February 2006 Market Clearing in the Energy Industry 70 © 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 y to mange risk. Default Protection Daily margining, initial, maintenance and variation security requirements in accordance with CCorp standard practices. SPAN® parameters are subject to review by the Risk Management Committee. Risk management practices and guarantees are structured to protect NCC and its customers from defaults of others. Daily margining, initial, maintenance and variation requirements in accordance with exchange rules. Margin rates are changed as changes in volatility or other factors materially change the risk of the products. SPAN employed. Exchange protects customer from loss through their Clearing Member guaranty fund and Clearing Member assessments. NYMEX uses an escalating series of trade guarantees to protect the Clearing House, and through it other participants, from the default of any individual participant. The first line of defense is the collateral posted by participants with their Clearing Members. In the event of a payment default this collateral will be used to satisfy any outstanding obligation. If participant collateral is insufficient, the Clearing Member must use its own funds to cover the default. Daily margining, initial, maintenanc e and variation requiremen ts in accordance with LCH Clearnet rules. Margin rates are monitored daily and can be changed at short notice to reflect market conditions. On occasion intra –day calls are made in volatile markets. Daily margining, initial, maintenance and variation requirements. Customer is protected against losses up to the close of business the day before the default. In the event of a Participant default, VMAC provides a non- defaulting Participant either a covering position or substantial cash protection against market loss in excess of the settled marks. All positions that are freed up in the default that provide perfect cover will be re- matched. In this way, the non- defaulting Participant will be provided a covering position at no cost. Remaining positions that can be re- matched with a highly correlated position will be NGX utilizes a margining system with collateral in liquid form. Prior to initiating or increasing exposure with NGX, collateral must be posted. If the margin requirements reach 80% of the collateral, NGX will initiate a margin call. If margin requirements reach 90% of the collateral, NGX is entitled to halt the ability to incur new positions. Once the margin requirements reach 95% of the collateral, NGX has the right to invoke a liquidation procedure to reduce the exposure below 80%.