______________________________________________________________________

FEE POLICY BULLETIN
TO:

Individual Members
Chief Compliance Officers
New Firm Approval Contacts
Firm EFS Contacts

FROM:

Audit Department, Clearing House Division

DATE:

March 14, 2011

SUBJECT:

Individual Members Trading on Globex®

#11-01

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 response
to market participant feedback, CME Group is enhancing and clarifying documentation of, andwhere possible harmonizing, its individual member fee policies for CME, CBOT, NYMEX andCOMEX.
In August 2007, CME issued Fee Policy Bulletin (“FPB”) #07-03 regarding Individual Members
Trading on Globex. CME Group is issuing this FPB to enunciate CME, CBOT, NYMEX andCOMEX individual member fee eligibility policies and to update and clarify them as needed.
This FPB supersedes all previous bulletins discussing fee policy issues for individual members.
CME Group has membership categories for individuals (equity member and lessee) andcorporate entities (clearing member and member firm1) each with their own unique requirements
and benefits. CME Group spends considerable time with market participants to understand their
evolving trading operations to continually refine and clarify member fee policies to be consistent
with market trends. For instance, the challenges of electronic trading is creating a growing
desire by individual members to utilize employees, third parties and Automated Trading
Systems (“ATSs”) for execution of trades held in individual member accounts. These trends
require clarification of CME Group fee policies for individual members particularly with respect
to:
•
•

1

Account ownership; andTrade execution/order submission including those resulting from the collective activities of agroup/team of individuals and the utilization of ATSs.

For clarity, member firm includes all classifications of firm memberships at CME, CBOT, NYMEX andCOMEX including equity member, affiliate member, family of funds member, trading member andelectronic corporate member.

Individual Members Trading on Globex®
March 14, 2011
Page 2

CME Group distinguishes individual member trading from member firm and non-member trading
based upon the presumption that the individual member is:•••

Actively identifying potential trades and making trading decisions;Executing those trades himself or through another member in his personal account; andPersonally realizing his trading profits and losses.2,3

CME Group grants individual member fee privileges to electronic trades executed in this spirit.
This FPB presents several examples where ownership and trade execution are consistent withthis spirit and eligible for individual member fees.
Electronic trades executed inconsistently with this spirit are ineligible for individual member fees.
For instance, trades executed as a result of the collective activities of a group/team ofindividuals, either directly or through an ATS, are inconsistent with this spirit and are moreconsistent with trading by member firms, Commodity Trading Advisors (“CTAs”), or money
management groups.
Therefore, to treat corporate members and individual members equitably and consistently, CME
Group cannot automatically consider trades for an individual member account executed by agroup/team or an ATS as individual member trades for fee purposes. If, however, thegroup/team supported trading and/or use of an ATS is conducted in the spirit of individual
member trading, CME Group, in its sole discretion, will approve eligibility of these electronic
trades for reduced individual member fees.
This FPB clarifies and consolidates CME Group’s fee policies for applying reduced fees on
trades for individual member accounts except those related to permitted Power of Attorney(“POA”) traders of NYMEX and COMEX individual members.4 The individual member fee
policies detailed in this FPB are effective July 1, 2011 and will be examined as part of clearing
fee audits.

2

CME Group has also allowed other individual members of the respective exchange to have discretionover the trading of an individual member(s) account.
3

In limited circumstances, individual members of CBOT may have other non-member individuals trade
their account with discretion or perform order entry provided all other requirements of this FPB are met
including those limiting the (1) ownership, (2) funding and contributions, (3) participation in profits andlosses and (4) benefits in, share in any profitability or return earned based on the accounts performance
to individual members of CBOT. Moreover, non-member individuals trading the account of or providing
order entry for individual CBOT member(s) receiving compensation reported on an IRS Form 1099-B are
regarded as “holders” of the positions and, as such, the account would not qualify as an individual
member account.
4

As stated in the Second Amended and Restated Certificate of Incorporation of New York Mercantile
Exchange, Inc., individual members of NYMEX and COMEX may grant POA of electronic trading
discretion to no more than three non-member individuals if owning a membership or no more than one
non-member individual if leasing a membership. For complete policies and requirements regarding
permitted POAs for NYMEX and COMEX individual members, refer to FPB #11-02.

Individual Members Trading on Globex®
March 14, 2011
Page 3

1.

Individual Member

Any adult of good moral character, reputation and business integrity, with adequate financial
resources to assume the responsibilities and privileges of membership, is eligible for individual
membership of CME, CBOT, NYMEX and/or COMEX.
Individual members may either purchase a membership (equity member) or lease amembership (lessee member) in the division as applicable of CME, CBOT, NYMEX and/or
COMEX to receive equity member/lessee member fees in the applicable exchange anddivision.5,6
In general, a benefit of individual membership is the application of member fees, within theapplicable exchange and division held, to the trading:•••

Conducted for the member’s account and benefit,
Entered by the member, another member or a clearing firm, andAt the discretion and direction of an individual member.3

Detailed below are the requirements for individual member trading to be eligible for member
fees including guidelines and specific instances for member fee eligibility.

