MARKET REGULATION ADVISORY NOTICE______________________________________________________________________
Exchange

CME

Subject

Outtrades

Rule References

Rule 527

Advisory Date

August 30, 2021

Advisory Number

CME RA2105-2

Effective Date

October 1, 2021

Effective on trade date Friday, October 1, and pending all relevant CFTC regulatory review periods, thisMarket Regulation Advisory Notice will supersede CME & CBOT Market Regulation Advisory NoticeRA0804-3 from March 11, 2008. It is being issued as a CME-only Advisory Notice in connection with
amendments to CBOT Rule 527 that become effective on October 1, 2021. 1
The rules and procedures for the proper resolution of outtrades in no way limit a member’s right to submit
a claim related to the resolution of an outtrade to arbitration in accordance with the provisions of Chapter
6 (“Arbitration”).
Members who discover an outtrade during Regular Trading Hours (“RTH”) must immediately
1) notify the opposite trader, 2) determine who will cover the outtrade, and 3) cover the outtrade.
Outtrades discovered after an RTH session has ended must be resolved no later than the opening of thenext RTH session.
It is imperative that members resolve outtrades in a timely fashion. Financial liability resulting from theresolution of an outtrade is limited to the opening price(s) of the next RTH session. However, a party who
unreasonably fails to cover an outtrade during the intervening period may be liable for the difference
between the opening price(s) of the next RTH session and the price at which the outtrade could havebeen covered during the intervening period, including during electronic trading hours or in an appropriate
alternative market.
The text of Rule 527 begins on page 4 of this Advisory Notice.
Straight Out Outtrades Involving Orders
A floor broker who discovers that he has a straight out outtrade in connection with a trade that was
executed in the market for an order has two options for resolving the outtrade.
1. Re-execution - The broker may re-execute the order. If the re-execution price is worse than theoriginal execution price, then the broker must adjust the customer by check to the original
execution price. If the re-execution price is better than the original execution price, the customer
is entitled to the better price.
2. Assignment - The broker may assign the opposite side of the trade that cannot be cleared to his
error account, thereby filling the order at the original execution price. The broker may not
liquidate the position assigned to his error account until at least ten minutes have passed from thetime of the original execution of the order and the bracket period in which the outtrade occurred
has ended (unless the liquidation takes place during the post close session where such time
restrictions do not apply). Any profits or losses resulting from the liquidation of the position in thebroker’s error account belong to the broker and he may retain or disburse any profits at his
discretion.

1

Please see Special Executive Report S-8833 from August 27, 2021, for additional information on the rule amendments.

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August 30, 2021
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Price Outtrades
Provided that the members involved in the outtrade agree that the trade was executed at one of the two
prices in question, the outtrade must be resolved by clearing the trade at the execution price.
If the outtrade involves a price discrepancy between a local and a broker and the parties cannot agree on
the price of execution, the price recorded by the broker shall be used to clear the trade. If the outtrade is
between two locals or two brokers and the parties cannot agree on the price of execution, the buyer’s
price shall be used to clear the trade.
In the case of a price outtrade between two brokers in which the members cannot agree on the execution
price and the buyer’s price is therefore used to clear the trade, the broker representing the sell order may
resolve the outtrade in any of the following ways:
1. Clear the sales for the order at the buyer’s price. If the price is worse than the originallyconfirmed price, the broker must adjust the customer by check to the confirmed execution price.
2. Clear the sales at the buyer’s price in his error account and re-execute the order. If the reexecution price is worse than the original execution price, then the broker must adjust thecustomer by check to the original execution price.
3. Clear the sales at the buyer’s price in his error account and assign a fill at the original execution
price to the sell order opposite his error account pursuant to the assignment trade procedures.
Quantity Outtrades
Provided that the members involved in the outtrade agree that the trade was executed for one of the twoquantities in question, the outtrade must be resolved by clearing the trade at the executed quantity.
If the outtrade is between two locals and the parties cannot agree on the quantity that was executed, thehigher quantity shall be used to clear the trade.
A broker may assign the opposite side of the uncleared portion of a quantity outtrade that he believes hehas executed to his error account and assign a fill to the order at the execution price pursuant to theassignment trade procedures.
Bona Fide Contract Month, Strike, Put vs. Call and Side of Market (Buy vs. Buy or Sell vs. Sell)
Outtrades
A broker who believes that he has executed an order in accordance with its instructions and is involved inan outtrade due to a contract month, strike price, side of market or put/call discrepancy may resolve theouttrade in any of the following ways:
1. The trade may be busted. If the broker re-executes the order at a price less favorable than theprice to which the order was entitled, the customer must be adjusted by check. If the order is reexecuted at a more favorable price, the customer is entitled to the better price.
2. Either or both trades may be cleared in accordance with the members’ recorded data.
3. The broker may assign the opposite side of the order to his error account, thereby filling thecustomer at the execution price, and may also agree to clear the other party’s outtrade in his error
account.
4. If both members are representing customer orders, both brokers may assign the opposite side of
their respective orders to their error accounts pursuant to the assignment trade procedures.

