CME and
CBOT have adopted a group of changes to various rules and the Access, Conduct and Appearance Code
located in the Interpretations & Special Notices section of Chapter 5. Additional information concerning the changes appears
below, followed by the text of the rule amendments with additions underscored and deletions
overstruck. The changes are effective immediately.
CBOT
Rule 110 (“Claims Against Membership, Application of Proceeds”)
In
connection with the adoption of the first phase of harmonized CBOT and CME rules on November 29,
2007, CBOT included language in Rule 110 indicating that seat sale proceeds would be applied to
claims in the order of priority set forth in former CBOT Rule 252.00 for debts incurred prior to
November 29, 2007, provided that the claims were filed by February 29, 2008. Given that no claims remain outstanding, this
language has been eliminated.
For the purposes of this rule:
"sale" shall include a sale made pursuant to Rule 104 or a transfer made in accordance with
the provisions of Rule 106; "seller" shall include firms
that have membership privileges pursuant to Rules 106. F., G., H., I., J., R. or S.; and “claim”
shall be limited to claims involving incidents that occurred prior to the sale of the membership
and which arose in connection with transactions on the Exchange or membership in the Exchange.
Claims resulting from conduct subsequent to the sale of a membership may not be asserted
against that membership or its proceeds. All claims against the seller’s membership or its
proceeds shall be submitted in writing to the Department within 20 days of the posting of notice of
the sale of said membership. At the conclusion of the 20-day claim filing period,
the Market Regulation Department and the Department shall conduct an investigation of all claims
properly filed against the seller’s membership or its proceeds. This investigation shall be completed within 20
days unless the investigation cannot be resolved within that period.
The total proceeds of the
sale, or in the case of a transfer, the value at the mid-point of the bid-offer spread as of the
date of the transfer, of the membership shall be applied to the following purposes and in the
following order of priority:
[Sections a. – e. are
unchanged.]
Provided, however, that the total proceeds of the sale, or in the case of a
transfer, the value at the mid-point of the bid-offer spread as of the date of the transfer, of the
membership shall be applied to the purposes and in the order of priority set forth in former CBOT
Rule 252.00 for debts incurred prior to November 29, 2007, but only if such claims have been filed
by February 29, 2008. Such claims may be filed in advance of the sale
of a membership. All other provisions of this rule shall apply to such
claims.
[The remainder of the rule is
unchanged.]
CME and
CBOT Rule 409 (“Summary Proceedings Before the Floor Conduct Committee”)
Current
CME and CBOT Rule 409.C. provide for a nonmember employee respondent in a summary proceeding before
the Floor Conduct Committee to be represented by a single representative of his employer; however
the rule prohibits the representative from being an attorney. The revision eliminating the prohibition on the
representative being an attorney is based on longstanding custom and practice at CME whereby
nonmember employees of member firms are routinely accompanied by a firm representative who may be
an attorney for the firm, but who does not act in the capacity of the nonmember employee’s legal
counsel at the proceeding.
A summary
proceeding before the Floor Conduct Committee shall be conducted in a fair and impartial
manner.
A summary
proceeding before the Floor Conduct Committee shall take place as soon as practicable after the
issuance of charges. The proceeding will not be recorded. The respondent shall be entitled to appear personally
and answer the charges issued. Respondents and witnesses may not be represented by
counsel at a summary proceeding.
However,
A
a
n employee without membership privileges who is a respondent may be represented by a single
representative of his employer
, who may not be an attorney
. A panel shall decide by a majority vote whether the
individual is guilty of the violation or offense charged. If the accused individual is found guilty, a panel
may impose fines in accordance with Exchange rules. A witness who fails to appear at a summary proceeding
after being directed to do so by the Chairman of the panel or by staff may be charged with a
violation of Rule 432.
[The
remainder of the rule is unchanged.]
CME and
CBOT Rule 503 (“Retired Members”)
The
exchanges have eliminated the prohibition on a retired member who leases his membership to another
person from placing orders for his own account while on the trading floor. Such orders must be placed in accordance with
customer order entry requirements which require the order to be in the form of a written or
electronic record and include appropriate timestamps.
