February 2006 Market Clearing in the Energy Industry 71 © Copyright 2006, CCRO. All rights reserved. NCC/ North American Energy Credit and Clearing Corp (“NECC”) New York Mercantile Exchange (“NYMEX”) ICE/LCH Clearnet Virtual Markets Assurance Corporation (“VMAC”) Natural Gas Exchange If the Clearing Member’s funds are exhausted and it too goes into default, the Clearing House Guarantee Fund is called on. Currently this holds approximately $140 million. If the Guarantee Fund is exhausted, an additional $100 million in default insurance can be called upon. Once all other avenues are exhausted, NYMEX has the right to assess its Clearing Members in order to satisfy the default. This is based upon the Clearing Member size and the level of business it does at NYMEX, and, can be up to $30 million, per Clearing member, per default. converted to that highly correlated position and re- matched. A cash payment to cover the basis differential is also paid. Thus, the non- defaulting Participant is provided a correlated covering position and cash to cover the basis differential. The use of this covering procedure is limited to specific types of positions. It is also limited as to duration of positions so that it can be used only well prior to the delivery period. If a position of a non-defaulting Participant cannot be re- matched, the Participant will seek bids to establish the cost of covering it’s lost position that arises upon VMAC’s termination of the swap. The Termination Amount to be paid is the cost of the cover, so determined, Clearing Member Funds Clearing Member Funds Guarantee Fund Guarantee Fund Insurance Insurance CM Assessment Participant Collateral Participant Collateral