Open Outcry Trading of Treasury and Swap Futures in the Treasury and Swap Futures Pit

This Advisory Notice supersedes CBOT Market Regulation Advisory Notice RA0812-1 from July 28, 2008.  It is being issued based on a change to the policy in effect for trading in the Treasury and Swap futures pit that will become effective on June 15, 2010.  

As of June 15, 2010, the current policy will be applicable only during the contract rollover time period.  Outside of the rollover time period, members will be allowed to bid, offer and trade any Treasury or Swap futures contract from any area of the Treasury futures pit, provided that bids and offers originating outside of a particular contract’s trading area are vocally and openly represented in a manner that is clearly transparent to the area of the pit where the product trades.  Additional information on the policy is set forth below.

Failure to adhere to this policy may result in the issuance of charges for violation of Rule 514 (“Trading Infractions”), which will be heard by a Panel of the Floor Conduct Committee.  A Panel may impose fines of up to $10,000 per offense, or in the case of an egregious violation, may impose fines of up to $20,000 per offense.  Further, the Market Regulation Department may refer particularly egregious matters to the Probable Cause Committee.  

Members are reminded to ensure that all trades are promptly and accurately reported to the market reporters and checked with the opposing party.

Policy During Rollover Time Period

1.         For purposes of the policy, rollover time periods are defined as the last ten business days of the month preceding a quarterly contract month’s expiration and the first ten business days of the expiring quarterly contract month.  For example, the rollover period for the September 2010 contract is the last ten business days of August 2010 and the first ten business days of September 2010.

2.         Members located outside of the designated section for trading a specific product may trade against bids and offers initiated from within the appropriate section of the pit. 

Members located outside of the designated section for trading a specific product may bid or offer in response to a request for quote that originates from within the appropriate section of the pit and may subsequently consummate a trade. 

For example, a bid/offer or a request for quote in the Ten-Year Note contract must originate in the Ten-Year Note section of the pit (except as provided for in Section 2 below); however, individuals located in any section of the pit may hit a bid, lift an offer or respond to a request for quote that originated in the Ten-Year Note section of the pit.   

3.         Members located outside of the designated section for trading a specific product may request a market in products trading outside of their section.  However, in order to trade opposite bids or offers received in response to the request, the member requesting the bid or offer must move to the designated section of the pit in order to execute a trade. 

For example, an individual in the Ten-Year section of the pit may request a market in the Five-Year contract.  In order to trade opposite any bids or offers received in response to the request for a market, the individual in the Ten-Year section of the pit must subsequently move to the Five-Year section of the pit in order to execute a trade. 

Please be advised that during rollover time periods, a broker who asks another individual to request a market in a product outside of their designated section and then executes brokerage opposite bids and offers made in response to that request for a market without moving to the designated section will be charged with a violation of Rule 514.  Further, any other similar attempts to circumvent this policy during rollover time periods will result in charges being issued pursuant to Rule 514.

This policy applies to outright orders, calendar spreads and intermarket spreads.  The intermarket spread locations are as follows:

            SPREAD                                                         ORIGINATING LOCATION

2-Year Notes/Ultra T-Bond                             2-Year Note section

2-Year Note/T-Bond                                       2-Year Note section

2-Year Note/10-Year Note                              2-Year Note section

2-Year Note/5-Year Note                                2-Year Note section

5-Year Note/Ultra T-Bond                               5-Year Note section

5-Year Note/T-Bond                                       5-Year Note section

5-Year Note/10-Year Note                              5-Year Note section

10-Year Note/Ultra T-Bond                             10-Year Note section

10-Year Note/T-Bond                                     10-Year Note section

10-Year Note/T-Bond Tandem                       10-Year Note section

30 –Year T-Bond/Ultra T-Bond                       30 –Year T-Bond section

SPREAD                                                         ORIGINATING LOCATION

30- Year Swaps/Ultra T-Bonds                       Swaps section

5/10/30-Year Swaps/T-Bonds                        Swaps section

5/10/30-Year Swaps/10-Year Notes               Swaps section

5/10/30-Year Swaps/5-Year Notes                 Swaps section

5/10/30-Year Swaps/2-Year Notes                 Swaps section

Any multi-legged spreads involving the yield curve that are not specified above must originate from the section of the pit in which the product at the shortest end of the yield curve involved in the spread is traded. 

Policy Outside Rollover Time Period

Outside of the rollover time period, members may bid, offer and trade any Treasury or Swap futures contract from any area of the Treasury futures pit, provided that bids and offers originating outside of a particular contract’s trading area are vocally and openly represented in a manner that is clearly transparent to the area of the pit where the product trades.  Notwithstanding the above, any such bids and offers may be accepted by any market participant in any area of the pit.  Members are cautioned that a failure to ensure that such bids and offers are vocally and clearly directed to the specific area of the pit where the product trades will be subject to the issuance of charges for violation of Rule 514.  Further, the Market Regulation Department may refer particularly egregious matters to the Probable Cause Committee.

Questions regarding this notice may be directed to:

Barry Schauer, Lead Trading Floor Investigator, Market Regulation, 312.341.7640

Renea Burton, Associate Director, Trading Floor Operations, 312.341.3143

Market Regulation Hotline, 312.930.3333

For media inquiries concerning this Advisory Notice, please contact CME Group Corporate Communications at 312.930.3434 or news@cmegroup.com.