p. 1 Clearing Energy Commodities The First Seoul International Derivatives Securities Conference August 27 th – 28 th, 2003 Daniel Carr – Vice President, International Affairs New York Mercantile Exchange

p. 2 We have experience and expertise in energy marketplace management 131-year history in administering commodity markets World’s largest physical commodity futures exchange Over 30 years expertise in energy markets Customers receive the protection of uniform rule based operations

p. 3 Role of the Exchange Clearinghouse System of financial performance guarantees Trade and position processing Risk management Business continuity in the event of a default Portfolio margining can reduce capital requirements

p. 4 Safety Net – What Stands Behind the Clearing Promise of Financial Performance? NYMEX Policies Avoid a Default Customer’s Original Margin Based on Risk Assessment (By Contract) Daily Variation Margin Intended to Limit Price Exposure to One Day Capital-Based Position Limits Market and Financial Surveillance CFTC’s Oversight

p. 5 Safety Net – What Stands Behind the Clearing Promise of Financial Performance? Within each clearinghouse, the customer’s risk is mitigated, not eliminated. A defined couterparty risk exists between the customer and its clearing firm. Customers also may face some risk from other customers of that clearing firm. In the event a clearing member defaults, the loss may be restored through the “safety net system” of available assets 1.That clearing member’s assets 2.Exchange funds as determined by the board of directors 3.Payments from the Exchange Guaranty fund 4.A pro-rated assessment of other clearing members based on their capital

p. 6 Exchange Structure Clearing House Clearing broker C Clearing member Clearing broker A Broker / dealer Local Clearing broker B

p. 7 Exchange Clearing Structure Clearing House Clearing broker C Clearing member Clearing broker A Broker / dealer Local Clearing broker B Voice broker

p. 8 NYMEX ClearPort sm Off Exchange Transactions Cleared Trading Cleared NYMEX ACCESS ® Confirmation Services Matching

p. 9 NYMEX ClearPort sm Products Futures without the pit –Executed OTC –Cleared at NYMEX –OTC trades converted to futures via EFP/EFS Qualifications for clearing –Standardized terms –Sufficient liquidity to allow mark to market