SGX 


1 October 2015 

Mr. Chris Kirkpatrick 


Secretary 


Commodity Futures Trading Commission 


Three Lafayette Center 


115521stSt., N.W. 


Washington, DC 20581 


United States of America 


VIA EMAIL 

Dear Mr. Kirkpatrick, 

Submission of Swaps Contract for the Commission's Mandatory Clearing 

Determination 

1 	 Introduction 

1.1 	 Singapore Exchange Derivatives Clearing Limited ("SGX-DC"), a derivatives clearing 

organisation ("DCO") registered with the Commodity Futures Trading Commission (the 

"Commission"), hereby submits the SGX FOB Singapore SLlnG Swap Contract (the 

"Contract") for the Commission's mandatory clearing determination under Commission 

regulation 39.5(b). 

1.2 	 The Submission Cover Sheet is attached as Appendix 1. 

2 	 Commencement of Clearing 

2.1 	 SGX-DC intends to begin accepting the Contract for clearing from October 2015 or later. 

3 	 Eligibility to Clear 

3.1 	 Pursuant to Commlssion regulation 39.5(a)(1 ), SGX-DC is eligible to clear the Contract as it is 

within the same class of swaps as those it already clears. 

4 	 Re.quired Information under Commission regulation 39.5(b)(3) 

Existence of significant outstanding notional exposures, trading liquidity and adequate pricing 

data 

4.1 	 LNG is projected to be the fastest growing fossil fuel source of power generation for the next 

two decades. Currently, Asia accounts for approximated 80% of global LNG demand, and 

Asian LNG demand is set to rise from 117 Million Tons Per Annum ("mtpa") to about 255 mtpa 

Singapore Exchange Derivatives Clearing Limited 

Company Reg No. 200005878M 

(A wholly-owned subsidiary of Singapore Exchange limited) 

2 Shenton Way, 1102-02 SGX Centre 1, Singapore 068804 

main: +65 6236 8888 fax : +65 6535 0775 

sgx.com 
SGX 


by 20201

. Growth is thus expected in the spot LNG market and demand for spot LNG hedging 

and trading is expected to increase along with the overall Asian LNG market. The Contract is 

intended to meet the increase in LNG trading and to address the needs of market participants 

who will predominantly comprise LNG spot traders, Singapore power generation companies 

and financial energy traders. Market participants may use the Contract as a hedging tool for 

their LNG transactions, an instrument for spread trading, to lock in or speculate spot LNG 

prices and to trade spot LNG against pipeline gas. 

4.2 	 The underlying index for the proposed SLlnG Swaps and Futures is the FOB Singapore SGX 

LNG Index Group ("SLlnG index"), an Asian spot LNG index published by the Energy Market 

Company ("EMC") and created by EMC as the index administrator. At the moment, the LNG 

spot market is a nascent market and the SLlnG index is also a new index to promote spot 

LNG price discovery in Asia. Hence, the market will need to develop further before liquidity 

and notional exposure will gain momentum in the next couple of years. The index is open and 

accessible to relevant stakeholders, and can now be used to develop products such as 

financial swaps for hedging purposes, and can eventually be used in developing a physical 

delivery mechanism in Asia. The SLlnG index is based on a weekly industry poll of major 

traders' fair assessments of LNG spot prices using Singapore as a virtual reference location, 

which ensures consistency of the basis of assessment. 

4.3 	 The existing swap products in ICE and CME that are based on the similar underlying physical 

market have not seen volume or open interest in the past 6-12 months. Therefore, there is 

insufficient data to determine the notional exposures and trading liquidity. 

Availability of rule framework, capacity, operational expertise and resources and credit 

support infrastructure to clear the contract 

4.4 	 The Contract will be cleared under an established rule framework and operational 

infrastructure already in place and accepted by SGX-DC's Clearing Members. 

4.5 	 SGX-DC has the appropriate risk management, operations and technology capabilities in 

place to ensure that it is able to liquidate positions in the Contract in an orderly manner in a 

default. 

