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      • Members, Member Firms and Market Users
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      • Market Regulation Department
      • #
      • SER-4973
      • Notice Date
      • 28 August 2009
      • Effective Date
      • 14 September 2009
    • Please be advised that the new effective date for the adoption of the harmonized NYMEX and COMEX trade practice rules will be Monday, September 14, 2009.  In connection with the new effective date, several recently issued Market Regulation Advisory Notices will be re-issued today and over the next several days to correctly reference the new effective date.

      The significant changes to the NYMEX and COMEX rules are described below.  Please note that based on concerns raised regarding new Rule 501 (“Employees of Members”) as it applies to existing nonmember Associated Persons (“APs”) operating on the NYMEX trading floor, the requirement that such individuals become registered floor brokers and obtain a membership in order to continue to operate in that capacity has been modified.  Additional information on the modification appears on page 2 of this document.

      The trade practice rules will be relocated to new NYMEX Chapter 5 (“Trading Qualifications and Practices”), harmonized to the extent possible with the rules in CME and CBOT Chapter 5.  The adoption of several new rules into existing Chapter 4 (“Enforcement of Rules”) and new Chapter 5 will replace existing Chapters 6 (“Floor Rules”), 9a (“Position Rules”), 11G (“Electronic Trading Rules for the Globex System”), 101 (“COMEX Division – Definitions”) and 104 (“COMEX Division – Trading Rules”), all of which will be eliminated. 

      The electronic version of this Special Executive Report posted on the CME Group website contains the text of changes to existing rules in addition to the text of new rules being adopted by NYMEX and COMEX.  The electronic version may be accessed at www.cmegroup.com/rulebook/rulechanges.

      Trading Floor Infractions and Decorum Violations

      Rules 404 (“Pit Committees”), 405 (“Floor Conduct Committee”), 409 (“Summary Proceedings before the Floor Conduct Committee”), 513 (“Conduct, Apparel and Badges”), 514 (“Trading Infractions”) and an Access, Conduct and Appearance Code (“Code”) will be adopted in order to harmonize requirements concerning the handling of minor trading infraction and decorum-related violations with the rules in place at CME and CBOT.  These new rules and the Code, in addition to new Rule 501 (“Employees of Members”), will replace existing Rules 405 (“Floor Committee”) and 446 (“Clerk Registration, Trading Badges, Access to the Trading Floor and Disciplinary Jurisdiction”).  The existing Floor Committee which will be reconstituted as the Floor Conduct Committee.  The new Floor Conduct Committee’s enforcement and sanctioning authority will be different than the current sanctioning authority of the Floor Committee, and will be based on the equivalent sanctioning authority of the CME and CBOT Floor Conduct Committee.  The Floor Conduct Committee will be authorized to issue sanctions up to $20,000 for certain violations of Rule 514.

      NYMEX and COMEX will begin to require male members and male employees of members and member firms to wear a trading jacket while on the trading floor unless such individuals wear a button-front shirt.  Additionally, NYMEX and COMEX will begin to allow golf-type shirts to be worn throughout the year, not just during the summer.

      Nonmember Employees of Members and Member Firms

      Rule 501 (“Employees of Members”) will be harmonized with the corresponding CME and CBOT rule.  Rule 501 requires the registration of nonmember employees of members and member firms who have floor access privileges.  Such nonmember employees may not 1) trade or have any interest in an account trading in NYMEX or COMEX products, 2) solicit business or provide advice concerning exchange products, 3) financially benefit from the production of orders or 4) exercise discretion with respect to the entry of any orders.  Payment of nonmember employees is limited to a salary and normal bonus. 

      In connection with NYMEX and COMEX adopting Rule 501 on September 14, NYMEX and COMEX will eliminate the existing programs allowing for the registration of broker assistants and NYMEX will eliminate the existing program allowing for the registration of trader assistants.  As a result, nonmember employees currently registered as broker assistants will be expressly prohibited from exercising discretion with respect to the entry of customer orders into CME Globex and nonmember employees currently registered as trader assistants will be expressly prohibited from exercising discretion with respect to the entry of orders on behalf of their member-employers.  Nonmember employees will retain the ability to enter nondiscretionary orders into CME Globex at the direction of their employers. 

