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Secure Trading and Clearing ppt Slide Initial Margin

VIEWS: 110 PAGES: 47

									Secure Trading and
Clearing
SECTION ONE: NGX BACKGROUND




            2
Introduction to NGX
• Business Concept:
   –Provide electronic trading and clearing services to
    North American energy market participants
   –NGX is a service provider and therefore does not
    trade or take positions
• Headquartered in Calgary, Alberta, Canada
• Incorporated in 1993, began trading operations in
  Feb 1994
• Ownership History
   –Initial Ownership by Westcoast Energy Inc.
   –Acquired by OM on Jan 1, 2001
   –Acquired by TSX Group March 1, 2004




                          3
Ownership: Introduction to TSX
• TSX Group is a cornerstone of the Canadian financial
  system and is at the centre of Canada’s equity
  capital market
• TSX Group owns and operates Canada’s two national
  stock exchanges, the Toronto Stock Exchange,
  serving the senior equity market, and TSX Venture
  Exchange, serving the public venture equity market
• From its preeminent domestic base, TSX Group’s
  reach continues to extend internationally, through
  TSX Markets and TSX Datalinx which provide the
  trading and data to the global financial community
  who access Canada’s equity capital market




                          4
Ownership: History of TSX
• 1861 - Launched the Toronto Stock Exchange
• 1977 - Launched the World’s First Computer Assisted
  Trading System (CATS)
• 1996 - Became the first Exchange in North America to
  introduce Decimal Trading
• 1997 – Became the largest stock exchange in North
  America to close it’s trading floor and choose a floorless
  electronic trading environment
• 1999 – Through realignment, became the sole
  Exchange for trading senior equities in Canada
• 2000 – Demutalized into a “for-profit” exchange
• 2001 – Acquired Canadian Venture Exchange
• 2004 – Acquired NGX


                           5
NGX Core Competencies
• Electronic Trading
    –10 years experience developing and operating high-
     reliability, high-performance electronic trading
     systems
• Clearinghouse Operations
    –Physically and financially settled over 600,000 trades
    –Zero-default history
• Liquidity Development
    –Focus on customers and quality of service
    –Commitment to the reduction of trading impediments




                          6
Current NGX Products

                                                                NGX Products & Services
                                                                   Financial Products             Physical Products
                                                                                              Upcoming Products



                      ATCO NORTH
     STATION #2

     ALBERTA POWER SWAPS
                                              TEP
              ALBERTA SWAPS

        NGX INTRA-ALBERTA
                                      EMPRESS        EMERSON/GREAT LAKES               IROQUOIS
    SUMAS SWAPS

                          MID-C POWER SWAPS                        PARKWAY

                                                                                  DAWN
MALIN SWAPS
                                                          MICHCON SWAPS             NIAGARA FALLS
                                                                            CHIPPAWA
                                              NBPL VENTURA           CHICAGO SWAPS
                                                                    NICOR-NGPL
               ROCKY MTN SWAPS




                                               FUTURES SWAPS
                                               HENRY SWING SWAPS
                                               LDS FOR GDD




                                                      7
Current NGX Services
• Marketplace
   –Centralized electronic trading
   –Standardized contracts
   –Pipeline balancing instruments
   –Market advocacy (facilitating transactions)
   –Market agency (facilitating order entry)
   –Real-Time Price Index Generation
• Clearing House
    –Assured performance
    –Trade and counterparty netting
    –Centralized collateral management
    –Centralized risk management




