Memorandum______________________________________________________________________
FEE POLICY BULLETIN
TO:

Chief Financial Officers
Chief Compliance Officers
Corporate Members
New Firm Approval Contacts
Firm EFS Contacts

FROM:

Audit Department, Clearing House Division

DATE:

June 16, 2009

SUBJECT:

Clearing and Globex® Fees for Member Firm Accounts#09-01

CME Group Inc. (“CME Group”) sets the fee policies for its four subsidiary exchanges - Chicago
Mercantile Exchange Inc. (“CME”), Chicago Board of Trade, Inc. (“CBOT”), New York
Mercantile Exchange, Inc. (“NYMEX”) and Commodity Exchange, Inc. (“COMEX”).
In December 2008, CME Group issued Fee Policy Bulletin (”FPB”) #08-02 concerning Clearing
and Globex Fees. In response to market participant feedback and concerns, CME Group is
issuing this FPB to enunciate CME, CBOT, NYMEX and COMEX member fee eligibility policies
and to update and clarify them as needed. These policies, where different from those in effecttoday, are effective July 1, 2009. This FPB supersedes all previous bulletins discussing fee
policy issues for member firm accounts.
The trading activity of member firms must adhere to our policies in order to be granted member
fees – equity member or preferential fees as applicable. CME Group has established member
firm trading policies to ensure that the trading activity conducted for the member firm account isfor the sole benefit of the member firm itself and not the trading activity of individual
customers/traders conducted in the name of the firm; i.e. to prevent arcade type trading under
the guise of member firm trading and the “selling” of member firm rates. To that end, thefinancial benefit and risk of the trading activity must be solely of the member firm. Further themember firm may only profit/benefit from the member firm trading activity through theperformance of the trade and not from any other source such as a commission or charge fortrade execution.
The trading environment and the customer base has evolved and expanded over the years. We
have seen a tremendous growth in both clearing and corporate membership for trading groups.
These trading groups have their own unique capitalization, ownership structures, trader
compensation and trading styles.

Clearing and Globex® Fees for Member Firm Accounts
June 16, 2009
Page 2This FPB presents both Requirements (Absolutes) and Best Practices for defining whenmember firm trading activity will be granted member fees. In recognition of the varying trading
operations, Best Practices were established to allow member firms to utilize certain businesspractices (most not allowed in the past) which are generally prohibited. In order to do so, themember firm must clearly demonstrate to CME Group their application of these non-compliant
practices is not inconsistent with CME Group’s goal of providing member fees for trading activity
for the account and sole benefit of the member firm.

1.

REQUIREMENTS

1.1

Member Firm Trading AccountIn order to obtain member clearing fees, CME Group rules require that the member firm trading
account of CME, CBOT, NYMEX and COMEX clearing members1, CME and CBOT Rule 106.H.
trading members, CBOT Rule 106.J. equity members, NYMEX and COMEX Rule 106.J.
members2, CME and CBOT Rule 106.I. affiliated members, CME and CBOT Rule 106.R.
electronic corporate members and CME and CBOT Rule 106.S. family of funds members mustbe 100% owned by the firm.3•

For CME clearing members the CME trading activity conducted for the account of 100%
owned subsidiaries is entitled to equity member clearing fees.

•

For CBOT clearing members the CBOT trading activity of 100% owned subsidiaries is notentitled to member clearing fees unless the subsidiary itself qualifies as an Affiliate Member
Firm/Affiliate Umbrella Member Firm under CBOT Rule 106.I. That is, CBOT clearing
membership fee benefits do not flow down to 100% owned subsidiaries.

•

For NYMEX and COMEX clearing members the NYMEX and COMEX trading activity of
100% owned subsidiaries is not entitled to member clearing fees. That is, NYMEX andCOMEX clearing membership fee benefits do not flow down to 100% owned subsidiaries.
Furthermore, affiliates and subsidiaries of NYMEX and COMEX clearing members must
become member firms themselves in order to receive membership benefits.

•

For CME and CBOT Rule 106.H./I./S. and CBOT Rule 106.J./R. corporate members toreceive member fees, all member firm trading must be conducted within the division ofmembership held. Member firm trading activity of such corporate members outside thedivision of membership held will receive non-member customer fees.