      The new rule prohibits nonmember employees with floor access privileges who also hold industry registration as an Associated Person (“AP”) from acting in that capacity at any time, regardless of whether the activity takes place on or off the trading floor.  However, in order to minimize disruptions to existing business activities, nonmember employees who are currently registered as floor employees and are operating as APs will be allowed to continue to operate in the capacity of an AP without the need to become registered as a floor broker and obtain a membership.  This limited exception is available ONLY to existing individuals acting in this capacity as of the date of this notice.


      Floor brokers or firms that employ existing nonmember APs with trading floor access must identify such employees to the Market Regulation Department as soon as possible, but no later than September 14, 2009.  Affected firms or individuals should contact Alben Weinstein at 212.299.2910 or Peter Leider at 212.299.2868 to provide this information.  Failure to do so will result in a revocation of their employees’ ability to act as an AP in a nonmember capacity from the trading floor.



      Any further consideration with regard to alternative means of satisfying the required membership status in connection with solicitation of orders or ownership interest in a broker association will be corresponded via separate notice.

      Guests on the Trading Floor

      NYMEX will adopt harmonized Rule 502 (“Admission to Floor”).  The new rule eliminates the former prohibition of a guest remaining on the trading floor for more than two hours and increases to three days (from two days) the number of times a guest may be brought onto the trading floor as a guest of a member per calendar month.

      Broker Association Registration and Elimination of Registration of Billing Entities

      New Rule 515 (“Registration and Identification of Broker Associations”) has been rewritten and harmonized across CME, NYMEX and COMEX.  In connection with its adoption, NYMEX and COMEX will eliminate existing NYMEX rules concerning the registration and identification of billing entities.  Billing entity registration will be replaced by broker association registration except in limited circumstances where a billing entity is owned by a single individual (and as a result, does not meet the definition of a broker association).

      As a result of the adoption of new Rules 501 and 515, nonmembers on the trading floor will not be allowed to have an ownership interest in broker associations.  Those nonmember employees who currently have an ownership or other financial interest in a billing entity or broker association will not be allowed to maintain such interest and floor access privileges after December 14, 2009. 

      In order to maintain floor access, such nonmembers must, by December 14, 2009, either obtain a membership or divest themselves of the ownership or financial interest.  A nonmember who relinquishes trading floor access privileges may maintain their ownership interest provided that 1) they are appropriately registered as an investor in the broker association and 2) their ownership interest is not 10% or greater.  Rule 515 requires individuals who have an ownership of 10% or greater to be registered as a principal of the association and principals must be members.

      While the new rule provides for the imposition of trading restrictions on the members of the association, NYMEX and COMEX will not initially impose restrictions in any products.  While members of broker associations may execute trades opposite one another, they are reminded that such trades must be executed openly and competitively in accordance with exchange rules.

      Based on the new rule, all existing broker associations and billing entities will need to register the broker association on new forms no later than September 28, 2009, identifying the type of the association and the individual registrants. 

      Outtrades and Errors

      NYMEX will adopt a version of Rule 527 (“Outtrades, Errors and Mishandling of Orders”) closely aligned with the corresponding CME and CBOT Rule, with certain modifications necessary based on the trade entry protocols in place in New York.  The new rule has streamlined documentation requirements concerning a member taking the opposite of his customer order in certain allowable circumstances and more specific requirements with respect to establishing losses.  Additional information on these changes will be communicated in an upcoming Market Regulation Advisory Notice.

      Customer Orders

      NYMEX will adopt a harmonized Rule 530 (“Priority of Customers’ Orders”) which will permit a member to trade for his own account in the same or related market while holding a DRT order provided that the customer has previously consented in writing and evidence of the consent is denoted on the order by including the with permission designation (“WP”).  This was formerly not permitted.

      NYMEX will also adopt a harmonized Rule 531 (“Trading Against Customers’ Orders Prohibited”) which will permit a customer to waive the prohibition on a member trading against his customers’ orders in certain circumstances.  This waiver is not currently permitted under NYMEX rules and is applicable at COMEX only in back month Copper.