503. RETIRED MEMBERS
Any member who has been a member for at least 25 years
who sells or leases his membership may apply for a retired member badge which will entitle the
retired member to access the trading floor.
A r
etired member who
lease
s his
membership
to another person
may place orders
for
his
own
account
from on the trading floor
pursuant to the
customer order entry requirements set forth in Rule 536
.A.1.
A
R
r
etired member
s
who
sell
s his
membership
is
are
prohibited from
trading or
placing orders for any account while on the trading floor
.
R
etired members are prohibited from
or
accessing the trading pits during trading hours.
CME and
CBOT Rule 530 (“Priority of Customers’ Orders”)
During the rule
harmonization process, CBOT and CME harmonized the respective exchange rules related to trading
ahead of customer orders. The revision clarifies that with respect to open
outcry trading a member is prohibited from trading for an account he owns or controls on the same
side of the market while in possession of an executable customer order in the same product. The rule further clarifies that all contract months in
a given futures product and all options on the futures product are considered the same product for
the purposes of this rule.
The
reference to the relative priority of discretionary orders versus other orders in the second
paragraph was deleted and has been moved to Rule 548 (“Priority of Execution”).
A member shall not
buy (sell) a futures contract, buy (sell) a
call option or sell (buy) a put option
trade
for his own account, an account in which he has a direct or indirect financial interest, or
an account over which he has discretionary trading authority when he is in possession of an
executable order for another person
to buy (sell) a futures contract, buy
(sell) a call option or sell (buy) a put option in the same product
, regardless of the venue of
execution
. All contract months in a given futures product and
all options on the futures product
, in addition to any corresponding
mini-sized futures or options contracts on a given product,
shall be considered the sam
e
product for the purposes of this rule
.
A member shall not execute a discretionary order, including, without
limitation, an order allowing the member discretion as to time and price, when he is in possession
of an executable customer order.
The foregoing shall not apply to DRT orders
provided that
A member may trade for his own account without violating this rule while
holding a DRT order provided
the customer has previously consented in writing and evidence of such general consent is
indicated on the order with the “WP” (with permission) designation. In the case of a floor broker holding a discretionary
order for an account described in Rule 547,
a
the
"WP" designation on
such
the
order shall constitute sufficient evidence of prior consent.
No person shall enter an order
into the Globex platform for his own account, an account in which he has a direct or indirect
financial interest or an account over which he has discretionary trading authority, including,
without limitation, an order allowing discretion as to time and price, when such person is in
possession of any order for another person that the Globex platform is capable of accepting.
CME and
CBOT Rule 548 (“Priority of Execution”)
The
revision adopts language which was formerly contained in Rule 530.
548. PRIORITY OF EXECUTION
In pit trading, non-discretionary customer
orders shall be executed in accordance with their price and time priority.
A member shall not execute a discretionary
order, including, without limitation, an order allowing the member discretion as to time and price,
while in possession of an executable customer order
.
No person shall allocate executions in any manner other than an equitable manner.
Non-discretionary customer orders received by a
Globex terminal operator shall be entered into Globex in the sequence
received. Non-discretionary orders that cannot be immediately entered into Globex must be
entered when the orders become executable in the sequence in which the orders were received.
CME and
CBOT Rule 559 (“Position Limits and Exemptions”)
During
the rule harmonization process, CBOT adopted legacy CME rule language in Rule 559.F. related to the
timing of the submission of hedge exemptions. Prior to the adoption of the current rule, CBOT rules
allowed participants ten business days to file a hedge application after exceeding speculative
position limits. Conversely, the legacy CME rule required, with
certain product exceptions, that a hedge application be filed and approved prior to a person
exceeding speculative position limits.
As it
is not uncommon for a commercial entity to enter into cash market sales and establish a hedge
position that requires a hedge exemption or an increase to an existing hedge exemption, this
provision has been modified to allow an appropriate period of time for submission of the relevant
hedge application.
559.F.
Application to Exceed Hedge, Risk
Management, Arbitrage or Spread Posit
ion
Limits
Positions in excess of position limits may not be initiated without approval
by the Market Regulation Department as described below.
