gas trading license and authorisation of clearing house, Agreement between gas exchange and clearing house, Bye-laws and rules of gas exchanges, Settlement and netting.
INTRODUCTION
These Regulations, made under sections 33, 126 and 159 of the Petroleum Industry Act, No. 6 of 2021, provide for: regulating the establishment and operations of gas trading and settlement exchange platform; establishing the principles for the secure, reliable and efficient trading and settlement of natural gas and other gas commodities; promoting and sustaining the trading, exchange and settlement of natural gas and other gas commodities.
The Regulations define: persons qualified to participate in a gas trading and settlement exchange; approval or suspension of gas exchange contracts by the Authority; gas trading licence and clearing house authorisation; financial requirements; governance structure of gas exchange and clearing house; adoption of best practices and risk management processes; transport and delivery procedure; agreement between gas exchange and clearing house; contribution to the settlement guarantee fund; inspection, enquiries and enforcement measures.
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Gas Trading License and Authorisation of Clearing House
- A person shall not establish or operate a gas exchange without a gas trading licence issued by the Authority in accordance with these Regulations.
- A person shall not act as a clearing house for a gas exchange without the prior authorisation of the Authority.
- A qualified person under these Regulations shall only be entitled to participate in the exchange where the person holds a valid and appropriate licence or permit issued by the Authority.
- An application for a gas trading licence or clearing house authorisation shall be submitted to the Authority in the form as prescribed in guidelines issued by the Authority, subject to compliance with these Regulation.
Conditions for granting a gas trading licence
An application for a gas trading licence in these Regulations shall comply with the rules of the Securities and Exchange Commission in relation to commodities trading. An applicant for a gas trading licence shall:
- be a company limited by shares;
- be demutualized;
- ensure its directors are fit and proper persons as specified in these
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Regulations;
- satisfy the requirements relating to the ownership and governance structure specified in these Regulations and other appropriate government regulations;
- satisfy financial and technical capabilities;
- have the necessary infrastructure for the orderly execution of trades;
- have an online surveillance capability which monitors positions, prices and volumes in real time to ensure market integrity;
- make necessary arrangements to establish connectivity with its trading members and clearing house;
- have adequate Settlement Guarantee Fund;
- have adequate mechanism to address grievances of the members, trading licensees and their clients and for dispute arising out of trades and their settlement;
- have adequate systems’ capacity supported by a business continuity plan, including a disaster recovery site;
- have in its employment, sufficient number of persons having adequate professional and other relevant experience to the satisfaction of the Authority;
An applicant seeking authorisation as a clearing house shall:
- have necessary infrastructure and resources to ensure timely clearing and settlement of trades;
- have adequate risk management mechanism;
- have the capacity to establish and publish a settlement procedure including netting, novation and guarantee for settlement of trades in place, as specified by the Authority;
- demonstrate the establishment of an applicable Settlement Guarantee Fund to guarantee settlement of trades;
- demonstrate a wide network of clearing members and have adequate
- facility to admit and regulate its members;
- establish connectivity with the clearing banks, gas exchange and clearing members; and satisfy other conditions as may be specified by the Authority.
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The Authority, after considering an application made in these Regulations and on being satisfied that the applicant has complied with the conditions prescribed, may grant a licence or authorisation subject to such conditions as it may deem fit.
Agreement between gas exchange and clearing house
- A gas exchange shall avail the service of a clearing house pursuant to an agreement in writing between the parties stipulating their rights and obligations, the conditions for admission of gas volumes for clearing and settlement, risk management measures, charges for clearing and settlement and other incidental and consequential matters.
- A gas exchange shall use the services of a clearing house authorized by the Authority for clearing and settlement of its trades.
- A clearing house or gas exchange shall establish and maintain a Settlement Guarantee Fund, to guarantee the settlement of trades executed on the gas exchange.
- Where a member of a gas exchange or clearing house fails to honour its settlement obligations, the Settlement Guarantee Fund shall be utilised to complete the settlement.
- The contribution to the Settlement Guarantee Fund shall be made by the gas exchange, the clearing house and all members of gas exchange or clearing house, in the manner specified by the gas exchange or the clearing house.
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Bye-laws and rules of gas exchanges
- A gas exchange shall, with the prior approval of the Authority, make bye-laws and market rules for the administration of contracts, clearing and settlement, which shall not be in conflict with the rules provided in the Second Schedule to these Regulations.
- A gas exchange may amend its market rules subject to prior approval of the Authority.
Settlement and netting
- The payment and settlement in respect of a transaction between the parties in a gas exchange shall be determined in accordance with the netting or gross procedure as specified in the bye-laws of the gas exchange.
- Payment and settlement in respect of a transaction between parties as referred to in these Regulations, made under the bye-laws of a gas exchange shall be final, irrevocable and binding on the parties.
- When a settlement has become final and irrevocable, the right of the gas exchange to appropriate any collaterals or deposits or margins contributed by all the members of the gas exchange and their clients towards its settlement or other obligations in accordance with the bye-laws of the gas exchange shall take priority over any other liability of, or claim against, the member.