February 2006 Market Clearing in the Energy Industry 61 © Copyright 2006, CCRO. All rights reserved. 12. APPENDIX E: MAJOR CLEARING VENDORS44 12.1. THE NECC Clearing Consortium (“NCC”) OTC Cleared markets NCC, comprised of North American Credit and Clearing Corp. (NECC), The Clearing Corporation (CCorp) and the Intercontinental Exchange (ICE), has created a platform that specifically addresses the needs of physical energy market participants which is credit protection from a forward transaction through delivery and settlement. NCC’s services have been available since the summer of 2005 for day-ahead trades transacted on ICE for delivery in ERCOT, and are expected to expand further toward the end of 2005 in OTC gas and power markets. Similarly, NCC has proposed to extend its platform to ISO/RTOs in a way that would provide additional protection to the physical market participants operating in those markets and allow greater opportunity for netting their positions across physical and financial markets. (See further discussion below under E.2.1.) NCC’s clearing platform is designed to provide protection similar to that of traditional clearing, whereby all positions are fully secured with collateral and additional layers of protection/insurance, while accommodating physical energy market unique risks and operating protocols. In particular, the NCC solution allows flexibility such that both buyers and sellers can choose to receive or payout cash weekly (during a delivery month) or monthly (after the delivery month) it provides for investment grade credit support at no cost to such buyers (paid by sellers opting for accelerated settlements)45 and it offers direct participation by its customers such that clearing member intermediaries are not required. NCC’s full array of OTC products and services will be implemented in two major phases. Phase I involves credit management of spot and forward power and gas transactions entered directly with NECC on ICE. In this phase NECC is the direct buyer or seller on offsetting transactions that are entered into simultaneously with NECC as a ‘risk-less principal.’ Phase II will extend NCC’s services to multilateral clearing and thus provide novation for pre-existing contracts 44 Note that the information contained in this Appendix is intended for general informational purposes, and does not represent an independent assessment, verification, or endorsement by the CCRO of vendor capabilities, products and services, or claims. Rather, the information presented is intended only to provide the reader with background on certain vendor characteristics. Clearing users are advised to perform their own independent review as to the accuracy of vendor claims and the appropriateness of use of any product or service. Vendors provided input into this section. 45 Net sellers that opt for accelerated weekly settlements take a discounted payment that reflects the cost of investment grade credit as reflected in current credit derivatives markets. In OTC markets, to the extent that all net sellers chose to receive accelerated weekly payment, then all investment grade net buyers would have the cost of financing their advances covered. In the absence of all sellers electing accelerated weekly payments for OTC cleared trades, NECC will allocate any cost sharing by those that do to investment grade net buyers on a pro-rata basis.