08/13/2002
The proposed Rule for COMEX expands the existing error, out-trade rule, which presently allows members who have confirmed a fill to a customer and subse-quently discovered that the trade disputed by the opposite member is a "who" trade, to take the opposite side of the trade and give the customer the fill as confirmed. The Rule delineates the paperwork required to process this type of customer-to-broker cross-trade. The proposed Rule also allows a member to cross against his customer in the case of an under-buy or under-sell. Again, the circumstances under which such a crosstrade would be tolerated and the paperwork required to effect it are described in the Rule.
Proposed Rule 4.47 affects a "Special Matter" under the terms of the COMEX By-Laws. Accordingly, COMEX Division Members have ten (10) days to submit a petition signed by owners of at least 155 COMEX Division Memberships requesting a vote of the COMEX Division Members to disapprove the amendments, pursuant to the procedures set forth under COMEX By-Law 205(D). If a petition is not received, or if the amendment is not disapproved, it will be submitted to the Commodity Futures Trading Commission.
Rule 4.71, Resolution of Errors, Out- and "Who" Trades
(a) Errors. If a floor member has failed to execute an order placed by a customer or has made an error in handling a customer order, such as by under buying or under selling,
(1) Execute the order in the market and adjust the customer if the price is worse than that which the customer should have received had the error not occurred;
(2) Execute a spread transaction in accordance with Rule 4.71A-Spread Transaction to Rectify an Error; or
(3) Take the opposite side of the order (notwithstanding any rule to the contrary), at a price which is equal to the price the order should have received had the error not occurred. If such price cannot be obtained in the market, or the floor member discovers the error after the close of such market, the floor member may assign the opposite side of the order to the floor member's designated error account at a price which is equal to the price which the order should have received had the error not occurred, notwithstanding any rule to the contrary. Any assignment made after the close of the market must be made promptly.
In no case may a customer receive a price which is worse than that which the customer should have received had the error not occurred. Any transaction or straddle transaction executed pursuant to Subsection (3) above shall be within such day's trading range, reported to the Compliance Department in accordance with the procedures listed in Section (e) below.
(b) Out-Trades.
(1) If two floor members who have executed a trade disagree about any of the material terms of the trade, including the quantity, price, option series or contract month, or if one floor member fails to acknowledge the trade (collectively referred to as "out-trades"), the the floor members shall either nullify ("break") the trade or agree to accept the trade in accordance with the terms recorded by one of the two floor members on his trading card
(2) If a trade is "broken" in accordance with Subsection (b)(1) after it has been confirmed to a customer, the floor member handling the customer order may take the opposite side of the order into an account designated as his error account so that the order can be filled by the terms confirmed, provided that he does so in accordance with the procedures set forth in Section (e) of this rule by the close of trading on the business day following the day on which the trade originally was executed.
(c) "Who" Trades. If a floor member has executed a trade for a customer, recorded the terms of the trade on his trading card, and confirmed the trade to the customer, but is unable to determine the proper identity of the opposite floor member (a "Who" trade), the floor member shall either:
(1) re-execute the trade in the ring, by open outcry, and adjust the customer to the originally confirmed price; or
(2) substitute himself for the unknown opposite floor member, take the opposite side of the trade into his designated error account and assign a fill to the customer at the originally confirmed terms, provided that he does so in accordance with the procedures set forth in Section (e) of this rule by the close of trading on the business day following the day on which the trade originally was executed.
(d) Offset. A floor member may not establish a position that would offset the position he has acquired pursuant to Subsection
(e) Procedures. A floor member may take the opposite side of a customer order to resolve an error, out- or "Who" trade [as defined in Sections (a)(3), (b) and (c) above] only in accordance with the following procedures:
(1) Within 15 minutes of the resolution of an error, out- or "Who" trade, the floor member must prepare or cause to be prepared an Error/Out-Trade Correction Slip (hereafter "Slip") that
(a) the date of the error, out- or "Who" trade;
(b) the floor member's badge number;
(c) the floor member's error account number and the clearing firm at which the account is maintained;
(d) the badge of the opposite floor member,
(e) the details of (i) the trade as recorded by the floor member, (ii) the trade as recorded by the opposite floor member, in the case of an out-trade, and (iii) the cross trade by which the floor member has taken the opposite side of his customer's order;
(f) the date on which the Slip
(g) the signature of the individual who
(h) such other information as the Exchange may require.
(2) Upon completion of the
(3) After the Exchange representative has signed the
(a)
(b)
(c)
(4) The floor member shall retain a copy of the
(f) Recordation Requirements.
(1) A floor member shall not be required to insert on a trading card the cross trade resulting from the resolution of an error, out-or "Who" trade by having taken the opposite side of a customer's order, but any trade offsetting the cross trade must be recorded in conformity with the requirements of Rule 4.80 ("Trading Cards") and, if executed after the cross trade, specially identified in such manner as the Exchange may prescribe.
(2) Trade data submitted to the Exchange
(3) Any claim made by a floor member against another floor member in connection with an out-trade shall be recorded on the reverse side of the trading card of each of the floor members.
(g) Adjustments. If the resolution of an out-trade or a dispute involving an error requires a floor member to make an adjustment to another floor member, or to a customer, the adjustment shall be made by check or through the use of ATOM with the permission of the floor member.
(h) Modification of Trade Terms Prohibited. Except as otherwise provided in this rule, a floor member shall not change the terms of a trade to correct an error or to resolve an out-trade.
(i) Arbitration. Nothing shall preclude the resolution of a dispute arising from or in connection with an error or out-trade by means of arbitration in accordance with Chapter