Recently, several amendments to the clearing membership assignment requirements under Rule 902 were approved by the Board of Directors.  In brief, these rule amendments were adopted to recognize the changes in the ownership of Exchange memberships and shares while maintaining the financial commitment to and protections of the Exchange.

Background

Prior to the amendments, CME Rule 902 stated that each CME clearing member shall have at least two CME memberships and the associated Class B-1 Shares, at least two IMM memberships and the associated Class B-2 Shares, at least two IOM memberships and the associated Class B-3 Shares, at least one GEM membership and the associated Class B-4 Share, and at least 72,093 Class A Shares assigned to the clearing member.  Since CME's demutualization, Rule 902 required that Class A Shares and Class B Shares and the associated membership interests required pursuant to the rule must be obtained as �full bundles.�  In other words, each Class B share and associated membership interest was required to be acquired with their originally allocated number of Class A Shares.

Satisfaction of Memberships and Shares Assignments

The Exchange will now allow clearing members to satisfy the assignment requirement set forth in CME Rule 902 with Class A Shares and Class B Shares and the associated membership interests that are accumulated from ultiple sources.  Clearing members will no longer be required to purchase "full bundles" to satisfy the requirements of Rule 902.  This change will not affect the number of memberships and associated Class B Shares or Class A Shares that are required for clearing membership.  Clearing members will, however, be able to meet the requirement by accumulating Class A Shares and Class B Shares, together with the associated membership interests, from "partial bundles" or from unrestricted Class A Shares traded on the NYSE, as well as acquiring "full bundles."  Additionally, non-member shareholders will be allowed to pledge their Class A Shares and Class B Shares, together with the associated membership interests, to clearing members, subject to the restrictions imposed by the Exchange.

The Class A Shares and Class B Shares, together with the associated membership interests, that are assigned for clearing membership will still be restricted as to sale, pledging, re-registering or otherwise being transferred without the prior approval of CME.  Each clearing member will also have to acknowledge that CME has control over such Class A and B Shares and membership interests and further agree to comply with any policies or procedures established by CME to effect control over such assets.

Ownership Issues

Rule 902 has been amended to require any clearing members approved for clearing membership after June 1, 2003 to own all of the Class A and Class B Shares and the associated membership interests required by Rule 902 as an entity, or through persons with an acceptable proprietary interest in the clearing member.  Existing clearing members of CME as of that date will be "grandfathered" and will not be required to own all of their membership interests and Class A and B Shares.  Such clearing members will be permitted to secure independent assignments of required membership interests and Class A and B Shares from other sources to the same extent the clearing firm relied on independent assignments to satisfy Rule902 on June 1, 2003.

For example, if a clearing member has no independent assignments as of June 1, 2003, it may not sell membership interests and/or Class A or B Shares it owns and substitute independent assignments. If, however, on June 1, a clearing member has the equivalent of one independent membership assignment it will be able to continue to maintain one independent membership assignment to satisfy Rule to satisfy Rule 902, until the independent membership assignment is replaced with a purchased membership. After a previously grandfathered independent membership assignment is replaced with a purchased membership, it must thereafter be a membership owned by the clearing member or a person with an acceptable proprietary interest in the clearing member.  

In the attached formal rule changes, additions are underlined and deletions are lined-out and bracketed.  If you have any questions, please call the Audit Department at (312) 930-3230 or e-mail at audits@cme.com or the Legal Department at (312) 930-2321 or e-mail at legal@cme.com.

902.     CLEARING MEMBERSHIP ASSIGNMENT REQUIREMENTS

902.A.              Assignment Requirement

Each CME clearing member shall have at least two CME [M]memberships and the coupled Class B-1 Share, at least two IMM memberships and the coupled Class B-2 Share, at least two IOM memberships and the coupled Class B-3 Share, at least one GEM membership and the coupled Class B-4 Share, and at least 72,093 Class A Shares assigned to the clearing member.  A clearing member which was an IMM Class A clearing member on or prior to May 6, 1987, shall have at least one CME membership and the coupled Class B-1 Share, three IMM memberships and the coupled Class B-2 Share, two IOM memberships and the coupled Class B-3 Share, at least one GEM membership and the coupled Class B-4 Share, and at least 66,093 Class A Shares assigned to it.  A higher Division membership and associated Class B Share may be substituted for a lower Division membership to satisfy these requirements. Class A Shares assigned to a clearing member may not be sold, pledged, hypothecated, lent, reregistered or otherwise transferred without the prior approval of the Exchange.  Each clearing member assigning Class A Shares to CME acknowledges that CME has control over such Class A Shares and further agrees to comply with any policies or procedures established by CME to affect control over the Class A Shares.