                          8
       Contracting Parties
                              Concord Energy LLC
Acanthus Resources Limited                                         J. Aron & Company                   Progress Energy Ltd.
AEP Energy Services, Inc.     ConocoPhillips Canada Limited        KeySpan Energy Canada               Reliant Energy Services, Inc.
Agrium Partnership            Constellation Power Source, Inc.          Partnership                    Royal Bank of Canada
AltaGas Services Inc.         Cook Inlet Energy Supply LLC         Louis Dreyfus Energy Canada L.P.    Samson Canada, Ltd.
Anadarko Canada Corporation   Coral Energy Canada Inc.             Mirant Americas Energy Marketing,   San Diego Gas & Electric Company
Apache Canada Ltd.            Devon Canada Corporation             L.P.                                SaskEnergy Incorporated
Aquila Merchant Services –    Direct Energy Marketing Limited      Mirant Canada Energy Marketing,     Selkirk Cogen Partners, L.P.
International, Limited                                                  Ltd.
                              Direct Energy Regulated Services                                         Seminole Canada Gas Company
Astra Canada Resource                                              Morgan Stanley Capital Group Inc.
                              Dominion Energy Clearinghouse                                            Seminole Canada Gas Corporation
Marketing Inc.                     Canada Partnership              Murphy Canada, Ltd.
                                                                                                       Sempra Energy Trading Corp.
ATCO Midstream Ltd.           Dominion ExplorationCanada Ltd.      National Bank of Canada
                                                                                                       Sprague Energy Corp.
Avista Energy, Inc.           Dow Chemical Canada Inc.             Nexen Marketing
                                                                                                       Suncor Energy Marketing Inc.
BP Canada Energy Company      Duke Energy Marketing Limited        Nexen Marketing U.S.A. Inc.
                                                                                                       Syncrude Canada Ltd.
Barclays Bank PLC                  Partnership                     NJR Energy Services Company
                                                                                                       TD Commodity & Energy Trading Inc.
Burlington Resources Canada   Duvernay Oil Corp.                   Northrock Resources, Limited
                                                                                                       Talisman Energy Canada
Partnership                   Dynegy Canada Inc.                   Nova Chemicals Corporation
                                                                                                       Tenaska Marketing Canada
Calpine Canada Natural Gas    El Paso Merchant Energy, L.P.        ONEOK Energy Marketing and
Partnership                                                             Trading Company, L.P.          Terasen Gas Inc.
                              Enbridge Gas Services Inc.
Calpine Energy Services                                            ONEOK Energy Services Canada,       The Toronto Dominion Bank
                              Encana Corporation
Canada Partnership                                                      Ltd.                           TransAlta Energy Marketing Corp.
                              Encana Gas Marketing
Canadian Fertilizer Limited                                        Ontario Power Generation Inc.       TransCanada Pipelines Limited
                              Encana Gas Storage
Canadian Natural Resources                                         OXY Energy Canada, LLC              TransCanada Power
                              Energy Trust Marketing Ltd.
CanNat Energy Inc.                                                 PacifiCorp Energy Canada Ltd.       TXU Energy Trading Canada Limited
                              Energy West Resources
Cargill Energy Trading                                             Pacific Gas and Electric Company    UBS Energy Canada Ltd.
Canada Inc.                   EnerMark Inc.
                                                                   Pan-Alberta Gas Ltd.                Union Gas Limited
Cargill, Incorporated         Enerplus Resources Corporation
                                                                   Paramount Energy Operating Corp.    Unocal Canada Limited
Cargill Limited               ENMAX Energy Marketing Inc.
                                                                   Paramount Resources                 USGen New England, Inc.
Centra Gas Manitoba Inc.      Enserco Energy Inc.
                                                                   Pengrowth Corporation               Virginia Power Energy Marketing
Chevron Canada Resources      Entergy-Koch Trading Canada,
                                                                   Penn West Petroleum                 West Fraser Timber Co. Ltd.
                              ULC
CIBC World Markets, PLC                                            Petro-Canada Oil and Gas            WGR Canada, Inc.
                              Entergy-Koch Trading, LP
Cinergy Canada, Inc.                                               Petrocom Energy Group Ltd.          Williams Power Company, Inc.
                              EOG Resources Canada
Citadel Financial Products                                         Pioneer Natural Resources Canada    WPS Energy Services of Canada
S.a.r.l.                      EPCOR Merchant and Capital L.P.
                                                                   Inc.                                Corp.
City of Medicine Hat          Esprit Exploration Ltd.
                                                                   Portland General Electric Company   WPS Energy Services Inc.
CoEnergy Trading Company      Gas Alberta Inc.
                                                                   Powerex Corp.
                              Gibson Energy Ltd.
                                                                   Primewest Energy Inc.
                              Glencoe Resources Ltd.
                                                                   Producers Marketing Ltd.
                              Hunt Oil Company of Canada Inc.
                              Husky Energy Marketing Inc.      9
Operational Statistics
• 119 NGX Contracting Parties
   –“Member” firms eligible to transact through the
    Exchange
• List 60 physical and derivative products
• Average in Excess of 375 Traders Online Daily
• Approximately 100 View-Only Users Online Daily
• 2003 Trading Statistics:
   –Volume = 6.4 Tcf
   –Transactions = 136,721
• Average Daily Deliveries in Excess of 10.0 Bcf