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August 30, 2021
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Assignment Trade Requirements
Error Account Requirements
All assignment trades must be placed into the broker’s error account. Firms that utilize house brokers
and allocate the brokers’ errors to the firm’s error account must maintain sub-accounts held in the nameof each floor broker for this purpose.
Liquidation Requirements
If a broker assigns an outtrade to his error account, the position may not be liquidated until 1) at least 10
minutes have elapsed since the time of the original execution and 2) the bracket period has changed.
Therefore the broker must wait at least 10 minutes, and possibly as long as 15 minutes, after the original
execution before liquidating the assigned position. However, an assignment trade may be liquidated
during the post-close session regardless of when the outtrade occurred. Profits or losses resulting fromthe offset of such assignments belong to the floor broker and any profits may be retained or disbursed towhomever he chooses at his discretion.
In the case of an unfilled or underfilled order, the order must first be executed in the market and may
be assigned only if the quantity executed in the market is at a worse price than the price to which thecustomer was entitled. In this case, the trade executed in the market and the assignment trade will offset
each other at a loss in the broker’s error account.
Recordkeeping Requirements
Assignment trades must be clearly identified as a type “Z” trade on the trading documents used to record
the trades for the broker’s error account. Firms must keypunch the broker’s assignment trade allocated tothe broker’s error account as order type “Z”.
The circumstances surrounding the assignment trade must be documented in writing. Members may
record the circumstances on the trading document used to record the assignment trade. Membersrecording the circumstances on another document must retain the document and must provide thedocument to Market Regulation upon request.
In accordance with Rule 536, trades that are not recorded contemporaneously due to an error or an
outtrade must be recorded on the member’s next pre-printed, sequentially numbered trading card. If the
trade is not recorded in sequence (and the member uses trading cards to record his trades), the member
must cross out the pre-printed sequence number and write “9999” on the card. If a person other than themember records the trade, the person who records the trade must initial the card.
Under no circumstances shall it be permissible for a floor broker to guarantee, directly or
indirectly, the execution of an order, or any of its terms, except in the case of a bona fide error ormishandling.
No member firm may pressure a floor broker to improperly guarantee an execution or to resolve
an outtrade other than in accordance with Rule 527. Additionally, no member firm may refuse toaccept a bona fide fill from a floor broker which results from the floor broker’s resolution of an
outtrade in accordance with Rule 527.
Violations of Rule 527 may result in disciplinary action.

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Questions regarding this Advisory Notice may be directed to one of the following individuals in Market
Regulation:
Erin Middleton, Director, Rules & Regulatory Outreach, 312.341.3286
Paige Gawrys, Senior Specialist, Rules & Regulatory Outreach, 312.872.5078
Barry Schauer, Trading Floor Investigations Specialist, 312.341.7640
Tom Ozga, Trading Floor Investigations Specialist, 312.341.7638
For media inquiries concerning this Advisory Notice, please contact CME Group Corporate Communications at 312.930.3434 or
news@cmegroup.com.

527.