2.

Individual Member Obtaining Membership

An individual CME and CBOT member must own or lease a membership themselves; held in
their own name.
•

The financing to purchase a membership must be of the individual’s own funds or through abona-fide loan. An individual who finances directly or indirectly their membership purchasefrom a CME or CBOT member or individual/entity affiliated with a CME or CBOT member(within their respective exchange) may only be eligible for lessee rates in the division ofmembership held when trading an account in which the CME or CBOT member/lender has
an interest or when trading their own personal account.7,85

For clarity, CME, CBOT, NYMEX and COMEX are separate exchanges and each must be joined
independently for membership status. Individual members refers to both individual equity members andlessee members and member fees refers to both equity member and lessee fees.
6

For purposes of this FPB, individual member will imply individual membership is held within theapplicable exchange and division for purposes of receiving the member fees and benefits detailed.
7

In such case, the CME or CBOT member or individual/entity affiliated with the CME or CBOT member(within their respective exchange) who financed or who otherwise assisted financially in the membership’spurchase in order for the individual to trade an account in which the CME or CBOT member/lender has aninterest, will be considered, in essence, leasing the membership to the individual.
8

CME and CBOT members may guarantee a bona-fide loan from a financial institution for an individual
purchasing a membership within their respective exchange without impacting the fees for which theindividual is eligible.

Individual Members Trading on Globex®
March 14, 2011
Page 4•

An individual leasing a membership may receive financing for the lease from any third party
including a CME or CBOT member. The individual lessee may be eligible for lessee rates
on their trades conducted in the division of membership held.

An individual NYMEX and COMEX member must own or lease a membership themselves; heldin their own name. The financing to purchase or lease the membership may be of theindividual’s own funds or through a bona-fide loan from any third party.

3.

Individual Member Trading Account Ownership

CME Group recognizes two types of account ownership as individual member accounts eligible
to receive member fees due to the individual membership status of its owners:

3.1

Single Individual Member Account Ownership•

The account is 100% owned by one individual member or by a corporate entity which isowned 100% by one individual member.

•

All funding of and contributions to the account must be 100% made by the individual
member.

•All profits and losses of the account must be 100% allocated to and taxed to the individual
member.

•Only the individual member owning the account may benefit in, share in any profitability, or
earn any return based on the account’s performance.9

3.2•

Joint Individual Member Account Ownership
The account is 100% jointly owned by more than one individual all of whom must be
members of the respective exchange, or solely owned by a corporate entity which is jointly
owned 100% by more than one individual all of whom must be members of the respective
exchange.
• Owners must be individual members.
• A member firm cannot be an owner of a joint individual member account.10

9

CME Group allows other individual members of the respective exchange to have discretion and trade
the account of another individual member(s). For fee purposes, the account will be considered a joint
account of the individual member(s) account owner(s) and individual member trading with discretion. In
such cases, the individual member trading with discretion may share in the profitability/earn a return
based on the performance of the trading in the account through receipt of a salary, salary plus bonus,
discretionary payment or profit split.
Furthermore, the account is considered a joint account of the individual member(s) account owner(s) andthe individual member discretionary trader with fees based on the lowest membership status of theparties. That is, the account is considered a defacto joint account for fee purposes and should be
registered as a joint account in the Exchange Fee System (“EFS”).

Individual Members Trading on Globex®
March 14, 2011
Page 5•All funding of and contributions to the account must be 100% made by the joint accountowners or joint owners of the corporate entity.

•

All profits and losses of the account must be 100% allocated to and taxed to the joint
account owners.

•

All joint owners must share directly in the profitability of the account and are directly
responsible for losses of the account.

•

Only the owners of the joint account or of the corporate entity owning the joint account may
benefit in, share in any profitability, or earn any return based on the account’s performance.9

The joint owners must demonstrate to CME Group’s satisfaction the above requirements for a
joint account are met for trades in that account to be eligible for member fees based on
individual membership.

4.