1

For clarity, clearing member includes CME corporate equity member (formerly known as inactive
clearing member).
2

For clarity, NYMEX and COMEX Rule 106.J. members were previously known as NYMEX and COMEX
non-clearing members.
3

For purposes of this FPB, clearing members referenced without a preceding CME, CBOT, NYMEX or
COMEX designation, include CME, CBOT, NYMEX and COMEX clearing members.

Clearing and Globex® Fees for Member Firm Accounts
June 16, 2009
Page 3•

For CME Rule 106.R. corporate members to receive member fees, all member firm trading
must be conducted in accordance with the Questions & Answers Guide for Electronic
Corporate Members under CME Rule 106.R. which may be found on CME’s Web site at
http://www.cmegroup.com/company/membership/files/ECMQA.pdf.

•

Affiliates and subsidiaries of CME and CBOT Rule 106.H./R. and CBOT Rule 106.J.
corporate members are not entitled to the membership benefits of the corporate member.

•

Affiliates and subsidiaries of NYMEX and COMEX Rule 106.J. members are not entitled tothe membership benefits of the member. Note: A COMEX Option Only Rule 106.J. member
is only entitled to member clearing fees on COMEX option contracts.

A member firm trading account is evidenced through:•The financial benefit and risk shall be solely of the member firm – only firm capital is at riskof loss.

•

No non-owner traders may make any contributions, loans (including subordinated loans) or
payments to the member firm or member firm trading account nor have any capital at risk
except for holdbacks as permitted in connection with their trading of the member firm
account.

•

All contributions by owners of the member firm are subject to risk of loss from any and all
trading and business activities of the firm.

•

All profits and losses of the member firm account are written off to the income of themember firm and are taxed to the member firm in accordance with IRS regulations.

These accounts must be registered in CME’s Exchange Fee System (“EFS”) and CBOT’s and
NYMEX’s Combined Fee System (“CFS”)4 as member firm accounts of the clearing, CME and
CBOT Rule 106.H./I./R./S. or CBOT, NYMEX and COMEX Rule 106.J. member as appropriate.

1.1.1

Joint Accounts with Individual Equity/Lessee5 Members

A clearing, CME and CBOT Rule 106.H./I./R./S. or CBOT, NYMEX and COMEX Rule 106.J.
member may have a joint account with an equity or lessee member and receive preferential
fees on contracts under the lowest division of membership held. These accounts must be
registered in the Fee System under the joint account owner with the lowest division ofmembership held. Further the account title field in the Fee System must identify all owners of
the joint account.

4

For purposes of this FPB, the term “Fee System” will include CME’s fee system referred to as EFS andthe combined fee system of CBOT and NYMEX referred to as CFS.

5

For clarity, lessee includes delegate; CBOT previously defined individuals leasing a membership(lessees) as delegates.

Clearing and Globex® Fees for Member Firm Accounts
June 16, 2009
Page 4

1.2

Member Firm Traders6 for Globex Activity

The member firm trading activity must be conducted byoperators/administrators of Automated Trading Systems (“ATS”) that are:traders

including•Bona-fide IRS Form W-2 (‘W-2”) employees (or equivalent W-2 of a foreign jurisdiction) of
the member firm; or•

Independent contractors and other self-employed individuals of the member firm whose totalcompensation (that is, all compensation) is reported on an IRS Form 1099-MISC (“1099MISC”) (or equivalent document of a foreign jurisdiction); or•

Independent contractors and other self-employed individuals of clearing, CME and CBOT
Rule 106.I. and CBOT, NYMEX and COMEX Rule 106.J. members who maintain at least$250,000 in holdbacks whose total compensation (that is, all compensation) is reported on a1099-MISC (or equivalent document of a foreign jurisdiction) and/or on a IRS Form 1099-B(“1099-B”); or•

Owners who maintain at least $250,000 in bona-fide capital and holdbacks for clearing,
CME and CBOT Rule 106.I. and CBOT, NYMEX and COMEX Rule 106.J. members7; or•Bona-fide owners of the firm for CME and CBOT Rule 106.H./R. members; or•Individual equity members8 of CME, CBOT, NYMEX and COMEX trading within theirrespective exchange and division of membership except for CME Rule 106.R. members.
Traders of CME Rule 106.R. members may not own, hold, or have owned or held amembership in any of CME’s divisions within the past two years; or•CME, CBOT, NYMEX and COMEX Rule 106.F. Clearing Member Transfer and CME and
CBOT Rule 106.I. Related Party Transfer members; or

