Notice No. 01-365
October 30, 2001


TO:
All Exchange Members / Member Firms
All Clearing Members

FROM:
J. Robert Collins, Jr., President

RE:
EXCHANGE ANNOUNCES PLANS TO INTRODUCE OVER-THE-COUNTER CLEARING




EXCHANGE ANNOUNCES PLANS TO INTRODUCE OVER-THE-COUNTER CLEARING

The board of directors of the New York Mercantile Exchange, Inc., last
night
approved a series of measures to offer credit intermediation through
clearing services and trading tools for the over-the-counter (OTC) natural
gas market.

This plan will include the introduction of exchange of futures for swap
(EFS) transactions and large order execution to the natural gas futures
market within the next few weeks, along with the previously announced
electronic trading of cleared natural gas swaps and basis contracts.

Recent events in the natural gas market have served to reinforce the
necessity of counterparty credit risk management and have accelerated the
Exchange's plans to introduce a full array of risk management tools under
the umbrella of our clearinghouse.  Combining these trading vehicles with
our Henry Hub futures contract will offer market participants the
advantages
of these instruments in conjunction with one of the most liquid commodity
markets in the world and provide greater stability to the market as a
whole.

The Exchange is in a unique leadership position to offer these services
with
natural gas futures and options volume in 2000 reaching the equivalent of
approximately 230 trillion cubic feet and the notional value of last year's
transactions Exchange-wide totaling $3 trillion, or $14 billion per day.
One half billion dollars is available to participants on each of the
Exchange divisions through each guarantee fund and the respective clearing
members.

EFS transactions will work similarly to exchange of futures for physical
(EFP) transactions.  Two parties will be allowed to privately negotiate the
execution of an integrated over-the-counter swaps and related futures
transaction on pricing terms agreed upon by the involved parties.  The
transaction must involve approximately equal but opposite side-of-market
quantities of futures and swap exposures in the same or related commodities
and will be permitted until two hours after trading terminates in the
underlying futures contract.  EFS transactions will be permitted to
liquidate, initiate, and transfer futures market positions between the two
parties involved in the transaction.

The clearing member representing each party will be responsible to notify
the Exchange of the amount and type of futures contracts involved, the
price
at which the futures transaction should be cleared, and the identity of the
parties involved.

The Exchange will also begin permitting traders to execute block trades of
250 natural gas futures contracts or more in the first two nearby months at
the best bid or offer for that size.  These trades will not be permitted
during the closing range.

Early next year, the Exchange will introduce a cleared Henry Hub natural
gas
swaps contract, providing the marketplace with direct clearing on the most
popular energy swaps contract over the last several year.  As part of this
move, the Exchange will clear OTC-executed transactions through its EFS
mechanism.