                          10
   NGX Trading Volume History
                                                                        Historical NGX Trading Activity
                                                                        to July 31st, 2004
                                           8,000                                                                                           800


                                           7,000                                                                                           700




                                                                                                                                                 Monthly Average Traded (PJ)
                                           6,000                                                                                           600
              Total Quantity Traded (PJ)


                                           5,000                                                                                           500


                                           4,000                                                                                           400


                                           3,000                                                                                           300


                                           2,000                                                                                           200


                                           1,000                                                                                           100


                                               -                                                                                           -
                                                   1994   1995   1996   1997        1998   1999    2000    2001    2002    2003    2004
# of Days                                          324    365    365    365         365    365     366     365     365     365     213
Electricity (PJ)                                    -      -      -      -           -       -       -       -       -      18      11
OTC Clearing (PJ)                                   -      -      -      -           -       -       -       -      84     351     116
Financial Products (PJ)                             -      -      -      -           -       -       -       -     272     1,188   740
U.S. (PJ)                                           -      -      -      -           -       -       -       -      1       6        -
Eastern Canada (PJ)                                 -      -      -      -           -       -     152     389     581     999     647
Western Canada (PJ)                                23      59    427    938     1,379      2,349   2,353   2,756   3,604   3,843   2,392
Percentage Growth                                  0%     161%   621%   119%        47%    70%      7%     26%     44%     41%     20%
Monthly Average Traded (PJ)                         2      5      36     78         115    196     209     262     378     534     558

                                                                                           Year


                                                                               11
     NGX Product Dispersion

                                             2004 Trading Turnover by Product Type
                                                                                         Western Canada (PJ)
                                                                                         Financial Products
                                                                                         Eastern Canada
                                Western Canada (PJ)                                      OTC Clearing (PJ)
                                      61.2%                                              Electricity (PJ)
                                                                                         U.S. (PJ)




U.S. (PJ)
  0.0%                                                                               Financial Products
                                                                                          18.9%
             Electricity (PJ)
                 0.3%

                                                  Eastern Canada
            OTC Clearing (PJ)                         16.6%
                 3.0%



                                                               12
SECTION TWO : CLEARING STRUCTURE




             13
NGX Clearing Operations

                    $                       $

  Buyer            CPA                     CPA          Seller
             $ or Natural Gas        $ or Natural Gas




• NGX Intermediation
   –NGX acts as buyer to every seller, and seller to every
    buyer, for the purpose of facilitating anonymous
    trading and clearing

• Private Clearing Operation
    –Contracting Parties are not mutually exposed to
     another Contracting Party’s default




                                14
NGX Role as Clearing House
• Assure Delivery and Payment
   –NGX is obligated to assure the delivery of natural gas
     from seller to buyer, and the payment for all gas
     deliveries
• Standardize Rules
   –Develop common contract specifications, rules and
     regulations that provide for a fair and efficient
     marketplace as well as a secure clearing operation
• Measure and Manage Risk
   –NGX develops and enforces rules to mitigate risk on
    behalf of all Contracting Parties
   –Risks must be measured accurately in real-time, and
    NGX proactively manages risks using worldwide
    clearing principles




                         15
How is Clearing House Risk
Mitigated?
• Standard Rules
   –All Contracting Parties are subject to the same rules
     and regulations as set forth in the CPA
• Collateral Provisions
   –NGX holds liquid collateral from all Contracting
     Parties equivalent to their highest probable failure
     scenario
• Liquidation Rights
    –In the event that a default occurs, NGX is able to
     close-out (or accelerate) all forward positions for the
     defaulting party
    –Collateral is utilized to cover any liquidated damages




