Ms. Eileen Donovan
September 8, 2006
Page 5 of 12

10 contract in the last of the three contract months at 94.95 create Ist Generation
Implied Out buy order for 10 calendar spreads between the first two of the three
contract months at 0.15.

Note that an Implied Out order for the second of the three contract months from a
butterfly spread is for two contracts. These two contracts may have different
implied prices, e.g. a buy order for | butterfly spread at 0.15, a sell order for |
contract in the first of the three contract months at 95.15 and a sell order for 1
contract in the last of the three contract months at 94.95 creates implied orders in
the second of the three contract months to sell 1 contract at 95.00 and | contract
at 94.95. Regardless of whether the implied prices for the two contracts are
identical, the trade can only occur if both contracts can be matched opposing
orders. In the event an opposing order exists for one of the two contracts in the
second leg of butterfly spread, an Implied Out order for the remainder may be
created.

A “2nd Generation Implied In” order for a butterfly spread may be derived on the
GLOBEX system from a combination of actual orders in the individual contracts
and Ist Generation Implied Out orders from calendar spreads for the remaining
leg(s) in the butterfly spread.

A “2nd Generation Implied out” order for an individual contract from a butterfly
spread may be derived on the GLOBEX system from an actual order for a
butterfly spread and a combination of actual and implied orders in the individual
contracts and/or calendar spreads.

The GLOBEX system will disseminate Ist Generation Implied In orders for
butterfly spreads and Ist Generation Implied Out orders for the first and the last
of the three contract months from a butterfly spread order. Ist Generation
Implied Out orders for the second of the three contract months from a butterfly
spread order are not disseminated due to the fact that such orders can only be
filled if both contracts for each spread can be matched to opposing orders. 2nd
Generation Implied orders are created for matching purpose only and are also not
disseminated.

Implied In and Implied Out orders created by the Implied Order Algorithm shall
be processed per the Pro Rata Allocation Algorithm described above, except that

Implied orders shall not be granted Time Priority or considered the TOP order;

2. In the event that contracts remain to be allocated after the Initial
Allocation, as described in the Pro Rata Allocation Algorithm above, and two
or more orders have identical quantities and are the largest orders, allocations
shall be made to Implied orders only after allocation to actual orders is
complete. Allocations to Implied orders shall be made on the basis of



Ms. Eileen Donovan
September 8, 2006
Page 10 of 12

contracts. Any part of such stop limit order that is not filled at the limit price or
better shall remain as a resting order at such limit price until filled or cancelled.

Lead Market Maker (LMM) Allocation Algorithms

The Exchange may designate, per the provisions of Rule 581, GLOBEX Lead Market Maker
Program, multiple Lead Market Makers (LMMs) in specified futures and option markets traded
on the GLOBEX Electronic Trading System. The Exchange has determined to use either LMM
Allocation Algorithm (Option A) or LMM Allocation Algorithm (Option B) as described below
to match orders in such specified markets. Two-, Five- and Ten-Year Swap Rate futures shall be
subject to LMM Allocation Algorithm (Option A). Weather futures, agricultural futures, futures
on Standard and Poor’s Depository Receipts (“SPDR”), NASDAQ-100 Tracking Stock
(“QQQQ”), Russell 2000 iShares (“TWM”), E-mini Russell 1000 Index futures, CPI futures and
Housing futures shall be subject to LMM Allocation Algorithm (Option B). All other futures
and options contracts, unless specifically referenced in this Interpretation, will continue to use
the normal matching algorithm based on price and time priority.

1. The LMM Allocation Algorithm (Option A) operates as follows:

+ After the opening, Time Priority is assigned to the first order at a price that
betters the market when the order is received. Only one buy order and one sell
order can have Time Priority at any given time. Orders with Time Priority are
matched first regardless of whether it was entered by an LMM or non-LMM.

+ An order will lose Time Priority when an order at a better price is entered.
Example: An order to buy 50 contracts is entered at 105. This order is the first
order in at this price level. Another order comes in and betters the market, buy 25
contracts at 106. The order at the 106 level has Time Priority now. The market
sells off and the bid of 25 contracts at 106 is hit. The bid for 50 contracts at 105
does not regain its Time Priority and will be allocated according to the LMM
Allocation Algorithm along with all the other 105 bids.

