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This Advisory supersedes Regulatory Advisory RA-06-04 from July 6, 2006.
CME Rule 539.C. (“Prearranged, Pre-Negotiated and Noncompetitive Trades Prohibited – Pre-Execution Discussions Regarding Globex
Trades”) allows for market users to engage in pre-execution discussions with respect to CME Globex trades. For all products
except CME Eurodollar options and CME Euroyen options (hereinafter “ED and EY options”) and CME Eurodollar options/futures
combinations (“combinations”), CME Globex trades that result from such pre-execution discussions require that the order of
the party initiating the pre-execution discussion be entered into CME Globex first. The opposing order may subsequently be
entered 5 seconds (for futures orders) or 15 seconds (for options orders) after the first order was entered into CME Globex.
With respect to ED and EY options and combinations only , CME Rule 539.C.5. requires market users to submit a Request for
Quote (“RFQ”) into CME Globex prior to engaging in pre-execution discussions concerning these products. Subsequent to entry
of the RFQ, the rule further requires that market users submit a Request for Cross (“RFC”) which contains both the buy and
sell orders. More specific information on pre-execution discussions regarding ED and EY options and combinations and the entry
of these orders into CME Globex is contained in CME Regulatory Advisory RA-07-02, also dated April 25, 2007.
The grid on page 2 of this Advisory summarizes the differences between the entry of orders for ED and EY options and combinations
and all other CME Globex products that result from pre-execution discussions.
Please be advised that pre-execution discussions of pit transactions are not allowed under any circumstances.
Parties who have been involved in a pre-execution discussion concerning a transaction for entry on CME Globex may not disclose
the subject matter of that discussion to other parties, nor may a party place an order in the open outcry market or on CME
Globex (except to facilitate the orders resulting from the pre-execution discussion) to take advantage of information conveyed
in such discussions concerning a forthcoming or potentially forthcoming order.
The full text of CME Rule 539 appears on page 3 of this Advisory.
For more information or to report a trade believed to be in violation of the requirements concerning pre-execution discussions,
please contact Kathleen M. Zaino, Associate Director, Market Regulation, at 312/930.2341, Timothy McDermott, Director and
Compliance Counsel, at 312/648.5433, or Robert A. Sniegowski, Associate Director, Market Regulation, at 312/648.5493.
Comparison of Requirements for CME Eurodollar options, CME Euroyen options and CME Eurodollar combinations and other CME Globex
Products:
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Question
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CME Globex products (other than ED and EY options and ED combinations)
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CME Globex ED and EY options and ED combinations
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1.
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Is a client’s consent to pre-execution discussions necessary?
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YES
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YES
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2.
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May the subject matter of pre-execution discussions be disclosed to other parties?
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NO
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NO
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3.
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Is an RFQ required to be entered prior to engaging in private discussions or pre-execution discussions?
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NO
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YES
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4.
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Is the RFQ referenced in #3 above required if the system is showing current bids and/or offers in the contract(s) that will
be the subject of a private or pre-execution discussion?
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n/a
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YES
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5.
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After the RFQ is entered and a pre-execution discussion has taken place, is a Request for Cross (“RFC”) required to be entered
to proceed with the transaction?
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n/a
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YES
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6.
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Since the single RFC entry contains the buy and sell orders, are the quantity and price of the orders required to be included
in the RFC?
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n/a
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YES
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7.
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Are the quantity and price of the orders referenced in #6 above displayed to the marketplace upon launch of the RFC?
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n/a
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NO
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8.
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Must the order of the initiator of the pre-execution discussion be entered first?
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YES
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n/a
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9.
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Must the RFC be entered within fifteen minutes of, and within the same trading session as, the entry of the RFQ?
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n/a
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YES
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10.
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If the RFC is not entered within fifteen minutes of, and within the same trading session as, the entry of the RFQ, will the
pre-execution discussion be considered to be abandoned?
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n/a
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YES
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11.
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If a pre-execution discussion is abandoned pursuant to #10 above, must a new RFQ be entered prior to engaging in another private
or pre-execution discussion?
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n/a
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YES
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12.
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If a call is made to solicit the improvement of a market posted on CME Globex, must an RFQ be entered prior to making the
call?
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n/a
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YES
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13.
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Must a RFC be entered if the call described in #12 results in the parties agreeing to trade opposite one another?
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n/a
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YES
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CME Rule 539. PREARRANGED, PRE-NEGOTIATED AND NONCOMPETITIVE TRADES
PROHIBITED
539.A. General Prohibition
No person shall prearrange or pre-negotiate any purchase or sale or noncompetitively execute any transaction, except in accordance
with Sections
B and C below. Violation of this rule may be a major offense.
539.B. Exceptions
The foregoing restriction shall not apply in the following circumstances:
1. Block trades pursuant to Rule 526;
2. A transfer of spot for futures pursuant to Rule 538; and,
3. A transfer of cash for futures after termination of a contract pursuant to Rule 719.
539.C. Pre-Execution Discussions Regarding Globex Trades
Parties may engage in pre-execution discussions with regard to transactions executed on the Globex platform where one party
(the first party) wishes to be assured that a contra party (the second party) will take the opposite side of the order under
the following circumstances:
1. A party may not engage in pre-execution discussions with other market participants on behalf of another party unless the
party for whose benefit the trade is being made has previously consented to permit such discussions.
2. Parties to pre-execution discussions shall not (i) disclose to a non-party the details of such discussions or (ii) enter
an order through the Globex platform to take advantage of information conveyed during such discussions except in accordance
with this rule.
3. With the exception of orders entered pursuant to the terms of Section C.5. below, a period of 5 seconds shall elapse between
entry of the two orders in the case of futures orders or a period of 15 seconds shall elapse between entry of the two orders
in the case of option orders.
4. With the exception of orders entered pursuant to the terms of Section C.5. below, in any transaction involving pre-execution
discussions, the first party’s order must be entered into the Globex platform first and the second party’s order may not be
entered into the Globex platform until the time period prescribed in Section 539.C.3. above has elapsed.
5. In electronic options operated pursuant to Rule 585 (“Globex Call Market Trading Algorithm”), including Eurodollar and
Euroyen Options, solicitation of bid(s) and/or offer(s) between market participants through private discussion for the purpose
of establishing a market or improving the market for an eligible contract or an eligible combination of contracts for futures
and options shall be preceded by issuing a Request For Quote (“RFQ”) through an eligible terminal. Subsequent to such RFQ,
a trade intended for execution pursuant to Rule 585 for which there has been a pre-execution discussion must be initiated
by the entrance of a Request for Cross (“RFC”) Order which will contain both the buy and the sell orders. The RFC Order must
be entered within fifteen (15) minutes in the same trading session of the entry of the RFQ. Failure to enter the RFC order
within fifteen (15) minutes of the entry of the RFQ shall be considered an abandonment of that pre-execution discussion.
Any pre-execution discussion or attempt to enter RFC orders must be preceded by the entry of a new RFQ.
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