OUTTRADES, ERRORS AND MISHANDLING OF ORDERS
527.A.

Outtrades Discovered During a Regular Trading Hours Trading Session

It shall be the duty of a member discovering an outtrade during a Regular Trading Hours session to
immediately notify the opposite trader. Thereafter, if the matter cannot be resolved between the parties, theyshall immediately determine who will cover the trade and the trade shall immediately be covered.
527.B.

Outtrades Discovered After a Regular Trading Hours Trading Session

A clearing member that is unable with diligent effort to resolve an outtrade with another clearing member shallnotify the member who executed the trade. Such notice shall be given prior to the following day’s RegularTrading Hours session in sufficient time to allow the member to make provisions for the resolution of theouttrade.
Outtrades discovered after a Regular Trading Hours session shall be resolved between the parties to theouttrade as provided in this rule, no later than the opening of trading of the next Regular Trading Hours session.
527.C.

Outtrades Resolution

To resolve an outtrade, the parties shall attempt to agree upon: (1) the reconciliation of any discrepancy in theterms of the trade, (2) which party will cover the trade and the method for covering the trade, if applicable, and(3) the apportionment of the financial results of the outtrade. In the event the parties are unable to agree on
the apportionment of the financial results, the parties must nevertheless immediately reconcile the outtrade.
The price at the time of the open of the next Regular Trading Hours session shall fix the limit of liability as aresult of the outtrade. Regardless of the ultimate determination of financial responsibility for the outtrade, aparty who unreasonably refuses to cover the outtrade via an appropriate alternate market may be liable to theother party for the difference between the price at which the outtrade could have been covered in the alternate
market and the price at the time of the open of the next Regular Trading Hours session.
Outtrades shall be resolved in accordance with the procedures below:
1.

Straight Out Customer Outtrades
If a floor broker discovers that all or some portion of a customer order was executed but cannot be cleared,
the broker shall either 1) re-execute the order in the market and adjust the customer by check if the reexecution price is worse than the original execution price, or, if the re-execution price is better than theoriginal execution price, the customer is entitled to the better price or 2) assign the opposite side of the
portion that cannot be cleared to his error account and assign a fill to the customer at the execution price.
The floor broker shall not liquidate the assigned position until at least ten minutes have elapsed after the
execution of the order giving rise to the outtrade and the bracket period in which the outtrade occurred
has ended; however, these liquidation restrictions shall not apply to a liquidation during the post closesession. Any profits or losses resulting from the liquidation of the assigned position belong to the floor
broker and any such profits may be retained or disbursed at his discretion.
A floor broker who assigns the opposite side of an order pursuant to this rule shall: 1) clearly identify all
such transactions by appropriate designation; 2) submit such trade information to his qualifying clearing
member in sufficient time to enable the clearing member to submit the trade for the next intra-day
reconciliation; 3) document in writing the circumstances surrounding any such transaction and promptly
provide such documentation to the Market Regulation Department upon request; and 4) identify thesubsequent liquidation of the assigned trade on the floor broker’s trading card or other document.

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2.

Price Outtrades

When an outtrade exists due to a price discrepancy, members making the trade may choose to resolve
the discrepancy by electing either of the two prices in question, if they agree that the trade was executedat that price.
If an outtrade involves a price discrepancy between a local and a broker, and the members cannot agree
on the price of execution, the price recorded by the broker shall be used to clear the trade.
If an outtrade between locals or an outtrade between brokers involves a price discrepancy, and themembers cannot agree on the price of execution, the buyer’s price shall be used to clear the trade.
3.

Quantity Outtrades

When an outtrade exists due to a quantity discrepancy, members making the trade may choose to resolve
the discrepancy by electing either of the two quantities in question, if they agree that the trade was
executed for that quantity.
If an outtrade between locals involves a quantity discrepancy and the members cannot agree on thequantity that was executed, the higher quantity shall be used to clear the trade.
A broker may assign the opposite side of any quantity which he believes that he has executed, but whichcannot be cleared, to his error account, pursuant to Section 1 above.
4.