4.6 	 The Contract is subject to margin and clearing fund requirements set out under SGX-DC's 

Clearing Rules, which are available at the following link: 

http://rulebook.sgx.com/en/display/display main.html?rbid=3271 &element id=1903 

Effect on the mitigation of systemic risk, taking in account the market size and resources of 

SGX-DC 

4.7 	 It is noted that one of the key drivers of the Dodd-Frank Act was to address systemic risk in 

the over-the-counter ("OTC") derivatives market through central clearing of such products. 

1 This demand will be met by new LNG supplies from North America, Australia, Russia and East Africa coming on 

stream from 2018 onwards. 

Singapore Exchange Derivatives Clearing Limited 

Company Reg No. 200005878M 

(A wholly-owned subsidiary of Singapore Exchange Limited) 

2 Shenton Way, #02-02 SGX Centre 1, Singapore 068804 

main: +65 6236 8888 fax: +65 6535 0775 

sgx.com 
SGX 


4.8 	 The benefits of central clearing are well-documented and include standardisation of key 

contract terms when settling a contract, ease of position adjustment, reduction of counterparty 

risk by having the central counterparty interpose itself between the initial buyer and seller and 

the provision of efficiencies through the consolidation of collateral management at a central 

point. 

4.9 	 These benefits need to be weighed against the concentration of risk in a select few central 

counterparties. 

4.10 	 SGX-DC has the necessary capability to clear the Contract from a market size and resources 

perspective. 

Effect on competition, including clearing fees and charges 

4.11 	 SGX-DC does not believe that its clearing of the Contract would have a negative or material 

impact on competition. The fee schedule for the Contract is attached as Appendix 3. 

Existence of reasonable legal certainty in the event of SGX-DC's or its clearing members' 

insolvency with regard to the treatment of customer and counterparty positions and 

collateral 

4.12 	 SGX-DC observes the Principles for Financial Market Infrastructures jointly promulgated by 

the Committee on Payment and Settlement Systems and IOSCO (the "PFMI") and its 

procedures have been assessed to be legally certain in the event of its or its Clearing 

Members' insolvency with regard to the treatment of customer and counterparty positions and 

collateral2

. 

4.13 	 SGX-DC has also previously provided a legal memorandum to the Commission on the ringfenced treatment of cleared swaps customer collateral pursuant to Part 22 of the 

Commission's regulations. 

4.14 	 SGX-DC's insolvency and the operation of default management mechanisms under its 

Clearing Rules will be governed by Singapore law, save for certain specific Clearing Rules 

that relate to cleared swaps customer collateral that are governed by U.S. federal laws. 

5 	 Contract Specifications 

5.1 	 The specifications of the Contract are attached as Appendix 2. 

6 	 Participants Eligibility Standards 

2 Please see http://www.imf.org/external/pubs/ft/scr/2013/cr13345. pdf for a detailed assessment of 

SGX-DC's observance of the PFMI by the International Monetary Fund under the Financial Sector 

Assessment Programme. 

Singapore Exchange Derivatives Clearing Limited 

Company Reg No. 200005878M 

(A wholly-owned subsidiary of Singapore Exchange limited) 

2 Shenton Way, #02-02 SGX Centre 1, Singapore 068804 

main: +65 6236 8888 fax: +65 6535 0775 

sgx.com 
SGX 


6.1 	 The standards for participation in clearing of the Contract are similar to SGX-DC's usual 

membership standards for its Clearing Members as·set out in Chapter 2 of its Clearing Rules. 

6.2 	 SGX-DC imposes no participation criteria on its Clearing Members' customers, given that it 

faces its Clearing Members on a principal-to-principal contractual basis. 

7 	 Pricing Sources, Models and Procedures 

7.1 	 The daily settlement prices of the Contract will be derived based on the methods 

below and in the following order of preference: 

(a) 	 the weighted average of the daily forward price assessment provided by price 

panelists, after removing the outliers; 

(b) 	 if the current month forward price assessment is not available, the daily spot 

prices from the index providers will be used for interpolation with the next 

month forward price assessment; and 

(c) 	 if any forward month price assessments are not available, the daily settlement 

price will be derived using an interpolation formula. 

7.2 	 The final settlement prices for the Contract will be the arithmetic average of the 

relevant underlying index weekly spot assessments in the expiring month, rounded to 

three decimal places. 

7.3 	 The mode of final settlement will be in cash. 

8 	 Risk Management Procedures 

8.1 	 SGX-DC's risk management policies and procedures are well-established through its 

experience in clearing OTC derivatives products. 

