounts are computed using the combined commodity and securities cross-margin account. Debit/deficits for cross-margin accounts must be computed separately from non-cross-margin accounts for customers. That is, credit equity in one origin cannot offset a debit/deficit in the other origin. However, for balance sheet purposes, excess equity in one origin may secure a debit/deficit in the other origin provided the clearing member has the appropriate written authorization to transfer funds. Note, however, the actual transfer of funds is not required. For cross-margin accounts, excess equity is defined as net liquidating equity plus securities less the (c)(2)(x)/under-margined charge calculation. ICE Cross Margining Reference Guide 12 February 20, 2008

14 List of Documents The documents below, which are referenced in the Cross Margining Reference Guide, can be found online at ICE Futures US Inc. Cross-Margining Participant Application Joint Clearing Member Proprietary Cross-Margin Account Agreement and Security Agreement Affiliated Clearing Members Proprietary Cross-Margin Account Agreement and Security Agreement Joint Clearing Member Non-Proprietary Cross-Margin Account Agreement and Security Agreement Affiliated Clearing Members Non-Proprietary Cross-Margin Account Agreement and Security Agreement Market Professional s Agreement for Cross-Margining Joint Clearing Member Market Professional s Agreement for Cross-Margining Affiliated Clearing Members Appendix B to CFTC Part. 190 Special Bankruptcy Distributions ICE Cross Margining Reference Guide 13 February 20, 2008