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Off-Exchange Matching of Orders

Member firms are advised that independent orders initiated for the firm’s proprietary account by different traders within a proprietary trading group

may not be matched off-exchange and booked as internal transactions. This practice has reportedly occurred in the context of proprietary trading groups netting, on an automated basis, opposing orders placed by different proprietary traders and booking the netted transactions internally. Member firms that engage in such conduct will be subject to disciplinary action pursuant to Rule 500.00, Inequitable Proceedings.

Orders initiated without prearrangement by different traders within a proprietary trading group that match in the market are not considered wash trades by the Exchange. Regulation 9B.14, Good Faith Bids and Offers, requires that all bids and offers entered into the e-cbot system be entered in good faith for the purpose of executing bona fide transactions.

This notice does not preclude the centralized hedging of bona fide hedge orders initiated by various divisions of a firm or a group of affiliated firms that have the same beneficial ownership.

Questions regarding this notice may be directed to Dean Payton, Vice President of the Office of Investigations and Audits, at (312) 435-3658 or at dpayton@cbot.com.

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