[At least one CME, one IMM, one IOM, and one GEM membership and associated Class B Share and 50 percent of the Class A Shares assigned to the clearing member must be owned by the clearing member or a person, including parent company, with an acceptable proprietary interest.  Exchange staff may grant exceptions to this requirement.]

All of the membership interests and Class A and B Shares required for clearing memberships pursuant to this rule must be owned by the clearing member or a person, including a parent company, with an acceptable proprietary interest, if such clearing member was approved for membership after June 1, 2003. 

A clearing member approved for membership on or before June 1, 2003, may continue to maintain the same number of independent assignments as the clearing member held on June 1, 2003 (i.e., up to one CME, one IMM, and one IOM memberships, the associated Class B Shares and up to 50 percent of the Class A Shares).  If a clearing member approved on or before June 1, 2003, or a person with an acceptable proprietary interest in the claring member, subsequently purchases a membership and associated Class B Share or Class A Shares and substitutes such asset for one which was previously an independent assignment, such membership and associated Class B Share or Class A Shares must thereafter be owned by the clearing member or a person with an acceptable proprietary interest.

Upon default of a clearing member in meeting its obligations to the Exchange or upon the Clearing House Risk Committee's determination that a clearing member's financial position jeopardizes the financial integrity of the Exchange, the Exchange may direct the sale of any or all of the clearing member's assigned memberships and associated Class B Shares.  The proceeds from the sale of the Shares shall be used to satisfy Rule 110 obligations.

902.B.             Trading Privileges for Assigned Memberships

1.         A member may assign his membership and associated Class B Share without trading restrictions.

902.C.             Assignment Process

[A member may assign his] A membership and/or Class A and Class B Shares may be assigned to a clearing member upon the completion of [by completing the] an Exchange-approved form. A membership and Class A and Class B Shares may be assigned to only one clearing member and may not be subject to any Rule 110 claims at the time of assignment. Upon submitting an assignment form to the Shareholder Relations and Membership Department, the newly assigned membership and Class B Share shall be posted to the membership for ten days.  After all Rule 110 claims have been resolved to the satisfaction of the Exchange, the membership and Class B Share shall be assigned to the clearing member. [Until such time as Class A Shares are freely transferable, a member who assigns his membership and Class B Shares to a clearing member must also assign the following number of Class A Shares:

  Membership  Number of Class A Shares   Number of Class B Shares

            CME                             17,999                                       1

            IMM                              11,999                                       1

            IOM                                5,999                                       1

            GEM                                   99                                       1]

902.D.             Assignment Substitutions

A clearing member may substitute a membership and associated Class B Share and/or Class A Shares for an assigned membership and associated Class B Share and/or Class A Shares provided that the clearing member continues to meet the assignment requirements of this Rule.

In the event a clearing member has a valid claim against a member that it qualifies and the member�s membership and associated Class B Share is assigned to another clearing member, the clearing member utilizing the membership and associated Class B Share for assignment shall have 10 business days to substitute another membership and associated Class B Share to fulfill the assignment requirements of this Rule.  Such substitution shall be required to protect the financial integrity of the Exchange.  Violation of this rule may be a major offense.

902.E.              Assignment Withdrawal Disputes

In the event a member wants to withdraw his assigned membership and associated Class B Share over the objection of the clearing member to which the membership and associated Class B Share is assigned, such member must request permission to do so from Exchange staff.  The request must be in writing with a copy delivered to the clearing member to which the membership is assigned. Exchange staff may grant such requests under conditions that do not jeopardize the financial integrity of the Exchange.