Bona Fide Contract Month, Strike, Put vs. Call and Side of Market (Buy vs. Buy or
Sell vs. Sell) Outtrades

When an outtrade exists due to a contract month, strike price, side of market, or put/call discrepancy, andany party who executed a customer order believes that the order was executed in accordance with its
instructions, the outtrade may be resolved in any one of the following ways:a.

The trade may be busted. If a broker re-executes his order, any losses incurred by the customer asa result of the delay in execution must be adjusted by check. If the order is executed at a morefavorable price, the customer is entitled to the better price.

b.

The members making the trade(s) may agree to clear either trade or both trades in accordance withthe members’ recorded trade data.

c.

A broker may assign the opposite side of his order to his error account, pursuant to Section 1. above,and he may agree to the clearing of the transaction according to the terms of the other member’srecorded trade data.

d.

If both members involved in the outtrade are brokers, they may each assign the opposite side of theirrespective orders to their error accounts pursuant to Section 1. above.

A customer shall not be entitled to any portion of any profits realized by a local who was on the opposite
side of an outtrade between the local and the customer’s broker, as a result of the local’s liquidation ofhis position. Such profits belong to the local, and may be retained or disbursed at his discretion. If thelocal chooses to disburse any portion of such profits to the broker, and the broker’s customer has received
a fill in accordance with the broker’s recorded trade data, the broker is not obligated to offer such profits
to his customer.
Nothing herein shall in any way limit a member's right to submit an outtrade to Exchange arbitration if theouttrade cannot be resolved by agreement.
527.D.

Errors and Mishandling of Orders

If a broker overbuys or oversells for an order, the customer is not entitled to any of the quantity executed inexcess of the order quantity. A position that has been established as a result of an erroneous execution or
mishandling of an order must be placed in the error account of the broker or firm responsible for the error ororder mishandling. Any profits resulting from the liquidation of trades placed in a broker’s or firm’s error
account belong to the relevant broker or firm, and any such profits may be retained or disbursed at the broker’s
or firm’s discretion.
1.

Unfilled or Underfilled Orders
If a broker fails to execute an order or underbuys or undersells for an order, the broker shall do one of thefollowing:CME RA2105-2
August 30, 2021
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2.

a.

Execute the order or the remainder of the order in the market and adjust the customer by check if
the customer is filled at a price less favorable than that to which he was entitled due to the broker’s
error or mishandling of the order. If the order is filled at a more favorable price, the customer isentitled to the better price.

b.

Execute the order or the remainder of the order in the market. If the order, or the remainder of theorder, is filled at a worse price than that to which the customer was entitled but for the error ormishandling, the broker may allocate the fill to his error account, pursuant to Section C.1. above,
provide the customer a fill at the price to which the customer was entitled, and place the opposite
side of the customer fill into his error account. If the order is filled at a more favorable price, thecustomer is entitled to the better price.

Wrong Contract Month, Wrong Strike, or Wrong Commodity Executions
When an order has been executed in the wrong contract month, wrong strike price, or wrong commodity,
and the erroneous transaction has been placed in the relevant broker’s or firm’s error account, the error
may be corrected by one of the following:

3.

a.

Execution of the order in accordance with its terms, with an adjustment to the customer by check if
the order is executed at a worse price as a result of the error or mishandling of the order.

b.

Execution of a spread or combination transaction to execute the order and liquidate the position
arising from the initial erroneous execution of the order, whereby one leg of the spread or combinationtransaction represents the correct execution of the order and the other leg offsets the erroneous
position in the broker’s or firm’s error account. The broker or firm must clearly identify suchtransactions by appropriate designation, clearly document in writing the circumstances surrounding
the nature of the error and promptly provide such documentation to the Market Regulation
Department upon request.

Wrong Side of Market Executions
When an order has been executed on the wrong side of the market and the erroneous execution has
been placed in the relevant broker’s or firm’s error account, the order shall be executed in accordancewith its terms, with an adjustment to the customer by check if the order is executed at a worse price as aresult of the error or mishandling of the order.