6

For CBOT clearing members and CBOT Rule 106.I./J. members, the memberships status of theindividual entering the trade will impact the level of member fee charged. Please refer to the current
CBOT Clearing Fee Schedule at http://www.cmegroup.com/company/clearing-fees/index.html.
7

The acceptable bona-fide capital level for owners has been reduced from $500,000 to $250,000
effective July 1, 2009. In addition holdbacks will be considered along with any capital investment inmaintaining the $250,000 level. Prior to January 1, 2009, the acceptable bona-fide capital level forowners of CBOT clearing members and CBOT Rule 106.I./J. members was $200,000. All owners of such
CBOT member firms with a bona-fide interest of at least $200,000 as of December 31, 2008 were
grandfathered in at the $200,000 level. Note that the grandfathering is specific to the individual owners
and the particular CBOT member firm and cannot be transferred.
8

For clarity, individual members participating in the Clerk for Member Program may not utilize their clerks
to enter orders for member firm trading. That is, the Clerk for Member Program does not apply tomember firm trading; it is only applicable to the trading of individual members. Such clerks themselves
must be qualified traders for member firm trading.

Clearing and Globex® Fees for Member Firm Accounts
June 16, 2009
Page 5•

Registered Commodity Trading Advisors (“CTAs”), exempt CTAs under CFTC Regulations
4.14(a)(4), 4.14(a)(5), 4.14(a)(8)(i)(D) or 4.14(a)(10), and Investment Managers authorized
by the Financial Services Authority (“FSA”).

All member firm traders must be assigned unique trader IDs, those IDs and the associatedmember firm trader must be appropriately registered in the Fee System, and all Globex trades(orders) must be identified with the registered ID of the trader executing the trade.
•

Clearing, CME and CBOT Rule 106.I./S., CBOT Rule 106.H./J./R. and NYMEX and COMEX
Rule 106.J. member firm traders must be further defined as “W-2 Employee”, “Commodity
Trading Advisor”, “Independent Contractor 1099-MISC”, “Rule 106.F. Trader”, “Owner w/
Acceptable Interest”, or for clearing, CME and CBOT Rule 106.I. and CBOT, NYMEX andCOMEX Rule 106.J. members as “Trader w/ Acceptable Holdback”, or for CBOT clearing
and CBOT Rule 106.I./J. as “Member” as applicable.

•

Clearing, CME and CBOT Rule 106.I./S., CBOT Rule 106.H./J./R. and NYMEX and COMEX
Rule 106.J. member firm traders which are compensated through a W-2 or 1099-MISC for
their trading profitability must be registered in EFS as “W-2 Employee” or “Independent
Contractor 1099-MISC”, as appropriate, even if they are an owner of the firm with less thanan acceptable proprietary interest.

•

For operators/administrators of an ATS and for the ID under which an ATS submits orders,the “ATS” box on the Fee System registration screen must be checked.

1.2.1

Bona-fide Employees

Bona-fide employees of the member firm are evidenced through:•Issuance of an W-2, or foreign equivalent, for all compensation (i.e. salary and bonus) to thetrader by the member firm;•

Inclusion in the firm’s payroll tax records; and•The trader has no income until the firm pays the trader.

1.2.2

Independent Contractors

1099-MISC independent contractors/self-employed individuals of a member firm may receive
member fees when trading a member firm’s account.
Except as provided in the following paragraph, the member firm trading activity of independent
contractors and other self-employed individuals whose compensation is reported on an IRS
Form 1099 which is not a 1099-MISC (e.g. 1099-B) or equivalent document of a foreign
jurisdiction will be assessed fees based on the lowest division of membership held by both thefirm and the independent contractor/self-employed individual.99Traders receiving compensation reported on a 1099-B are regarded as “holders” of the positions and,as such, the account would not qualify as a member firm account.

