Background: On July 8, 2002, Chicago Mercantile Exchange Inc. announced plans to launch a new series of non-traditional futures products called TRAKRS. These innovative products will be the first broad-based index futures products which securities broker/dealers (B/Ds) and registered representatives (RRs) will be able to offer and sell. The first TRAKRS contract will be the Long-Short Technology TRAKRS Index Futures, which will be launched on August 1, 2002, after a special opening procedure on July 31, 2002. TRAKRS differ from traditional futures contracts in significant ways. First, TRAKRS have an interest rate pass-through feature from long positions to short positions. Second, performance bond requirements differ for institutional customers and non- institutional customers. TRAKRS are not leveraged for long non-institutional customers, who are required to post 100 percent of the TRAKRS market value at the time of purchase. As a result, these customers will not be subject to margin calls or any requirement to make any additional payments throughout the life of their TRAKRS positions. Non-institutional customers establishing short TRAKRS positions post 50 percent of the price. Short positions must make certain maintenance payments if the settlement price increases or decreases substantially. Qualified Institutional Buyers (QIB) — both buyers and sellers — post a performance bond to be determined by CME’s Clearing House Division consistent with its normal margining requirements for futures contracts. QIBs are defined in securities law as investors with more than $100 million in assets. Members of CME will be treated as QIBs for purposes of trading TRAKRS. Information on TRAKRS can be found at www.trakrs.com and at www.cme.com. Regulatory Relief: Attached is a “no-action” position letter issued by the CFTC on July 11, 2001, offering relief from some of the regulatory requirements of the Commodity Exchange Act and Commission rules governing the offer and sale of futures products. This relief has been granted to those B/Ds and RRs who offer and sell TRAKRS products to non-institutional customers. In particular, relief has been granted in the following areas: • Registration requirements for B/Ds and RRs who restrict their Commission-regulated activities to the offer and sale of TRAKRS products and notice-register with the National Futures Association (NFA.) • Risk disclosure statements under Rule 1.55 and Part 180 satisfied by TRAKRS disclosure documents. • CFTC capital requirements under Rule1.17(a)(1)(i)(B). • Risk assessment requirements under Rules 1.14 and 1.15. • Segregation requirements under Section 4d of the Act and Rules 1.20 through 1.29. • Recordkeeping and reporting requirements under various parts of Sections 4f and 4g of the Act and Rules 1.31 and 1.33 through 1.37. Also attached is a letter dated July 22, 2002 from the CFTC clarifying that B/Ds and RRs who notice-register to offer and sell securities futures products will not be precluded from offering and selling TRAKRS products. In addition, a no-action letter dated July 31, 2002 from the NFA regarding relief from various NFA requirements is also attached. If you have any questions, please contact the Audit Department at (312) 930-3230 or e-mail us at audits@cme.com.