CME Rule 539.C. (“Prearranged, Pre-Negotiated and Noncompetitive Trades Prohibited – Pre-Execution Discussions Regarding GLOBEX Trades”) allows for pre-execution discussions of transactions executed on the CME^® Globex^® electronic trading platform as long as certain procedures are followed.  A copy of Rule 539 is printed on the back of this advisory.

The question has been raised whether individuals who have participated in a pre-execution discussion of a potential CME Globex trade may place orders in the open outcry market where the orders may trade opposite one another in the pit.  Pre-execution discussions of pit transactions are not allowed.  Parties who have been involved in a pre-execution discussion may not disclose the subject matter of that discussion to other parties, nor may a party place an order in the open outcry market to take advantage of information conveyed in such discussions concerning a forthcoming or potentially forthcoming order.  If the parties to a pre-execution discussion decide to consummate a CME Globex transaction, they must follow the procedures detailed in Rule 539.C.

Violations of Rule 539 may be a major offense.  

Should you have any questions on Rule 539, please contact James Moran (312.930.8520), Robert Sniegowski (312.648.5493), or Eric Wolff (312.930.3255) in the Market Regulation Department.

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.   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.   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.   A trade intended for execution pursuant to Rule 585 [please note that Rule 585 - GLOBEX^® Call Market Trading Algorithm - is currently only applicable to CME Eurodollar option trades executed on the Enhanced Options System] for which there has been a pre-execution discussion shall be initiated with a Request for Cross Trade (“Cross Request”) for the specific contract or combination of contracts, with explicit reference to the anticipated order quantity.  The order from the initiator of the Cross Request for the contract or combination of contracts must be entered within three (3) minutes of the entry of the Cross Request.  The opposing order may not be entered until the requisite period of time as stipulated in Section C.3. above has elapsed.  Failure to enter the initiating order following the Cross Request within the requisite time shall be considered an abandonment of the pre-execution discussion, and a new Cross Request entry is required to proceed with the transaction.