Clearing and Globex® Fees for Member Firm Accounts
June 16, 2009
Page 6For clearing, CME and CBOT Rule 106.I. and CBOT, NYMEX and COMEX Rule 106.J.
members, independent contractors and other self-employed individuals who maintain aholdback of at least $250,000 may receive their compensation in any manner including a 1099MISC, 1099-B, or K-1 (if they are an owner as well) for their (not of a team/division) trading
activity of the member firm account. Holdbacks are defined to be a trader’s share of profits
which have not been distributed to the trader and which are held back in an account of the firm.
Holdbacks are not a contribution to the firm in the form of a capital contribution, loan, security
deposit or other payment. Holdbacks may not exceed the trader’s share of net profit/loss in theprevious 24 month period. In addition, holdbacks may not be held by the firm for greater than 2
years without being converted to equity capital; that is the trader would need to become an
equity owner of the firm for their interest held back greater than 2 years.
If the 1099-B independent contractor/self-employed individual is not an equity, lessee or Rule106.F. member or does not maintain a holdback of at least $250,000 as permitted with themember firm and is trading a member firm account, non-member customer fees will apply on
trades executed by the individual. These accounts should not be registered in the Fee System
as member firm accounts and are not eligible for firm-based incentives or discounts.

1.2.3

Bona-fide Owners

Individual owners are considered to have an acceptable proprietary interest in the member firm
as follows:••

Clearing, CME and CBOT Rule 106.I. and CBOT, NYMEX and COMEX Rule 106.J.
members - $250,000 in bona-fide capital.
CME and CBOT Rule 106.H./R. members – no specific dollar level; only bona-fide capitalinterest.

For individual owners, the bona-fide capital interest must be in the form of an equity investment;
it cannot take the form of a loan including a subordinated loan. In addition, for clearing, CME
and CBOT Rule 106.I. and CBOT, NYMEX and COMEX Rule 106.J. members an individualowner’s capital interest as well as any holdbacks may be added together for purposes ofmeeting the $250,000 proprietary interest.
Individual owners of member firms who maintain an acceptable proprietary interest in the firm
may receive member fees on their trading activity of the member firm’s account. Further,individual owners with acceptable proprietary interests who share in the profit split of a team of
traders must share in the profits/losses of the overall firm (e.g. customer business and otherproprietary trading activities) in order to be considered a bona-fide owner. If such individualowners do not share in the overall firm profits/losses, their share of the profit split from the teamof traders must be reported on a W-2 or 1099 MISC in order to receive member fees on the
trading activity of the trader team.
Individual owners of member firms who do not maintain an acceptable proprietary interest in thefirm are not entitled to receive member fees on their trading activity of the member firm’s
account unless their trading profitability is reported to them on a W-2 or 1099-MISC or they areon one of the clearing member firm’s Rule 106.F. memberships.
Individual owners of member firms with less than an acceptable proprietary interest who trade
the member firm account and whose trading profitability is reported on a form other than a W-2

Clearing and Globex® Fees for Member Firm Accounts
June 16, 2009
Page 7or 1099 MISC (e.g. an IRS Form K-1) are assessed fees based on the lowest division ofmembership held by the owner and the firm. If such owners are not equity, lessee or Rule106.F members themselves, non-member customer fees will apply and these accounts should
not be registered in the Fee System and are not eligible for firm-based incentives or discounts.
An investing LLC is prohibited from trading and/or having a specific interest in a member firm
account eligible for equity member rates unless (1) the investing LLC maintains an investmentof an acceptable proprietary interest of bona-fide capital in the member firm for each owner (thatis owner, member and/or equity participation member) of the investing LLC and (2) the trading is
conducted by and only by individual owners of the investing LLC.10

1.2.4

Individual Equity/Lessee Members

A member firm account traded by an equity/lessee member who is not a W-2 employee, 1099MISC independent contractor/self-employed individual, 1099-B independent contractor/selfemployed individual of a clearing, CME and CBOT Rule 106.I. or CBOT, NYMEX and COMEX
Rule 106.J. member who maintains at least $250,000 in holdbacks, or Rule 106.F. member isassessed fees based on the lowest membership status of the firm and the equity/lessee
member. These accounts must be registered in the Fee System under the party with the lowest
division of membership held. Further the account title field in the Fee System must identify themember firm as the account owner.

1.2.5

Rule 106.F. Clearing Member Transfers

Traders on a clearing member’s Rule 106.F. membership may receive their compensation inany manner including a W-2, 1099-MISC, 1099-B, or K-1 for their (not of a team/division) trading
activity of the clearing member firm account. All other requirements for member firm trading
must be met.

