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Responsibility for Customer Orders in Side-by-Side Markets

Regulation 350.02, Responsibility for Customer Orders, requires that members, clearing member firms and employees thereof exercise due diligence in the handling and execution of customer orders.

For contracts that are traded side-by-side, customers may choose to designate whether the order is to be executed in the open auction market or in the e-cbot® electronic market. In the absence of a specific designation by the customer, the customer’s agent may choose to enter the order either in the open auction market or on e-cbot®.

Pursuant to Regulation 9B.13, Trading Against Customer Orders and Crossing Orders, members and registered users are permitted to knowingly trade opposite a customer order for the member’s or registered user’s own account, or for his employer’s proprietary account, provided that (1) there have been no pre-execution communications; (2) the customer order is entered immediately upon receipt; and (3) the customer order is exposed on the e-cbot® platform for a minimum of 5 seconds for outright futures contracts and a minimum of 15 seconds for strategies (spreads) and options contracts.

This provision of Regulation 9B.13 does not obviate the responsibility of a member or member firm to act with due diligence in the handling of customer orders. For example, a member or member firm may not intentionally withhold or withdraw a customer order from one trading platform when that market is clearly trading at a more favorable level in order to facilitate the firm or member taking the opposite side of the customer order on another trading platform. Such activity will be deemed a serious violation of Exchange rules and regulations.

Questions regarding this notice may be directed to Jennifer Baum (jbaum@cbot.com- 312.341.3124) or Shelly Goodwin (sgoodwin@cbot.com- 312.347.4123) of the Office of Investigations and Audits.

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