On July 28, 2009, CME and CBOT self-certified rule changes in connection with the substantial harmonization of NYMEX and COMEX trade practice rules with CME and CBOT rules. The significant changes to the CME and CBOT rules are described below. Unless otherwise noted, the changes apply to the CME and CBOT version of the cited rule. The changes will become effective on Monday, August 17, 2009.
The electronic version of this Special Executive Report posted on the CME Group website contains the text of the rule changes, with additions underscored and deletions overstruck. The electronic version may be accessed at www.cmegroup.com/rulebook/rulechanges.
Rules 443 (“Position Limit Violations”), 559 (“Position Limits and Exemptions”), 560 (“Position Accountability”) and 561 (“Reports of Large Positions”) will be revised based on a review of existing CME, CBOT, NYMEX & COMEX position-related rules. The changes to Rule 560 will allow the Chief Regulatory Officer or his designee to order a position reduction in circumstances where a person holds or controls positions in excess of position accountability levels or in excess of position limits pursuant to an approved exemption if the Chief Regulatory Officer or his designee determines that such action is necessary to maintain an orderly market. Additionally, the Market Regulation Department will be able to order a reduction of positions in circumstances where a party owning or controlling positions in products subject to position limits or position accountability rules fails to provide information requested by the Market Regulation Department concerning the positions.
CME and CBOT will also adopt several existing NYMEX provisions for dealing with position limit violations, including the existing NYMEX automatic fining schedule for position limit violations after a party has received a letter or warning for an initial position limit violation. The fines will be $5,000 if an account is 25% or less over the applicable limit and $15,000 if the account is more than 25% over the limit.
Additional information on these changes will be communicated in an upcoming Market Regulation Advisory Notice.
Rule 507 – Electronic Devices
Rule 507 (“Electronic Devices”) will be revised to prohibit a member on the trading floor from placing an order for his account using a personal electronic device, including a cell phone. Members currently using personal devices to place orders for their accounts will need to obtain an exchange-issued telecommunication device or otherwise place such orders verbally or through order desks on the trading floor.
CME Rule 515 – Registration and Identification of Broker Associations (CME Only)
CME will adopt revisions to Rule 515 (“Registration and Identification of Broker Associations”) in order to harmonize broker association rules across CME, NYMEX and COMEX. The new rule will prohibit members of a broker association from sharing personal trading profits and losses with others, with the exception that broker association members will continue to be allowed to share the profits and losses associated with bona fide error trades and their liquidations. Additional details, including the requirement that all existing CME broker associations complete a mandatory re-registration no later than August 31, 2009, is set forth in CME Market Regulation Advisory Notice RA0902-2, which has also been released today. CBOT Rule 515 is not being modified at this time.
Rule 536.H. – Retention of Records
Section H. will be added to Rule 536 (“Recordkeeping Requirements for Pit, Globex and Negotiated Trades”), harmonized with existing language in NYMEX and COMEX rules. Rule 536.H. requires that members, member firms and employees of the foregoing retain complete records concerning their activity in commodity futures, options and cash transactions in accordance with CFTC Regulations. These records must be retained for a minimum of five years. The adoption of Section H. codifies the existing CFTC Regulations currently in place concerning retention of records.
Rule 538 – Exchange for Related Positions
Rule 538 (“Exchange for Related Positions”) will be modified to allow for the exchange of an exchange option position for a corresponding Over-the-Counter (“OTC”) option in the same or related commodity (“EOO”), a type of negotiated trade currently allowable at NYMEX. Additionally, CME and CBOT will adopt an existing NYMEX provision requiring that EFRP volume be included and uniquely identified in the daily Large Trader reporting to the Exchange for each customer maintaining a reportable position. Additional information on these changes will be communicated in an upcoming Market Regulation Advisory Notice.
Rule 550 – Post Close Session
Rule 550 (“Post Close Session”) will be modified to eliminate pricing restrictions during the post close session, except that the prices must be within the daily price limits for contracts with such limits. This change harmonizes to existing NYMEX and COMEX post close practices. Additional information on this change will be communicated in an upcoming Market Regulation Advisory Notice.
Chapter 7 (“Delivery Facilities and Delivery Procedures”)
CME will modify existing Rules 716 (“Duties of Clearing Members”) and 770 (“Alternative Delivery Procedures”) and the revised rules will be adopted by CBOT. Rule 716 requires clearing members to assess an account owner’s ability to make or take delivery prior to the last day of trading in physically delivered contracts. Absent satisfactory information, the firm is responsible for ensuring the orderly liquidation of such open positions.
Rule 770 will be applicable in any physically delivered contract and will allow for a member or clearing member to request a delivery offset through the Clearing House if a delivery obligation is the result of a bona fide error or outtrade discovered on or after the last day of trading. In these limited circumstances, the Clearing House will attempt to identify a party with an offsetting position willing to accommodate the liquidation of the position resulting from the error or outtrade. If a party is identified, the delivery obligations of both parties will be extinguished via the position offset. In a circumstance where the Clearing House is unable to identify a party with an offsetting position, delivery must take place pursuant to exchange rules. The rule provides the Clearing House an additional safeguard as a means of avoiding a delivery default.
Questions concerning these changes may be directed to Robert A. Sniegowski, Associate Director, Market Regulation, at 312.341.5991 or Greg Benbrook, Associate Director, Market Regulation, at 312.341.7619. Specific questions concerning the changes to the Position Rules may be directed to Jerry O’Connor, Associate Director, Market Surveillance, at 312.341.7048.