Individual Member Trade Execution/Order Submission

Eligibility for reduced fees for trades made for an individual member account is based on how
the decision to trade is made and who enters the orders.11

4.1

Non-Automated Trading System Orders

4.1.1

Discretionary Trading by a Trader/Operator through a Non-ATS

To be eligible for member fees, the individual member account may only be traded by:•

An individual member or members. The individual member(s) must be the sole decisionmaker(s) in the submission of each order and must physically enter each order.
Orders that result from the collective activity and decision making of a group/team ofindividuals (not all of whom are individual members) will not be considered traded by anindividual member eligible for member fees. CME Group has sole discretion to determine
the universe of individuals who are part of the group/team involved in trading.
Keep in mind, an individual who finances directly or indirectly their membership purchasefrom a CME or CBOT member or individual/entity affiliated with a CME or CBOT member

10

If a member firm owns an account jointly with an individual member (membership held in the same
exchange), the account will be considered a joint individual member/member firm account subject to themost restrictive fee policies of either individual membership or firm membership regarding ownership,
eligible traders, trader compensation, and trade execution/order submission including the utilization ofATSs. In such case, discounted fees will be based on the lowest category of membership held by theparties. These accounts must be registered in EFS under the joint account owner with the lowest divisionof membership held. Further the account title field in EFS must identify all owners of the joint account.
11

In addition, for CBOT individual members, the membership status of the individual entering the trade
may impact the level of member fee charged. Please refer to the current CBOT Clearing Fee Schedule at
http://www.cmegroup.com/company/files/CBOT_Fee_Schedules.pdf.

Individual Members Trading on Globex®
March 14, 2011
Page 6(within their respective exchange) may only be eligible for lessee rates in the division ofmembership held when trading an account in which the CME or CBOT member/lender has
an interest or when trading their own personal account.
Discretionary trading of an individual member account by a non-member such as a non-member
individual, non-member employee of a member firm or CTA is not eligible for member fees.3
4.1.2

Non-Discretionary Order Entry through a Non-ATS

To be eligible for member fees, orders must be at the direction of a member and may only beentered for the individual member account by:•

An individual member or members. Such individual member(s) who are non-owners of
the individual member account may not share in the profitability of the account either directly
or indirectly.

•

Bona-fide W-2 employees and 1099-MISC independent contractors of a clearing
member firm. Such employees/independent contractors may only enter orders at thedirection of the individual member(s) and may not share in the profitability of the accounteither directly or indirectly. Individuals may not become W-2 employees/1099-MISC
independent contractors of a clearing member firm simply to accommodate the trading of anindividual member(s). Furthermore, W-2 employees/1099-MISC independent contractors
primarily working for an individual member “on behalf” of a clearing member will be closely
scrutinized with the burden of proof on the clearing member to demonstrate to CME Group’s
satisfaction a bona-fide employment or contractor relationship.

•

Individuals as permitted and registered in special programs implemented by CME
Group. Such individuals must comply with all the rules and requirements governing the
program.
As of the date of this FPB, registered clerks of an individual member or members of CME
and CBOT owning the account who are properly registered in and in full-compliance with the
Clerk for Member Program may enter orders. Such clerks may only enter orders at thedirection of the CME/CBOT member. Refer to the Clerk for Member Program for details andrequirements.

Orders entered by an individual sharing in the profitability of the account either directly or
indirectly will be considered discretionary trades for fee purposes.
Orders that result from the collective activity and decision making of a group/team of individuals(not all of whom are individual members) will not be considered traded by an individual member
eligible for member fees. CME Group has sole discretion to determine the universe ofindividuals who are part of the group/team involved in trading.
Individuals not identified above, such as non-members, CTAs, money managers or employeesof non-clearing member firms such as execution groups, are not eligible to trade or enter orders
for the accounts of individual members eligible for member fees.3

Individual Members Trading on Globex®
March 14, 2011
Page 7

4.2

Automated Trading System Orders

4.2.1

The ATS Policy

ATSs often function for periods of time independently or with minimal oversight from a single
trader/operator and, in fact, can operate like multiple traders. Additionally, ATSs, despite theiroccasional independence, often require substantial collective oversight of a team of individuals
who influence the orders submitted by the ATS.12
As a result, CME Group cannot presume without validation for fee purposes that orders
submitted by an ATS for an individual member account are the direct trading of an individual
member and ensure consistency with the spirit of CME Group’s fee policy that excludes thecollective activities of a group/team of individuals from qualifying for individual membership rates
unless all individuals of the group/team are individual members.
Therefore, with respect to the trades of an ATS for an individual member account, thefollowing policies will apply:•

ATS trades will not be automatically considered individual trades.
• Generally, trades from an ATS require a “corporate entity” membership status in order tobe eligible for reduced rates.
• In the case of a corporate entity owned by an individual member(s), the entity itself must
maintain membership privileges versus the individual owner(s) of the entity for ATS
trades to be eligible for reduced fees.13

