The Executive Committee and the Board of Directors, at their respective meetings on February 1 and 2, 2005, approved amendments to NYMEX Rules 8.55(A)(23) and (B)(10) regarding classification of offenses. The amendments include a Major and Minor Offense for a Member or Member Firm’s failure to supervise such Member or Member Firm’s employees adequately to prevent them from committing violations of Exchange rules. Rule 8.55(A)(23) addresses a Major Offense for such supervision failures that result in rule violations by employees that cause harm to a customer, another Member or Member Firm, or to the Exchange. Rule 8.55(B)(10) addresses a Minor Offense for such supervision failures that result in violations by employees of a less severe nature. Included in these Rules is a provision for an affirmative defense if the violation were a first offense, the Member or Member Firm detected the violation, reported it to the Exchange and took remedial action. The amendments will be effective Monday, February 7, 2005.

Presently, Exchange Rule 2.41 provides that a Member or Member Firm is responsible and subject to disciplinary action for the rule violations of its employees. While Rule 2.41 permits the Exchange to charge the employer directly for the specific offenses of its employees, this may not always be appropriate, especially where an employee commits an act of fraud, which requires specific intent, and the employer was itself a victim. The proposed amendments would address situations where disciplinary action involving an employer for failing to take measures adequate to prevent rule violations by an employee.

NYMEX Rule 8.55(A)(23): Supervision.

(a) To fail to supervise any employee of a Member or Member Firm adequately to prevent the violation by such employee of any Exchange Rule that: (i) results in substantial detriment to the welfare and interests of the Exchange; (ii) results in harm to a customer or another Member or Member Firm; or (iii) otherwise constitutes a Major Offense.

(b) A showing that the violation of an Exchange Rule by an employee was a first offense of that kind and that the Member or Member Firm disclosed the violation to the Exchange and took immediate and appropriate remedial action on its own initiative upon discovering the violation shall be an affirmative defense to a charge of violating Rule 8.55(A)(X)(a).

NYMEX Rule 8.55(B)(10): Supervision.

(a) To fail to supervise any employee of a Member or Member Firm adequately to prevent violations of Exchange Rules by such employee.

(b) A showing that the violation of an Exchange Rule by an employee was a first offense of that kind and that the Member or Member Firm disclosed the violation to the Exchange and took immediate and appropriate remedial action on its own initiative upon discovering the violation shall be an affirmative defense to a charge of violating Rule 8.55(B)(X)(a).