Ms. Jean A. Webb
February 14, 2006.

Page 5 of 5

539.

CLEAN COPY OF RULE 539

PREARRANGED, PRE-NEGOTIATED AND NONCOMPETITIVE TRADES
PROHIBITED

[Sections A. and B. are unchanged.]

539.C. Pre-Execution Discussions Regarding GLOBEX Trades

Parties may engage in pre-execution discussions with regard to transactions
executed on the GLOBEX platform where one party (the first party) wishes to be
assured that a contra party (the second party) will take the opposite side of the order
under the following circumstances:

4.

A party may not engage in pre-execution discussions with other market
participants on behalf of another party unless the party for whose benefit the
trade is being made has previously consented to permit such discussions.

Parties to pre-execution discussions shall not (i) disclose to a non-party the
details of such discussions or (ii) enter an order through the GLOBEX platform to
take advantage of information conveyed during such discussions except in
accordance with this rule.

With the exception of orders entered pursuant to the terms of Section C.5. below,
a period of 5 seconds shall elapse between entry of the two orders in the case of
futures orders or a period of 15 seconds shall elapse between entry of the two
orders in the case of option orders.

With the exception of orders entered pursuant to the terms of Section C.5. below,
in any transaction involving pre-execution discussions, the first party's order must
be entered into the GLOBEX platform first and the second party’s order may not
be entered into the GLOBEX platform until the time period prescribed in Section
539.C.3. above has elapsed.

In electronic Eurodollar options operated pursuant to Rule 585 (“GLOBEX® Call
Market Trading Algorithm”), solicitation of bid(s) and/or offer(s) between market
participants through private discussion for the purpose of establishing a market
or improving the market for an eligible contract or an eligible combination of
contracts for options on Eurodollar futures shall be preceded by issuing a
Request For Quote (“RFQ”) through an eligible terminal. Subsequent to such
RFQ, a trade intended for execution pursuant to Rule 585 for which there has
been a pre-execution discussion must be initiated by the entrance of a Request
for Cross (“RFC”) Order which will contain both the buy and the sell orders. The
RFC Order must be entered within the same trading session as the entry of the
RFQ. Failure to enter the RFC order within the same trading session as the
entry of the RFQ_shall be considered an abandonment of that pre-execution
discussion. Any pre-execution discussion during a subsequent trading session
must be preceded by the entry of anew RFQ.


Ms. Jean A. Webb
February 14, 2006.
Page 4 of 5

accordance with Rule 539.C. Pre-Execution Discussion. Immediately following the_fifteen-
second suspension, the RFC bid and offer shall be matched separately against opposing bids
and offers in accordance with the allocation algorithm described above. The remainder of the
pair of RFC bid and offer shall be matched against each other at_a quantity of 60% of the

smaller of the remaining RFC bid and offer. The remaining unmatched portions of the RFC bid
and offer shall be available for matching against other incoming orders for an additional ten (10)

seconds. Thereafter, the remaining RFC bids and offers shall be matched against each other.
with the remaining bid and offer joining the rest of the order book.

A clean copy of Rule 539 is attached below. The amended Rule shall become effective
on the trade date of Monday, February 20, 2006. Please do not hesitate to contact Mr. Richard
Co at 312-930-3227 or rco@cme.com if any questions arise during the processing of this
submission. Please reference our CME Submission #06-12 on all future correspondence for this
submission.

Sincerely,

John W. Labuszewski, Managing Director
Research & Product Development


cme@

Chicago Mercantile Exchange
February 14, 2006

Ms. Jean A. Webb

Office of the Secretariat

Commodity Futures Trading Commission
Three Lafayette Centre

1155 21" Street, NW

Washington, DC 20581

RE: Amendments to GLOBEX Pre-execution Discussion Rules in connection with
GLOBEX Call Markets in Eurodollar Options

Submitted per Sec. 5e(c)(1) of the CEA and Regulation Sec. 40.6(a).
CME Submission # 06-12.

Dear Ms. Webb:

Chicago Mercantile Exchange (“CME” or “Exchange”) hereby certifies with the
Commission the following amendments to the portion of Rule 539.C governing Pre-Execution
Discussion for Markets trading pursuant to Rule 585. GLOBEX Call Market Trading Algorithm.
The Exchange certifies that these actions neither violate nor are inconsistent with any portion of
the Commodity Exchange Act or of the rules thereunder.

Under the existing procedure, a trade in the GLOBEX Call Market in Eurodollar Options
that is the subject of a pre-execution discussion requires the issuance of an RFQ (Request For
Quote) within 3 minutes prior to the order entries, regardless of how many instance of the
identical RFQ has been issuance during the same trading session. Under the amended rules, the
RFQ requirement is simplified. As long as an RFQ on the specific contract or combination of
contracts has been issued within the same trading session prior to the pre-execution discussion, a
duplicate RFQ on the same item is not necessary. Further, both orders in a trade that is the
subject of a pre-execution discussion shall be entered into the GLOBEX system as a “Request
for Cross” (RFC). Both sides of the RFC order shall then be exposed to the market for the
requisite period of time stipulated in the Exchange Rules, currently fifteen (15) seconds, prior to
the execution of the trade by GLOBEX. The trade matching for the RFC orders shall be
performed in accordance with the amended Interpretation to Rule 585. GLOBEX Call Market
Trading Algorithm.

20 South Wacker Drive, Chicago IL 60606-7499, Tel. 312-930-1000



Ms. Jean A. Webb
February 14, 2006.