                           16
      Clearing Structure
                NGX Emergency Fund ($30MM CIBC Mellon Trust)




                             NGX Cash Reserves



Deposit                  Defaulting Party Collateral                 Deposit
Agreement        (100% Coverage Under NGX Exposure Model)            Agreement



                      Settlement Banking Credit Facility

                         $                                 $

        Payer                                                       Payee
                  $ or Natural Gas               $ or Natural Gas


                       Physical Backstopping (storage)



                                     17
                   Collateral Makeup

                                         NGX Margin Dispersion August 16, 2004


          $1,800


          $1,600
                                Surplus Collateral, $360
          $1,400


          $1,200                 Cushion Collateral, $246
CAD $MM




          $1,000
                                  Initial Margin, $243

           $800                  Variation Margin, $57

           $600


           $400                    AR Margin, $682


           $200

              $-




                                      18
NGX Central Clearing Benefits
• Neutral, Independent Risk Management
   –NGX is impartial and the nature of the clearing
    business provides a strong incentive to maintain a
    default-free clearing operation
   –NGX is not a market participant, does not take a
    market view and earnings are not directed by
    commodity prices
• Centralized Collateral Requirements
   –Concentration of capital affords most efficient use
    across all other contracting parties




                          19
 NGX Central Clearing Benefits

• Counterparty Netting Facilities
   –Central clearing operator and standardized netting
     rules create an environment to net physical and
     financial exposures across multiple counter parties and
     locations
• Acceleration, Liquidation, Close-Out Procedure
   –NGX has embedded, and has enforced, rights of
     acceleration for all contracts traded through the
     Exchange to mitigate risks to all Contracting Parties




                           20
Value Proposition of Clearing

  Value of Reduced                             Cost of Collateral
  Exposure                                     • Is the risk reduction
  • Will I get paid?                             worth the cost?
  • Will my gas get
   delivered?




• Risk Mitigation “Trade-Off”
    – When a Contracting Party introduces risk to the clearing
      operation (ex. Receivable exposure or Mark-to-Market
      losses) they must provide collateral to support the risk
    – In return, all Contracting Parties that are exposed to the
      clearing operation due to the introduction of risk (ex.
      Payable positions and Mark-to-Market gains) are secured
      against defaults


                             21
Collateral Concentration
                         OTC Bilateral

               Buyer                      Seller

                            $10MM
                  A                         B

                            $10MM
                  A                         C
                            $10MM
                  A                         D


                      NGX (centralized)
 Buyer                                                 Seller

                                             $20MM
                                                         B
          $30MM
  A                                             $7MM
                                                         C

                                                $3MM
                                                         D

         Access to choose bids/offers from 100+
         other market participants under the same
         collateral umbrella
                                22
Exchange Netting
                     OTC Bilateral

             Buyer                    Seller

                        5 Units
               A                        B

                        5 Units
               A                        C
                        10 Units
               D                        A


                   NGX (net effect)
Buyer                                                 Seller

        10 Units       Netted 10        10 Units
 A                                                      A
        10 Units                            5 Units
 D                                                      B

                                            5 Units
                                                        C




                             23
Clearing Statistics
• Cleared Transactions
    –150,000+ transactions cleared annually
    –Notional value of transactions consummated through
     NGX is in excess of CAD $35 Billion annually
• Margin
   –Over 120 corporate margin accounts held by NGX
   –Manage margin accounts in excess of CAD $1.5
    Billion in cash and letters of credit
• Settlement
   –Settlement of $US and $CAD cash streams
   –Monthly settlement values over CAD $1 Billion
     processed by the clearing house




                         24
Oversight
• Regulatory
   –ASC – Exemption order, compliance with operating
    principles
   –CFTC – 2(h)(iii) exemption, “Eligible Commercial
    Market” status
• Clearing Bank
    –TD Bank, NGX’s Clearing Bank, maintains oversight
     of NGX clearing operations to support credit facility,
     $300MM daylight, $30MM LC, $20MM demand
    –Clearing Bank controls segregated collateral accounts
    –Clearing Bank authorizes movement of funds from
     collateral accounts
    –Clearing Bank has full access to NGX trade/clearing
     data and reporting, ensures collateral accounts are
     sufficient to manage Contracting Party margin
     requirements