1.3

Member Firm Traders for Open Outcry Activity

1.3.1. CME Open Outcry
The member firm trading of a CME clearing member or CME Rule 106.H./I./S. member isentitled to member clearing fees when an individual owning and holding a membership or thefirm’s CME Rule 106.F. or CME Rule 106.H./I./S. member executes it on the floor of theexchange in open outcry.
The member firm trading of a CME clearing member or CME Rule 106.H./I./S. member
conducted with discretion by a CME Rule 106.D. lessee member on the floor of the Exchange inopen outcry will be charged fees based on the lowest membership status of the firm and theCME Rule 106.D. lessee member regardless if the lessee member is a firm W-2 employee or1099-MISC independent contractor/self-employed individual. The CME Rule 106.D. lessee
10

There are no restrictions on passive investing LLCs of members firms. Passive investing LLCs do nottrade or have a specific interest in a trading account(s) and their return is based on the overall firm’s
profitability.

Clearing and Globex® Fees for Member Firm Accounts
June 16, 2009
Page 8member must be registered as an account controller for the clearing or CME Rule 106.H./I./S.
member firm account in the Fee System.

1.3.2. CBOT Open Outcry
The member firm trading of a CBOT clearing member or CBOT Rule 106.H./I./J./S. member isentitled to member clearing fees when an equity member or lessee or the firm’s CBOT Rule106.F. or CBOT Rule 106.H./I./J./S. member executes it on the floor of the exchange in open
outcry.

1.3.3. NYMEX and COMEX Open Outcry
The member firm trading of a NYMEX and COMEX clearing member or Rule 106.J. member isentitled to member clearing fees when an equity member or lessee executes it on the floor of
the exchange in open outcry.

1.4

Member Firm Trader Compensation and Profit Splits

Member firm trading and trader compensation must meet the following requirements:•

Traders cannot be responsible for losses beyond their share of profits earned andmaintained in the account which have not yet been distributed to the trader.

•

The firm must be allocated both a portion of the profits and losses of the member firm
account.

•

The profit split on agreements with any trader, including owners acting as traders, may notexceed 80/20 (i.e. 80% to the trader/20% to the firm).
•••

For member firm trading conducted by a team of traders, the profit split to the team in
total may not exceed 80/20 (i.e. 80% to the trader team/20% to the firm).
Further the 80% limit on profit splits to a trader or team of traders includes any individual
who has a specific interest in its profitability including those involved in the
supervision/training of the account(s) and/or trader(s).

Non-owner traders cannot leave their share of profits in the firm for greater than two years
without becoming an equity owner.
••

Non-owner trader’s share of capital in an account may not exceed the trader’s share of
net profit/loss in the previous 24 month period.
If a trader leaves their share of any profits in the account for greater than two years, theymust become an equity owner.

Clearing and Globex® Fees for Member Firm Accounts
June 16, 2009
Page 9•The firm is prohibited from:••••

Setting minimum account balances for its traders.
Charging margin on positions to traders.
Charging fees on draws taken by traders.
Requiring or accepting security deposits from its traders.

2.

BEST PRACTICES

2.1

Description of Best Practices

CME Group recognizes that certain business practices may be utilized when conducting
customer business as well as member firm trading activities. The Best Practices were
established to allow member firms to utilize certain business practices (most not allowed in thepast) which are generally prohibited. In order to do so, the member firm must clearly
demonstrate to CME Group their application of these non-compliant practices is not inconsistent
with CME Group’s goal of providing member fees only for member firm trading activity. Such
practices will be reviewed individually and in the aggregate in relation to the firm’s entire trading
activities and operation.
Review of such non-compliant practices will reflect the following key principles of CME Group’s
member firm trading policies. First and foremost, the trading activity eligible for member fees
must be conducted for the account and sole benefit of the member firm itself. The trading
activity of individual customers/traders conducted in the name of the firm is not eligible fordiscounted member firm fees in order to prevent arcade type trading under the guise of member
firm trading and to prevent the “selling” of member firm rates. Further, a member firm may only
profit/benefit from the member firm trading activity through the performance of the trade and notfrom any other source such as a commission or charge for trade execution.
Non-compliance with the Best Practices below is generally prohibited as it is indicative of arcade
type trading, the selling of rates, and/or profiting from sources other than the performance of themember firm trade. As such, while the Best Practices are not absolutes as theRequirements are, any non-compliance of the Best Practices will be carefully reviewed
with the burden of responsibility on the member firm to clearly support and demonstrate
to CME Group’s satisfaction that the trading is of the member firm itself. Under limited
circumstances in reviewing the totality of the member firm’s trading operations and theviolative practice(s), CME Group may deem the member firm’s trading activities inaccordance with our policies for member firm trading activity that is eligible for member
firm fees.

