Audit Information Bulletins #03-01 and #03-03, issued in January 2003 and June 2003 respectively, discussed the mechanics of CME memberships and shares, how to record them on financial statements, and their acceptability as performance bond.  With the upcoming expiration of the transfer restrictions on Chicago Mercantile Exchange Holdings Inc.’s (“CME Holdings”) Class A Shares on June 4, 2004, this bulletin updates and further clarifies the recording of memberships and shares on financial statements.

Expiration of Class A Share Restrictions

On June 4, 2004, the transfer restrictions on CME Holding’s Class A-1, Class A-2, Class A-3 and Class A-4 common stock will expire.  These shares will convert to Class A Common Stock and may be freely transferred or sold after such date. 

Clearing members may only elect to sell or transfer a number of shares that are in excess of the required 72,093 Class A Shares required for clearing purposes under CME Rule 902.A. (Assignment Requirement).

Thus, after June 4, 2004 all Class A Shares of CME Holdings become unrestricted Class A Shares.

Financial Statement Presentation

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).

Excess Class A Shares (those shares in excess of the 72,093 required for clearing membership) which are not restricted 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 as 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, 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.