In January 2003, Audit Information Bulletin #03-01 discussed the mechanics of CME memberships and shares, how to record them on financial statements, and their acceptability for performance bond.  With Chicago Mercantile Exchange Holdings Inc.�s (�CME Holdings�) recent completion of the guided sale (secondary offering), this bulletin updates and further clarifies the recording of memberships and shares on financial statements.

Class A Share Restrictions

Unless the Class A Shares were obtained through the Initial Public Offering (�IPO�) of CME Holdings on December 6, 2002 or through the guided sale completed on June 24, 2003, or the Class A Shares are acquired on the open market, the Class A Shares are 100% restricted at this time; that is, they cannot be separately sold.  Restricted Class A Shares can be sold only bundled with the membership and coupled Class B Share through CME�s Shareholder Relations & Membership Services Department.

The trading restrictions on the Class A Shares are lifted as follows:

�         25% of the Class A Shares (i.e., Class A-1) would have become unrestricted 180 days after the completion of the IPO (transferable on June 10, 2003); however, the Company chose to engage in a guided sale, which resulted in the transfer restrictions on all Class A-1 Shares not sold through the guided sale being extended until all transfer restrictions are lifted on June 4, 2004

�         25% of the Class A Shares (i.e., Class A-2) become unrestricted 360 days after the completion of the IPO (transferable on December 7, 2003)

�         The remaining 50% of the Class A Shares (i.e. Class A-3 and Class A-4) become unrestricted 540 days after the completion of the IPO (transferable on June 4, 2004)

Financial Statement Presentation

At this time, CME memberships and shares assigned for clearing purposes must be recorded as a non-current (non-allowable) asset at original cost on 1-FR Line 15 � Exchange memberships at cost or FOCUS Line 12.B. � Memberships in exchanges: Owned at cost, as appropriate.

Memberships and the associated Class B Shares held in excess of that required for clearing purposes must be recorded as a non-current (non-allowable) asset at original cost on 1-FR Line 15 or FOCUS Line 12.B. at cost, as appropriate.  As memberships and the associated Class B Shares owned by the firm are subject to claims of CME they must be recorded as non-current (non-allowable).

Further, excess Class A Shares which are restricted must be recorded as a non-current (non-allowable) asset at original cost on 1-FR Line 15 or FOCUS Line 12.B. as appropriate. 

Excess Class A Shares which are not restricted (shares purchased through the IPO, the guided sale, or the New York Stock Exchange) may be recorded as a current (allowable) asset at market value on 1-FR Line 3.A. Securities, at market value: Firm owned and FOCUS Line 7.E. Securities and spot commodities owned, at market value: Stock and warrants, as applicable.  Such Class A Shares are subject to a capital haircut in accordance with SEC Rule 240.15c3-1, currently 15% of market value.  To determine the cost basis of such Class A Shares, please consult your public accountants.

Class A Shares as Acceptable Performance Bond

Unrestricted Class A Shares in CME Holdings are acceptable for performance bond under Rule 930.C. at the customer level; that is, from the customer to the firm.  Such shares must be and remain unencumbered by third party claims.  For performance bond purposes, unrestricted Class A Shares shall be valued at market value less applicable haircuts as set forth in SEC Rule 240.15c3-1, currently 15% of market value.  Note:  Memberships, representing the trading rights in the different divisions of CME, and the associated Class B Shares are not an allowable performance bond asset.

If you have any questions, please call the Audit Department at (312) 930-3230 or e-mail us at audits@cme.com.