2.1.1

Interest

The firm may not charge interest on debit balances to traders nor may it pay interest on credit
balances to traders except where an options trading strategy is utilized in which interest on thepremium is a key component of the overall profitability of the strategy.

Clearing and Globex® Fees for Member Firm Accounts
June 16, 2009
Page 10

The firm may not pay interest on holdbacks where holdbacks are permitted.
The firm may not pay interest on capital contributions.

2.1.2

Allocated Expenses

A firm may not allocate expenses to trades or traders in excess of actual direct and indirect
expenses of the individual member firm trades or traders. Only actual expenses incurred may
be allocated – a mark up on expenses is not permitted. Further, opportunity costs may not beallocated.
Expense allocations may be made on a per trade/contract basis and/or monthly, quarterly,
yearly, or other time period basis.
Direct expenses may include items such as clearing and Globex fees, brokerage commissions(those charged by member firm’s clearing firm), software, connection/line charges, licensing
fees, and market subscriptions. Indirect expenses may include items such as rent, utilities,
membership/share costs, and firm costs for accounting, legal, back-office, compliance, strategy
development, programming, and human resource services.
For all expenses allocated the firm must maintain records of actual costs incurred. All rebatesof expenses incurred must also be reflected in the allocated costs. Further total costs incurred
may not be allocated only to traders but must be allocated to all areas of the member firm’s
operations which benefit; for example rent should be allocated across all areas of the firm
utilizing office space. If an expense is otherwise allocated directly to a trader (for example a line
charge) such expense may not be included in the allocated costs.
The total amount of expenses allocated must be reasonable to the actual costs incurred.
Allocated expenses must be reviewed, and if necessary adjusted, routinely to ensure they
continue to be reasonable in relation to actual expenses. Member firms must maintain andprovide adequate supporting calculations and documentation of such allocated expenses andtheir reasonableness.

2.1.3

Capital Usage Fee

A firm may not charge a fee for capital usage to individual traders of the member firm’s
accounts.

2.1.4

Cost of Capital Fee

A firm may not charge a fee for the cost of capitalizing the firm (and thus the member firm’s
trading accounts) to individual traders.

2.1.5

Owners Interest in Member Firm Accounts

Individual owners and investing LLCs (as permitted) of a member firm may not have a specificinterest in the profitability of a member firm account or group of accounts other than a member

Clearing and Globex® Fees for Member Firm Accounts
June 16, 2009
Page 11firm account that the individual owners or owners of the investing LLC trade or provide directsupervision/training to. Thus, an individual owner/investing LLC may not be entitled to a directpercentage of the profits of a member firm account traded by a specific “independent”
employee(s) or contractor(s) of the member firm.

2.2

Application of Best Practices

As previously stated non-compliance with the Best Practices is indicative of profiting fromsources other than the performance of the member firm trade and is generally indicative of acustomer relationship versus a member firm trader relationship. Non-compliance with the above
practices will be carefully reviewed with the burden of responsibility on the member firm toclearly support and demonstrate the trading as of the member firm itself. Upon review of thepractice, CME Group will in its sole judgment determine whether the member firm’s practices
are consistent with CME Group’s policies for member firm trading activity that is eligible formember firm fees.
If a member firm has any questions concerning the acceptability of its current or potential
business practices that may appear inconsistent with the Best Practices, please contact the
Audit Department at (312) 930-3230 for forwarding to the Fee Policy Team for discussion andreview.

3.

PENALTIESThe policies set forth herein will be strictly enforced by CME Group. A member, clearing
member, or corporate member found to have engaged in fraudulent or dishonest conduct
or to have acted in bad faith will be subject to a charge of a major rule violation. Major
rule violations are punishable by a fine up to $1,000,000 plus the monetary value of any
benefit received as a result of the violative activity.

If you have any questions, please call the Audit Department at (312) 930-3230.