                          25
SECTION THREE: RISK MANAGEMENT




            26
        Product Risk Management Profiles
                                                        Physical Products
$    Fixed-Price      $    Monthly Index   $    Daily Index              $    Basis            $     Transport Fixed   $    Transport Basis
C    Intra-Alberta    C    Intra-Alberta   C    Intra-Alberta 2A         US   Intra-Alberta    C     Empress           US   Niagara
US   Intra-Alberta    US   Intra-Alberta   C    Intra-Alberta 4A         US   Emerson          US    Niagara           US   Iroquois
C    ATCO North       US   Ventura         C    Intra-Alberta 5A         US   Niagara          US    Iroquois          US   Chippawa
C    Empress          C    Station #2      US   Dawn                     US   Iroquois         US    Chippawa          US   Parkway
US   Emerson                               C    Station #2               US   Chippawa         US    Parkway
US   Niagara                               C    ATCO North               US   Parkway
US   Iroquois                              C    TEP                      US   Dawn
US   Chippawa                                                            US   Ventura
US   Parkway                                                             US   Nicor-NGPL
US   Dawn
US   Ventura
US   Nicor-NGPL
C    Station #2
C    TEP




                                                   Financial Products
                      Fixed-for-                                                                    Floating-for-
                 $    Floating        $    Basis              $     Swing                     $     Floating
                 C    Alberta Fixed   US   Alberta            US    Sumas                     US    LDS for GDD
                 US   Sumas Fixed     US   Sumas              US    Henry Hub                 US    Rockies
                 US   Futures Swap    US   Chicago            C     Alberta Flat Elec.        US    Malin
                                      US   Rockies            C     Alberta Peak Elec.        US    Sumas
                                      US   Malin              C     Alberta Ext. Peak Elec.
                                      US   Michcon            C     Alberta Off-Peak Elec.
                                                              US    Mid-Columbia Peak
                                                              US    Mid-Columbia Off-Peak
                                                              US    Rockies
                                                              US    Malin




                                                               27
Position Tracking
• Consolidation and Netting
   –Positions within each product and date range are
    consolidated into gross long and short positions
   –Risk is managed against the net of the long and short
    positions
• Instruments and Date Ranges
    –Trades across all instruments in a product are
     grouped by date ranges in real-time
    –Instruments may overlap, but date ranges are unique
    –Ex. A M-Nov instrument and a WB-Nov instrument
     would each populate a position for November 1 to
     November 30th




                         28
Exchange Exposure Management
• Collateral Requirements
   –To the fullest extent possible, NGX enforces stringent
     collateral policies to protect Contracting Parties
• Risk Measurement
    –NGX must accurately determine and measure risks to
     ensure the collective security of Contracting Parties
• Risk Mitigation Tools
    –NGX utilizes globally accepted, standard
     clearinghouse practices such as penalty mechanisms
     and liquidation provisions to mitigate the introduction
     of risks to the clearing operation




                          29
Performance Risks
• Failure to Make/Take Delivery
   –NGX is exposed to the price at which an alternative
     supply/market can be found
   –Risk is managed with backstopping contracts, penalty
     mechanisms, collateral requirements and credit policy
• Failure to Pay
   –NGX is exposed to receivables risk on settlement
     dates
   –Risk is managed with penalty mechanisms, collateral
     requirements and credit policy
• Failure to Provide Collateral
   –NGX is exposed to the risk that Contracting Parties
     will not provide sufficient collateral to manage their
     risks
   –Risk is managed with liquidation provisions



                           30
Collateral
• Collateral Policy
   –Contracting Parties must have sufficient collateral to
     cover their Margin Requirement, utilizing any
     combination of the forms of collateral and offsets
     below
   –Collateral is held to support the Contracting Party’s
     traded positions and can only be used to remedy a
     performance failure by the Contracting Party pledging
     the collateral
• Collateral Requirements
   –Collateral is accepted in the form of cash and
     irrevocable letter of credit from an A or higher rated
     bank
   –Collateral requirement can be reduced with an
     accounts payable or positive variation margin offset