8.2 	 Maintenance margin is collected from each Clearing Member to cover potential losses in the 

event of that Clearing Member's default. The margining methodology is based on a value-atrisk model utilising historical simulation methodology. 

8.3 	 Variation margin is calculated three times a day but called once each day during the life of the 

Contract until final settlement. Such variation margin is marked-to-market during each cycle 

and settled in cash based on the settlement currency of the Contract. 

8.4 	 Further to this, each Clearing Member contributes to a clearing fund which would be drawn 

down in the event of a default in accordance with the SGX-DC Clearing Rules. This fund is 

utilised to cover any shortfall over and above the margins posted by the defaulting Clearing 

Member due to the liquidation or auction of such Clearing Member's portfolio. 

9 	 Applicable Rules, Polices and Procedures 

9.1 	 The rules, policies and procedures that apply to the clearing of the Contract are set out in 

SGX-DC's Clearing Rules, which are publicly available at the following link: 

http://rulebook.sgx.com/en/display/display main.html?rbid=3271 &element id=1903. 

Singapore Exchange Derivatives Clearing Limited 

Com pany Reg NoT200005878M 


(A wholly-owned subsidia ry of Singapore Exchange limited) 


2 Shenton Way, #02-02 SGX Centre 1, Singapore 068804 

main: +65 6236 8888 fax: +65 6535 0775 

sgx.com 
SGX 


9.2 	 Additional amendments to the Clearing Rules have been proposed in relation to the clearing of 

the Contract. SGX-DC has filed a self-certification submission pursuant to Commission 

regulation 40.6 for the Clearing Rule amendments on 29 September 2015. 

10 	 Public Notice of Submission 

10.1 	 SGX-DC has made publicly available a copy of this submission on its website at the following 

address: 

http://www.sgx.com/wps/portal/sgxweb/home/regulation/consult pub/dco submissions. 

11 	 Contact Details 

11 .1 Please do not hesitate to contact the undersigned at dionna.tong@sgx.com or +65 6713 6085 

should you require any clarification. 

Yours sincerely, 

Dionna Tong 

Assistant Vice President 

Legal (Regulation) 

Singapore Exchange Derivatives Clearing Limited 

Company Reg No. 200005878M 

(A wholly-owned subsidia ry of Singapore Exchange Limited ) 

2 Shenton Way, #02-02 SGX Centre 1, Singapore 068804 

main : +65 6236 8888 fax : +65 6535 0775 

sgx.com 
SGX 


Appendix 1 


Submission Cover Sheets 


Singapore Exchange Derivatives Clearing Limited 

Company Reg No. 200005878M 

(A wholly-owned subsidiary of Singapore Exchange Limited) 

2 Shenton Way, #02-02 SGX Centre 1, Singapore 068804 

main: +65 6236 8888 fax: +65 6535 0775 

sgx.com 
------------------------------

SUBMISSION COVER SHEET 

IMPORTANT: Check box if Confidential Treatment is requested D 

Registered Entity Identifier Code (optional): -----------­

Organization: Singapore Exchange Derivatives Clearing Limited 


Filing as a: D DCM DSEF [{] DCO DSDR Please note - only ONE choice allowed. 


Filing Date (mm/dd/yy): 1010112015 Filing Description: 


Submission of Swaps Contract for the Commission's Mandatory Clearing Determination 

SPECIFY FILING TYPE Please note only ONE choice allowed per Submission. 

O~nization Rules and Rule Amendments 

LJ 

D 

0 

0 

D 

Certification § 40.6(a) 

Approval § 40.5(a) 

Notification § 40.6(d) 

Advance Notice ofSIDCO Rule Change § 40.IO(a) 

SIDCO Emergency Rule Change § 40.lO(h) 

RuleNumbers: _____________________________ 

New Product Please note only ONE product per Submission. D Certification § 40.2(a) 

D Certification Security Futures § 41.23(a) 


D Certification Swap Class § 40.2(d) 


0 Approval § 40.3(a) 


0 Approval Security Futures § 41.23(b) 


D Novel Derivative Product Notification § 40.12(a) 