Page 2 of 5

Further, the Exchange will also introduce the concept of TOP order, i.e. order with time

priority, in the LMM allocation algorithm for GLOBEX Call Markets. An order with time
priority and a quantity of a minimum of 50 shall be designated a TOP order and is eligible for
priority allocation.

The text of the Rule amendment is as follows, with additions underlined and deletions

bracketed and overstruck.

539.

PREARRANGED, PRE-NEGOTIATED AND NONCOMPETITIVE TRADES
PROHIBITED

[Sections A. and B. are unchanged.]

539.C. Pre-Execution Discussions Regarding GLOBEX Trades

Parties may engage in pre-execution discussions with regard to transactions
executed on the GLOBEX platform where one party (the first party) wishes to be
assured that a contra party (the second party) will take the opposite side of the order
under the following circumstances:

1. A party may not engage in pre-execution discussions with other market
participants on behalf of another party unless the party for whose benefit the
trade is being made has previously consented to permit such discussions.

2. Parties to pre-execution discussions shall not (i) disclose to a non-party the
details of such discussions or (ii) enter an order through the GLOBEX platform to
take advantage of information conveyed during such discussions except in
accordance with this rule.

3. With the exception of orders entered pursuant to the terms of Section C.5. below.
a [A] period of 5 seconds shall elapse between entry of the two orders in the
case of futures orders or a period of 15 seconds shall elapse between entry of
the two orders in the case of option orders.

4. With the exception of orders entered pursuant to the terms of Section C.5. below.
in [Ja] any transaction involving pre-execution discussions, the first party's order
must be entered into the GLOBEX platform first and the second party’s order
may not be entered into the GLOBEX platform until the time period prescribed in
Section 539.C.3. above has elapsed.

5. In_electronic_Eurodollar_ options operated pursuant [Pursuant] to Rule 585
(“GLOBEX® Call Market Trading Algorithm”), solicitation of bid(s) and/or offer(s)
between _market_participants through private discussion for the purpose of
establishing a market or improving the market for an eligible contract or an
eligible combination of contracts for options on Eurodollar futures shall be
preceded by issuing a Request For Quote (“RFQ”) through an eligible terminal.
Subsequent to such RFQ, a trade intended for execution pursuant to Rule 585
for which there has been a pre-execution discussion must [shall] be initiated
[with] by the entrance of a Request for Cross (“RFC”) Order which will contain
both the buy and the sell orders. [frade—“Gi Request} for the specifi

tract bination—of-contracts_with-explicit-_ref to-thi aticipated

order-quantity.] The [

the-contract

;] REC Order must be entered within [!


Ms. Jean A. Webb
February 14, 2006.
Page 3 of 5

the-requisite_period_of time_as-stipulated in Section -C.3__abeve-has-elapsed] the

same trading session as the entry of the RFQ. Failure to enter the [initiating]

REC order within [three(3}4ninutes-of] the same trading session as the entry of
the [Gress-Request] RFQ shall be considered an abandonment of that pre-
execution discussion. Any [subsequent] pre-execution discussion during a
subsequent trading session [concerning the transaction] must be preceded by
the entry of a new RFQ [

before ding-with the-order-entri s].
P 'g-

INTERPRETATION OF RULE 585 - GLOBEX CALL MARKET TRADING ALGORITHM

Trade Allocation Algorithm pertinent to GLOBEX Call Markets

The Exchange may designate, per the provisions of Rule 581 - GLOBEX Lead Market Maker
Program and Rule 585 ~ GLOBEX Call Market Trading Algorithm, multiple Lead Market Makers
(LMMs) for a GLOBEX Call Market for a designated set of contracts. Each LMM shall be
assigned an allocation proportion for the purpose of trade matching. Trade allocation in a Call
Market with LMMs operates as follows:

1. If one or more LMM's bids or offers match the best available bid or offer, against which an
opposing executable order exist, the LMM’s orders shall be eligible for allocation along with
the orders at the best bid or offer.

2. For each LMM with orders eligible for allocation, the total allocation for the LMM shall be the
smaller of its allocation proportion times the size of the opposing order, rounded down to the
nearest integral contract multiple, or the aggregate order size at the same price level from
the LMM. If the order with time priority has a quantity of a minimum of fifty(50), it will be
designated as the TOP order. If there is a TOP order, it shall also receive an allocation of
the smaller of 25% times the original quantity of the opposing order, rounded down to the
nearest integer, or the size of the TOP order.

3. Following the allocation of trades to the LMM(s) and the TOP order, if it exists, the
remainder of the trade shall be allocated to all remaining bids or offers at the best price on a
pro rata basis. The pro rata allocation for each order shall be rounded down to the nearest
integral contract multiple, with the residual quantity allocated to the largest order. If two or
more orders have identical quantities and are the largest orders, the residuals shall be
equally allocated between the largest orders, subject to rounding down to the nearest
integral contract multiple. Any remaining unallocated contracts shall be allocated on the
basis of time priority.

The Exchange retains the right to grant specific allocation proportion(s) to the LMM(s). The
aggregate allocation proportion of all LMM(s), however, shall not exceed 50%. If no LMM has
been designated, trade allocation shall be executed on pro rata basis, resembling step 3 of
trade allocation with LMMs.

In the case of a Request For Cross (RFC) entered pursuant to Rule 539.C, a set of matching bid

and_offer (hereafter referred to as the RFC bid and offer) with the same price and quantity,
trading matching of this pair of RFC bid and offer shall be suspended for fifteen (15) seconds in