                           31
Margin Requirements
• Risk Measurement
    –NGX measures risk in real-time and calculates
     margin requirements to quantify the risk
     measurement
• Margin Requirements and Collateral
   –If margin requirements reach 80% of collateral
    pledged, NGX will request additional collateral
   –At 90%, NGX will halt the Contracting Parties
    trading capabilities
   –At 95%, NGX is entitled to invoke the liquidation
    procedure




                         32
Physical Risk Measurement
• Accounts Receivable/Payable
   –A calculation of the value of gas delivered
   –Margin requirements are increased if gas has been
     taken prior to payment, and decreased if gas has
     been delivered prior to payment
• Variation Margin (Mark-to-Market)
   –A calculation of the price at which a forward position
     could be instantaneously liquidated given current
     market prices
• Initial Margin
    –A calculation of the probability of a movement in
      market prices during a two-day holding period
    –Initial margin coverage protects against a prolonged
      liquidation




                          33
      Physical Risk Management



Payment Exposure           Current Month Exposure             Forward Position
- Margined at full value   - Deliveries margined at           Exposure
                             full value                       - Open position initial
                           - Open position initial margin       margin
                           - Variation margin all positions   - Variation margin all
                                                                positions


          31 Days                      26 Days                        48 Months


 1st of Delivery Month      Last Day of Delivery Month         25th of Payment Month




                                        34
Swap Risk Measurement
• Accounts Receivable/Payable
   –A calculation of the value of the final gain/loss on the
     swap, also called the Swap Clearing Amount
   –Swap Clearing Amounts that result in payment
     obligations will increase the Swap Margin
     Requirement
• Variation Margin (Mark-to-Market)
   –A calculation of the price at which a forward position
     could be instantaneously liquidated given current
     market prices
• Initial Margin
    –A calculation of the probability of a movement in
      market prices during a two-day holding period
    –Initial margin coverage protects against a prolonged
      liquidation



                          35
     Swap Risk Measurement




Payment Exposure           Forward Position Exposure
- Margined at full value   - Open position initial margin
                           - Variation margin all positions


          10 Day                                     48 Months


1st of Month               6th Business Day of Month




                                       36
What are Initial Margins?
• Defined
   –Initial Margin is an estimation of the value to which
     the clearing house might be exposed during a period
     of liquidation
   –Initial Margin is intended to measure potential
     change in a value of a portfolio beyond the last mark-
     to-market price during a period of liquidation
• How Does NGX Utilize Initial Margin?
   –NGX applies initial margin to Contracting Parties’ net
    open positions that would be subject to liquidation in
    the event of a default
   –Initial margin acts as additional position coverage
    that NGX can utilize in the event of a default to
    ensure that the clearing operation remains secure




                          37
Initial Margin Methodology
• Utilization of VaR
   –NGX utilizes a Value-at-Risk methodology to
      determine initial margins
   –VaR is a method of assessing risk that uses standard
      statistical techniques routinely used in a variety of
      technical fields
   –VaR measures the worst expected loss over a given
      time interval under normal market conditions at a
      given confidence level
   –VaR, while imperfect and subject to several
      limitations, provides a measurement tool that is
      generally considered adequate to evaluate potential
      exposure in a portfolio




                          38
Margin Offsetting
• Accounts Receivable/Payable
   –All receivables/payables are offset across all NGX
     products
• Variation Margin (Mark-to-Market)
   –All mark-to-market calculations are offset across all
     NGX products
• Initial Margin
    –Initial margin is offset on all net forward positions for
      a single product profile when the positions have
      known, fixed settlement values
    –Initial margin offsets will be available for net forward
      positions across different product profiles (cross-
      margining) that are highly correlated historically




                           39
Margin Example
• Example
   –On Monday, June 24, BUYCO (buyer) purchases
     5,000 GJ/Day of the NGX Intra-Alberta month of
     July 2002 physical contract from SELLCO (seller) at
     a price of CAD $3.500/GJ
• Position Management
   –As soon as the transaction is matched, BUYCO
     shows a net long position of 5,000 GJ for each day
     from July 1 to July 31, thus a total net long position
     of 155,000 GJ (ie. 5,000 GJ/Day multiplied by 31
     days)
   –Conversely, SELLCO shows a net short position of
     5,000 GJ for each day from July 1 to July 31, thus a
     total net short position of 155,000 GJ




