PVM Regulatory Information

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Role of Name-Passing Brokers

This should be read in conjunction with the Execution Policy. This gives detail to the role PVM plays when acting on your behalf.

PVM Oil Associates Ltd & PVM Oil Futures Ltd (“PVM”)

Role of Name-Passing Brokers

In addition to name passing and matched principal brokerage models, brokers can facilitate the trading activity of their clients on derivative exchanges (e.g. LiFFE, Eurex, CME, etc.). Upon receiving the relevant price information from the broker, the client will instruct the broker to place an order on the appropriate exchange, either in its own name (if a member of the exchange) or through a third party. The broker can provide the client with an indication of the market based on the current price and volume activity on the exchange.

Once the execution has occurred, the executed position is then given-up to the client through the clearing services of the exchange clearing house. This process typically occurs within the day and so the broker will have no house position at the end of each day and will be flat. During the give-up process the broker will maintain a daylight position until the trade is taken up by the client.

At the end of each month, the broker will invoice the client for the trading activity during that month.

A derivation of this business model is where over the counter trades are crossed on the exchange to provide the clients with a settlement process through a central counterparty (CCP settlement).

Example – Exchange Give-Up

Name Passing

The name passing brokerage model is the traditional model, through which the broker takes on an arranging role in a transaction between two or more counterparties. The broker, through price dissemination, distributes quotes to other market participants showing both price and volume. For voice brokered products, these prices and volumes are dependant upon market convention, either firm or indicative levels of interest, and must be confirmed prior to the trade being completed. For electronic brokered products through MTFs, these prices and volumes are typically firm and are traded without further communication. Once the trade price, volume and terms have been agreed, either through further conversation with the broker or with the direct hit or taking of prices on an MTF, the counterparties’ names are disclosed and the broker steps away from the transaction.

Bilateral agreements are then enforced between the counterparties and the broker will invoice the brokerage fee on a monthly basis.

Example – Name Passing