* After the Time Priority order is filled, the LMM Allocation Algorithm is applied
to the remainder of the resting orders at that price level. The LMM Algorithm
will attempt to allocate a specified minimum proportion of the trade to the LMM
provided that the LMM’s bid or offer matches the best available bid or offer. Any
contracts still to be allocated after the "LMM Allocation" are allocated based
upon the time of order entry.

‘ If the allocation to the LMM results in a fraction, the LMM Algorithm will “Round Down”
to the nearest integral contract multiple.

+ In the event that the Exchange designates a single LMM in a specified market, the
LMM’s allocated proportion shall be 40%. In the event that the Exchange
designates two (2) LMMs in a specified market, each LMM shall be allocated



Ms, Eileen Donovan
September 8, 2006
Page 7 of 12

A “2nd Generation Implied In” order for a calendar spread may be derived on the
GLOBEX system from (1) actual orders in one individual contract of the calendar
spread; and (2) Ist Generation Implied Out orders in the other individual contract
that comprises the calendar spread.

A “2nd Generation Implied Out” order for an individual contract may be derived
on the GLOBEX system from (1) actual orders in a calendar spread that includes
that individual contract; and (2) Ist Generation Implied Out orders in the other
individual contract that comprises the calendar spread.

Implied In orders for calendar spreads and Implied Out orders for an individual
contract based on orders for calendar spread and another individual contract shall
be for a quantity representing the smaller of the two orders from which the
Implied order is derived.

All implied orders will be derived by the GLOBEX system subject to the
applicable daily price limits for that particular product and contract month.

The GLOBEX system will create 2nd Generation Implied In and Out orders, for
matching purposes only, if there are insufficient quantities of actual and Ist
Generation Implied In and Out orders to satisfy arriving orders. This may result
in a match with 2nd Generation Implied orders at more favorable prices than had
previously been available. Second Generation Implied orders will not be
disseminated to the marketplace.

Implied In and Implied Out orders created by the Implied Order Algorithm shall
be processed per the LMM Allocation Algorithm (Option B) described below,
except that

. Implied orders shall not be granted Time Priority or considered the TOP order;

. In the event that contracts remain to be allocated after the Initial Allocation, as

described in the Pro Rata Allocation Algorithm above, and two or more orders
have identical quantities and are the largest orders, allocations shall be made to
Implied orders only after allocation to actual orders is complete. Allocations to
Implied orders shall be made on the basis of maturity of the contract(s) where
nearby contracts receive priority over deferred contracts.

Market orders, that are entered into the GLOBEX System where the Implied
Order Algorithm is effective, shall be converted into limit orders and filled at the
best available price from actual orders or Ist Generation Implied orders. If the
quantity of the market order exceeds the quantity of opposite actual and Ist
Generation Implied orders, GLOBEX will create, and allocate the remaining
contracts to, 2nd Generation Implied orders. Allocations to Implied orders shall
be made on the basis of maturity of the contract(s) where nearby contracts receive
priority over deferred contracts. Any part of such market order that is not filled at


Ms. Eileen Donovan
September 8, 2006
Page 6 of 12

maturity of the contract(s) where nearby contracts receive priority over
deferred contracts.

Market orders, that are entered into the GLOBEX System where the Implied
Order Algorithm is effective, shall be converted into limit orders and filled at the
best available price from actual orders or Ist Generation Implied orders. If the
quantity of the market order exceeds the quantity of opposite actual and Ist
Generation Implied orders, GLOBEX will create, and allocate the remaining
contracts to, 2nd Generation Implied orders. Allocations to Implied orders shall
be made on the basis of maturity of the contract(s) where nearby contracts receive
priority over deferred contracts. Any part of such market order that is not filled at
the limit price or better shall remain as a resting order at such limit price until
filled or cancelled.