[2J Swap Submission § 39.5 


OfficiafProduct Name: SGX FOB Singapore SLlnG Swap Contract 

Product Terins and Conditions (product related Rules and Rule Amendments) 0 Certification § 40.6(a) 

D Certification Made Available to Trade Determination § 40.6(a) 

D Certification Security Futures § 41.24(a) 


D Delisting (No Open Interest) § 40.6(a) 


D Approval § 40.5(a) 


D Approval Made Available to Trade Determination § 40.5(a)

0 	 Approval Security Futures § 41.24(b) 


D Approval Amendments to enumerated agricultural products § 40.4(a), § 40.5(a)


D "Non-Material Agricultural Rule Change" § 40.4(b )(5) 


0 Notification § 40.6(d) 


Official Name(s) of Product(s) Affected: 

Rule Numbers: 
SGX 


Appendix2 


Contracts Specifications 


Singapore Exchange Derivatives Clearing Limited 

Company Reg No. 200005878M 

(A wholly-owned subsidiary of Singapore Exchange Limited) 

2 Shenton Way, #02-02 SGX Centre 1, Singapore 068804 

main: +65 6236 8888 fax: +65 6535 0775 

sgx.com 
SGX 

SGX FOB Singapore SllnG LNG Swap Contract Specifications 

Contract SGX FOB Singapore SLlnG LNG swap 

Contract Size (1 lot) 10,000 mmBtu 

Ticker Symbol LN 

Minimum Price Fluctuation USD0.001 per million British Thermal Unit 

Contract Months 12 consecutive months starting from the forward month 

Trading Hours (Singapore 

Time) 

T session: 8.00am - 8:00pm 

T+l session: 8:00.0lpm - 4.00am 

Last trading day: 8.00am - 8.00pm 

Last Trading Day Last publication day of the FOB Singapore SLlnG Index for the 

relevant Contract Month 

Settlement Basis and Final 

Settlement Methodology or 

Delivery Mechanism 

Cash settlement using arithmetic average of FOB Singapore 

SLlnG Index weekly spot assessments for the expiring 

contract month, rounded to three decimal places 

Position Limit 

A person must not own or control any combination of SGX 

FOB Singapore SLlnG LNG Futures, Swaps and any other 

product traded by the Exchange and/or accepted by the 

Clearing House for clearing with an identical underlying, 

that exceeds an equivalent of 2,000 regular-sized full month 

contracts on the same side of the Market and in all Contract 

Months combined 

Singapore Exchange Derivatives Clearing Limited 

Company Reg No. 200005878M 

(A wholly-owned subsidiary of Singapore E><change Limited) 

2 Shenton Way, #02-02 SGX Centre 1, Singapore 068804 

main: +65 6236 8888 fax: +65 6535 0775 

sgx.com 
SGX 


Appendix3 


Fee Schedule 


Singapore Exchange Derivatives Clearing Limited 

Company Reg No. 200005878M 

(A wholly-owned subsidiary of Singapore Exchange limited) 

2 Shenton Way, #02-02 SGX Centre 1, Singapore 068804 

main: +65 6236 8888 fax: +65 6535 0775 

sgx.com 
SGX 

Clearing Fees 

Clearing Fee 

Type 

Description SGX FOB Singapore 

SLlnG LNG swap 

Cf 1 Trading Member (Individual) USDlO 

Cf 2 Clearing Member House Account USDlO 

Cf 3 Trading Member (Broker) House Account USDlO 

Cf 5 Clearing Member Customer Account USDlO 

Cf 6 Trading Member (Broker) Customer Account USDlO 

Cf 7 Trading Member (Proprietary) (Customer) USDlO 

Cf 8 Clearing Member Related Company House Account USDlO 

Cf E Trading Member's Trading Representatives (House) USDlO 

Cf F Trading Member's Trading Representatives (Customer) USDlO 

Cf G Clearing Member's Trading Representatives (House) USDlO 

Cf K Trading Member (Proprietary) (House) USDlO 

*Prices shown are before GST. 

Singapore Exchange Derivatives Clearing Limited 

Company Reg No. 200005878M 


(A wholly-owned subsidiary of Singapore Exchange Limited) 


2 Shenton Way, #02-02 SGX Centre 1, Singapore 068804 

main: +65 6236 8888 fax: +65 6535 0775 

sgx.com