In order to obtain equity member clearing and GLOBEX fees, CME rules require that proprietary trading of clearing members, including inactive clearing members, and Rule 106.I. members must be conducted by bona-fideemployees, individual equity members, traders on Rule 106.F. memberships, bona-fide owners of the firm or registered Commodity Trading Advisors (“CTAs”).

Our marketplace, both the trading environment and customer base, has evolved and expanded greatly in recent years.  We have seen a tremendous growth in interest from proprietary trading groups to trade our markets electronically. 

In recognition of this, the Board of Directors of CME has approved discounted clearing and GLOBEX fees, effective September 1, 2004, for electronic proprietary trading of clearing members, including inactive clearing members, and Rule 106.I. members conducted by independent contractors and other self-employed individuals.  The discounted rates charged to such proprietary trading activity will be equivalent to the Electronic Corporate Member rates of 44¢ a side for E-mini equities, foreign currencies, interest rates and commodity products and 88¢ a side for full-size equity index contracts.  Further, proprietary trading of clearing members, including inactive clearing members, and Rule 106.I. members conducted by independent contractors and other self-employed individuals will be eligible for the GLOBEX system fee cap and volume discounts.

To receive the discounted clearing and GLOBEX fees, operator IDs of independent contractors and other self-employed individuals must be registered in CME’s Exchange Fee System (“EFS”) as “Clearing Firm Independent Contractor.”  Further information on registration requirements for the EFS will be forthcoming.

For clearing members, including inactive clearing members, to receive equity member or discounted clearing fees, the proprietary account must be 100% owned by the firm.  For Rule 106.I. members to receive equity member or discounted clearing fees, all proprietary trading must be conducted within the division of membership held and the proprietary account must be 100% owned by the firm.

A proprietary account, owned 100% by the firm, is evidenced through:

• Only the firm’s capital is at risk of loss - no traders may have their own capital at risk;
• All profits and losses of the account are written off to income;
• All profits and losses of the account are taxed to the firm; and
• The trader does not make any capital contribution to the account.

Equity Member Clearing and GLOBEX Fees for GLOBEX Activity

In addition to the account being defined as a proprietary account owned 100% by the firm (as detailed above):

In order to receive equity member clearing and GLOBEX fees, only bona-fide employees (as detailed below), individual equity members, traders on Rule 106.F. memberships, bona-fide owners (identified in the firm’s operating agreement and as detailed below) and registered CTAs may conduct the proprietary trading activity.  Operator IDs of the above individuals must be registered in CME’s EFS as “Clearing Firm W-2 Employee” or “Member” as applicable.

Bona-fide Employees

Bona-fide employees are evidenced through:

• Issuance of a W-2 for all compensation to the trader;
• Inclusion in the firm’s payroll tax records; and
• The trader has no income until the firm pays the trader.

Bona-fide Owners

Trades executed by individual owners of a clearing member firm for the firm’s proprietary account may receive equity member rates on those trades as long as all of the owners’ trading results are aggregated before any profit distributions are made.  In this way, all of the owners share in the trading risks of the other owners.

Trades executed by owners of a clearing member firm who wish to have their trading results segregated from the trading results of other owners may receive equity member rates on those trades if they contribute to and maintain at least $500,000 in the firm.  This contribution must represent bona-fide capital in the firm, subject to all of the firm’s operating risks.

Discounted Clearing and GLOBEX Fees for GLOBEX Activity

In addition to the account being defined as a proprietary account owned 100% by the firm (as detailed above):

The discounted clearing and GLOBEX fees apply to the proprietary trading activity conducted by independent contractors and other self-employed individuals as well as owners who do not maintain at least $500,000 in the firm and have their trading results segregated from the trading results of the other owners.  Such individuals’ operator IDs must be registered in CME’s EFS as “Clearing Firm Independent Contractor.” 

Keep in mind that a member trader and member firm may have a joint account and receive preferential clearing fee rates on contracts under the lowest division of membership held.

Equity Member & Lessee Clearing Fees for Open Outcry Activity

In addition to the account being defined as a proprietary account owned 100% by the firm (as detailed above):

The proprietary trading of a clearing member is entitled to equity member clearing fees on all contracts when an individual owning and holding a membership conducts it on the floor of the Exchange.  All proprietary trading activity conducted on the Exchange floor by a Rule 106.F. Employee Transfer member is entitled to equity member clearing fees regardless if the Rule 106.F. member is an employee or not of the clearing member. 

Finally, the proprietary trading of a clearing member conducted with discretion by a Rule 106.D. Futures Industry Transfer (Lessee) on the floor of the Exchange will be charged Rule 106.D. lessee clearing fees regardless if the Rule 106.D. lessee is a clearing member employee or not.

Penalties

The policies set forth herein will be strictly enforced by the Exchange. A member or clearing member found to have engaged in fraudulent or dishonest conduct or to have acted in bad faith will be subject to a charge of a major rule violation. Major rule violations are punishable by a fine up to $1,000,000 plus the monetary value of any benefit received as a result of the violative activity.

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