                           40
Margin Example
• Initial Margin
    –Immediately following the creation of the long and
      short positions, initial margin is applied
    –The initial margin rate for July is currently CAD
      $0.600/GJ, as statistically generated by NGX
    –Both BUYCO and SELLCO must have collateral
      deposited with NGX to cover the initial margin
      requirement, ie. CAD $93,000 (155,000 GJ multiplied
      by $0.600/GJ)
    –The initial margin requirement will remain in place,
      unchanged, until one of the following events occurs:
        • Either BUYCO or SELLCO offset all or part of their
          open long/short position, thus reducing their
          initial margin requirement to zero, or;
        • The July long/short position becomes a current
          month position on July 1st


                          41
  Margin Example
• Mark-to-Market
   –The following table illustrates the margin
    requirements for the July position through each
    remaining day in June:
                                                                   SELLCO
            Settlement      BUYCO          BUYCO       SELLCO       Initial
  Date         Price     Initial Margin     MTM         MTM        Margin
June 24th     3.450       ($93,000)       ($7,750)     $7,750     ($93,000)
June 25th     3.500       ($93,000)          Nil         Nil      ($93,000)
June 26th     3.600       ($93,000)       $15,500     ($15,500)   ($93,000)
June 27th     3.550       ($93,000)        $7,750     ($7,750)    ($93,000)
June 28th     3.550       ($93,000)        $7,750     ($7,750)    ($93,000)
June 29th     3.500       ($93,000)          Nil         Nil      ($93,000)
June 30th     3.400       ($93,000)       ($15,500)   $15,500     ($93,000)




                                  42
   Margin Example

                                            BUYCO                   BUYCO
            Settlement    BUYCO             Initial     BUYCO        Total
  Date         Price       AP/AR            Margin       MTM        Margin
July 1st      3.400      ($17,500)         ($90,000)   ($15,000)   ($122,500)
July 2nd      3.350      ($35,000)         ($87,000)   ($21,750)   ($143,750)
July 3rd      3.350      ($52,500)         ($84,000)   ($21,000)   ($157,500)
July 4th      3.500      ($70,000)         ($81,000)      Nil      ($151,000)
July 5th      3.650      ($87,500)         ($78,000)   $19,500     ($146,000)
                               CONTINUE 
July 31st     3.700      ($542,500)           Nil         Nil      ($542,500)




                                      43
    Margin Example

                                                                      SELLCO
            Settlement    SELLCO           SELLCO         SELLCO       Total
  Date         Price       AP/AR        Initial Margin     MTM         Margin
July 1st      3.400      $17,500         ($90,000)       $15,000     ($57,500)
July 2nd      3.350      $35,000         ($87,000)       $21,750     ($30,250)
July 3rd      3.350      $52,500         ($84,000)       $21,000     ($10,500)
July 4th      3.500      $70,000         ($81,000)          Nil      ($11,000)
July 5th      3.650      $87,500         ($78,000)       ($19,500)   ($10,000)
                             CONTINUE 
July 31st     3.700      $542,500            Nil            Nil      $542,500




                                   44
SECTION FOUR: NEW INITIATIVES




            45
What’s New at NGX?
• OTC Clearing
   – Providing a clearing service for legacy bilateral
    transactions or OTC transactions at the point-of-sale
• Addition of Western Products
   – Station #2 physical products
   – Rockies, Malin natural gas swaps
   – California swaps
   – PG&E Citygate, Sumas (Huntingdon) physical
• Projects Underway
    – Margin model revisions




                         46
 Questions and Contact Information
Gary Gault – Vice President
403.974.1707
gary.gault@ngx.com

Dan Zastawny – Vice President, Clearing & Compliance
403.974.4335
dan.zastawny@ngx.com

Kenny Foo – Clearing Manager
403.974.1737
kenny.foo@ngx.com

Natural Gas Exchange Inc.
Suite 2330, 140 4th Avenue SW
Calgary, Alberta
Canada T2P 3N3

Phone 403.974.1700
Fax   403.974.1719

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