External Meetings: Definitions Meeting with Northland Energy Trading

Northland Energy Trading (aka Hedge Solutions) elaborated on points in its comment letter dated February 22, 2011 (Comment No. 27799).  Northland described its business as to aggregate requirements for price hedging swaps from home heating oil dealers (which are Northland’s customers) which offer their residential customers capped-price contracts for heating oil.   Northland then enters into corresponding long options on CME and NYMEX.  The options provide revenue to Northland if the price of heating oil goes over a certain price, and in that case Northland, in turn, pays the heating oil dealers under the swaps.  It would be difficult for the dealers to enter into the options on CME and NYMEX directly because the dealers’ volume and flow does not match to the options.


Northland made its point that the de minimis threshold in the proposed swap dealer definition should be modified.  Although the notional amounts of its business are not large, the nature of its business as an aggregator is to enter into swaps with a large number of home heating oil dealers in order to efficiently aggregate their hedging requirements.  Northland believes the de minimis thresholds should be modified (as shown in the attached proposed rule text) to account for this aspect of the aggregators’ business.