      Additional information on these changes will be communicated in an upcoming Market Regulation Advisory Notice.

      Recordkeeping Requirements

      New Rule 536 (“Recordkeeping Requirements for Pit, Globex and Negotiated Trades”) sets forth the requirements concerning recordkeeping with respect to pit, CME Globex and negotiated trades.  The rule is drafted in accordance with changes that will take place as a result of the transition of COMEX and NYMEX products to Front End Clearing on September 14 and October 5, respectively.  Given that the new trade entry protocols associated with FEC will not take place for NYMEX products until October 5, Exchange employees will continue to enter NYMEX trades into TMS and NYMEX members will be required to continue reporting execution of transactions to Exchange employees within 1 minute of completion.  Members and their employees must ensure that they have registered and attended an FEC/Floor View application training session.  For further information regarding access to the internet and the FEC/Floor View application, please contact Rob Stasi at 212.299.2067, Joe Vanderberg at 212.299.2058 or Marcia Beckford at 212.299.2072.

      Rules 448 (“Audit Trail Violations”) and 449 (“Floor Order Ticket Reviews – Summary Violations”) will be relocated to Rule 536.F.

      Additional information on these changes will be communicated in an upcoming Market Regulation Advisory Notice.

      Pre-Execution Communications Concerning Globex Trades

      Beginning September 14, 2009, NYMEX and COMEX will adopt revisions to the requirements concerning trade entry requirements with respect to Globex options trades which result from pre-execution communications pursuant to Rule 539 (“Prearranged, Pre-Negotiated and Noncompetitive Trades Prohibited”).  Pre-execution communications concerning Globex options trades will need to be preceded by a Request for Quote (“RFQ”) before a person may contact potential counterparties to the trade.  After reaching an agreement to trade, a second RFQ must be submitted, followed by the entry of a Request for Cross (“RFC”) which contains both the buy and sell orders.  The RFC must be entered no sooner than 15 seconds but no more than 30 seconds after the entry of the second RFQ. 

      Additional information on the requirements for engaging in pre-execution communications concerning Globex trades is set forth in today’s release of revised CME Group Market Regulation Advisory Notice RA0903-5. 

      Position Limit Rules

      Rules 443 (“Position Limit Violations”), 559 (“Position Limits and Exemptions”), 560 (“Position Accountability”) and 561 (“Reports of Large Positions”) will be revised and harmonized based on a review of existing CME, CBOT, NYMEX & COMEX position-related rules.  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.  The Position Limit, Position Accountability and Reportable Level Table currently known as Appendix A will be relocated to the Interpretations & Special Notices Section of Chapter 5.  It will no longer be identified as Appendix A.

      Additional information on these changes will be communicated in an upcoming Market Regulation Advisory Notice.



      Chapter 7 (“Delivery Facilities and Delivery Procedures”)

      NYMEX and COMEX will adopt new Rules 716 (“Duties of Clearing Members”) and 770 (“Alternative Delivery Procedures”).  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 applies to 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.

      Trading in Excess of Limits and Reckless Trading



      New NYMEX Rule 904 (“Funds in Trading Accounts Carried by Clearing Members”) allows a qualifying or guaranteeing clearing member to retain trading profits in a Member’s account in the event the Member trades in excess of written limits prescribed by the firm or where the Member is alleged to have engaged in reckless and unbusinesslike dealing inconsistent with just and equitable principles of trade.

      Cabinet Trades

      NYMEX and COMEX will eliminate the current prohibition of establishing an options position at cabinet.  CME and CBOT permit options positions priced at cabinet to either liquidate or establish a position.  Based on the change, the options product chapters will be revised to eliminate the requirement that such trades be for liquidation purposes only.


      Based on the relocation of NYMEX trade practice rules to new Chapter 5, the rules in existing Chapter 6a (“Arbitration”) will be relocated to Chapter 6 (“Arbitration”).


      Questions concerning these changes may be directed to Nancy Minett, Director, Market Regulation, at 212.299.2940 or Russell Cloughen, Associate Director, Market Regulation, at 212.299.2880.  Specific questions concerning the changes to the Position Rules may be directed to Anthony Densieski, Director, Market Surveillance, at 212.299.2881.