Except as provided below, a
person intending to exceed position limits or limits established pursuant to a previously approved
exemption must file the required application and receive approval
by the Market Regulation Department
prior to exceeding such limits.
A person
who establishes an exemption-eligible
position in excess of
intending to exceed
position limits
for stock index futures and options contracts may request verbal approval
prior to exceeding such limits and, if the request is approved, file the required application
promptly, and in no event more than three business days after the request has been approved.
A
person intending to exceed position limits
for other non-agricultural contracts
may file the required application after exceeding such limits. A person who has not previously received approval to
exceed position limits must file the application within five business days. A person exceeding a previously approved exemption
limit must file the application within ten business days. The Market Regulation Department shall have the
authority to require the submission of the application within a shorter period of time.
[The remainder of the section
is unchanged.]
CME and
CBOT Access, Conduct and Appearance Code
The
Code is being amended to adopt a provision prohibiting anyone under the age of 13 from being
admitted to the trading floors during trading hours.
ACCESS, CONDUCT AND APPEARANCE CODE
[The
introduction is unchanged.]
I.
Access
[Subsections A. – D. are unchanged.]
E. No one under the age of 13 will be
admitted to the trading floor during trading hours.
[The remainder of the Code is unchanged.]
CME and
CBOT Rule 853 (“Transfers of Trades”)
When
Rule 853 was harmonized, language was adopted that allowed for transfer trades at settlement price
subject to approval by Market Regulation and provided that the firm’s books reflected the original
trade prices. Such requests generally occur in connection with a
merger, asset purchase or consolidation. In such circumstances, while it is necessary to
retain the original trade dates on position transfers to ensure the integrity of the delivery
process, it is not necessary to retain the original trade prices on a firm’s books and the existing
requirement creates unnecessary and onerous daily reconciliations. Accordingly, the provision has been
eliminated.
[Subsections A. – C. are unchanged.]
D. All transactions described above must be
transferred using the original trade dates. Futures transactions must be transferred using the
original trade prices; options transactions may be transferred using either the original trade
prices or a trade price of zero. Upon written request, the Market Regulation
Department may, in its sole discretion, permit transfers through the Clearing House at the current
trade date and settlement price provided that the firm’s books accurately reflect the original
trade dates
and trade prices
.
[The remainder of the rule is unchanged.]
CME
& CBOT Rule 854 (“Concurrent Long and Short Positions”)
Harmonized
Rule 854 represented a hybrid of prior CME and CBOT rules which had conflicting requirements, and
the compromise rule permitted such offsets via netting, transfer or adjustment provided that the
quantity offset was not more than one percent of open interest in the contract and subject to
restrictions in physically delivered contracts on or after the first day on which delivery notices
can be tendered.
The
approved revisions eliminate the requirement that the offset be less than one percent of open
interest in the affected contract, provided that the offset occurs outside the delivery period in
physically delivered contracts. More detailed information on the revisions to Rule
854 is set forth in today’s release of CME & CBOT Market Regulation Advisory Notice RA0813-3.
854.
CONCURRENT LONG AND SHORT POSITIONS
Set forth
below are the procedures that must be followed for concurrent long and short positions and
hold-open accounts.
[Section A. is
unchanged.]
B.
During the delivery month and two business
days prior to the delivery month
,
C
c
oncurrent long and short positions held by the same owner must be offset by transactions
executed in the market, by allowable privately negotiated transactions, or fulfilled through the
normal delivery process. The only exception to this requirement is that
concurrent long and short
positions may be offset via netting, transfer, or adjustment
provided that the quantity of the offset does not represent more than one
percent of the reported open interest in the affected futures contract month or, in the case of
options, more than one percent of the open interest in the affected put or call strike. However, on or after the first day on which delivery
notices can be tendered in physically delivered contracts, positions may be offset via netting,
transfer, or adjustment
only
to correct a bona fide clerical or operational error
provided that
and only if
the quantity of the offset does not represent more than one percent of the reported open
interest in the affected futures contract month
and the transaction occurs on the day that
the error is identified
.
[The remainder of
the rule is unchanged.]
Questions
concerning the information contained in this Special Executive Report should be directed to Robert
Sniegowski, Associate Director, Market Regulation, at 312.341.5991.
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