12

CME Group has sole discretion to determine the universe of individuals who are part of the group/team
involved in trading.
Generally, the utilization of an ATS suggests that there is a group/team of individuals who are (1)Developing software, strategies, and risk overlay programs; (2) Initiating and disabling particularalgorithms and strategies; (3) Directing and controlling trading decisions; (4) Establishing and adjusting
trading parameters, inputs, and alerts; (5) Monitoring trading performance, system performance, (e.g.
network connections and latencies) and trading alerts; and/or (6) Controlling and/or monitoring trading
and/or position risk.
Collectively such responsibilities are referred to as administrating, operating, controlling and monitoring
the ATS; for ease, operating and supporting the ATS. The monitoring, operating, and/or supporting of an
ATS is considered discretionary trading for fee purposes. Because these activities have a direct effect on
the orders submitted by the ATS, orders submitted by the ATS reflect group/team trading, rather than the
trading of one individual. Therefore, for fee purposes, CME Group presumes that ATS trading is not thetrading of an individual member.
13

For clarity, usage of an ATS by individual CBOT members in which other non-members are involved inthe (1) determination of trading strategies, parameters, inputs, and alerts, (2) operation and administrationof the system and (3) monitoring of trading performance, system performance and alerts will, as a generalrule, require a corporate entity membership status in order to be eligible for reduced rates. Under very
limited circumstances wherein the specific usage of an ATS is consistent with the spirit of individual
member trading, CME Group will, in its sole discretion, grant individual member fees for trades by an ATS
for an individual member account.

Individual Members Trading on Globex®
March 14, 2011
Page 8•Under very limited circumstances wherein the specific usage of an ATS is consistent
with the spirit of individual member trading, CME Group will grant individual member
fees for trades by an ATS for an individual member account.

4.2.2. Member Developed/Operated ATS
Individual members may develop their own ATS hardware and software. Wherein CME Group
determines in its sole discretion that the ATS is solely developed by individual members and issolely operated and supported by individual members, the trading activity executed through the
ATS for an individual member account may be eligible for member fees.
The burden of proof will be on the individual member utilizing an ATS to provide clear evidence
to CME Group’s satisfaction that the member developed ATS is solely operated and supportedby the individual member in order to receive member rates based on individual membershipstatus. As such, the individual member must:•

Make all trading decisions and be solely responsible for determining all trading strategies,
parameters, inputs, and alerts; and•Be solely responsible for operating and administrating the system and for monitoring trading
performance, system performance and alerts.

4.2.3

Third Party ATS

Individual members may wish to utilize third party developed ATS hardware and software in
their trading activities. In limited circumstances wherein such third party ATS is solely operated
and supported by the individual member once acquired,14 such trading activity may be eligible
for member fees.
For an ATS to be considered a “third party ATS”:•

The individual member cannot have any affiliation including ownership interest with the third
party provider; and•The third party developer may not receive any compensation (including any set percentage
or discretionary bonus) based on the performance of the ATS.15

The burden of proof will be on the individual member utilizing an ATS to provide clear evidence
to CME Group’s satisfaction that the third party ATS is solely operated and supported by theindividual member in order to receive member rates based on individual membership status. As
such, the individual member must:•

Make all trading decisions and be solely responsible for determining all trading strategies,
parameters, inputs, and alerts; and14

For clarity, third party developers may provide data center administration, hardware, and software
updates.
15

To clarify, third party developers may be compensated per a set amount on a monthly, quarterly, yearlyor other time period basis and/or on a set amount per trade.

Individual Members Trading on Globex®
March 14, 2011
Page 9•5.

Be solely responsible for operating and administrating the system and for monitoring trading
performance, system performance and alerts.

Individual Member Trading - Application of Fees

An account owned by members and traded by members will receive member fees based on thelowest common denominator of membership held by the account owner(s) andtrader/operator.3,11•

For non-discretionary orders entered by bona-fide W-2 employees/1099-MISC independent
contractors of a clearing member firm, only the membership status of the account owner(s)will impact the eligibility for member fees.11• To reiterate, the monitoring, operating, and/or supporting of an ATS is considereddiscretionary trading, not order entry, for fee purposes.

•

For non-discretionary orders entered by individuals in approved special programs of CME
Group, the individual’s impact to the fees charged will be governed by the program.
• For registered clerks of the individual member or members of CME and CBOT owning
the account in the Clerk for Member Program, only the membership status of theaccount owner(s) will determine the fees assessed on non-discretionary orders.

•

Keep in mind, an individual who finances directly or indirectly their membership purchasefrom a CME or CBOT member or individual/entity affiliated with a CME or CBOT member(within their respective exchange) may only be eligible for lessee rates in the division ofmembership held when trading an account in which the CME or CBOT member/lender has
an interest or when trading their own personal account.

For individual member fee incentive eligibility such as tier pricing and market maker programs,
refer to the requirements as outlined in the Clearing Fee Schedules and Individual Programs.

6.

Member Firm Trading

Firms may become member firms and clearing members. For complete requirements regarding
Clearing and Globex Fees for Member Firm Accounts including the requirements for Member
Firm Trading Accounts, Member Firm Traders and Member Firm Trader Compensation andProfit Splits, refer to Fee Policy Bulletin #09-01 dated June 16, 2009.

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