Stop limit orders, that are entered into the GLOBEX System where the Implied
Order Algorithm is effective, are activated and placed into the order book when
the order’s specified stop price is traded, at which time the order may be executed
at the specified limit price or better. Such stop limit orders are initially allocated
to actual and Ist Generation Implied orders. If the quantity of the stop limit order
exceeds the quantity of opposite actual and Ist Generation Implied orders,
GLOBEX will create, and allocate the remaining contracts to, 2nd Generation
Implied orders. Allocations to Implied orders shall be made on the basis of
maturity of the contract(s) where nearby contracts receive priority over deferred
contracts. Any part of such stop limit order that is not filled at the limit price or
better shall remain as a resting order at such limit price until filled or cancelled.

Agricultural Futures Contracts: Unless specifically referenced in this Interpretation, all other

futures and options contracts will continue to use the Pro Rata Allocation Algorithm. This
Implied Order Algorithm for Agricultural futures contracts operates as follows:

A “Ist Generation Implied In” order for a calendar spread may be derived on the
GLOBEX system from actual orders in the individual contracts or legs of the
calendar spread. E.g., a buy order for 15 contracts at 85.05 in a nearby Live
Cattle futures contract and a sell order for 10 contracts at 85.00 in a deferred Live
Cattle futures contract creates a Ist Generation Implied In order to buy 10
calendar spreads at 0.05.

A “Ist Generation Implied Out” order for an individual contract may be derived
on the GLOBEX system from (1) actual orders in a calendar spread that includes
that individual contract; and (2) actual orders in the other individual contract that
comprises the calendar spread. E.g., a buy order for 5 contracts at 85.15 in a
nearby Live Cattle futures contract and a sell order for 10 calendar spreads, that
include that nearby contract and a deferred contract, at 0.05 creates an Implied
Out order to buy 5 contracts in the deferred leg of calendar spread at 85.10.


Ms. Eileen Donovan
September 8, 2006
Page 9 of 12

Implied In orders for calendar spreads and Implied Out orders for an individual

contract based on orders for calendar spread and another individual contract shall
be for a quantity representing the smaller of the two orders from which the

Implied order is derived.

The GLOBEX system will create 2nd Generation Implied In and Out orders, for

matching purposes only, if there are insufficient quantities of actual and Ist
Generation Implied In and Out orders to satisfy arriving orders. This may result
in a match with 2nd Generation Implied orders at more favorable prices than had
previously been available. Second Generation Implied orders will not_be
disseminated to the marketplace.

Implied In and Implied Out orders created by the Implied Order Algorithm shall

be processed per the LMM Allocation Algorithm (Option B) described below
except that

. Implied orders shall not be granted Time Priority or considered the TOP order;

._In the event that contracts remain to be allocated after the Initial Allocation, as

described in the Pro Rata Allocation Algorithm above, and two or more orders
have identical quantities and are the largest orders, allocations shall be made to
Implied orders only after allocation to actual orders is complete. Allocations to
Implied orders shall be made on the basis of maturity of the contract(s) where
nearby contracts receive priority over deferred contracts.

Market orders, that are entered into the GLOBEX System where the Implied

Order Algorithm is effective, shall be converted into limit orders and filled at the
best available price from actual orders or Ist Generation Implied orders. If the
quantity of the market_order exceeds the quantity of opposite actual and Ist
Generation Implied orders, GLOBEX will create, and allocate the remaining
contracts to, 2nd Generation Implied orders. Allocations to Implied orders shall
be made on the basis of maturity of the contract(s) where nearby contracts receive
priority over deferred contracts. Any part of such market order that is not filled at
the limit price or better shall remain as a resting order at such limit price until
filled or cancelled.

Stop limit orders, that are entered into the GLOBEX System where the Implied

Order Algorithm is effective, are activated and placed into the order book when
the order’s specified stop price is traded, at which time the order may be executed
at the specified limit price or better. Such stop orders are initially allocated
to actual and Ist Generation Implied orders. If the quantity of the stop limit order
exceeds the quantity of opposite actual _and_Ist Generation Implied orders
GLOBEX will create, and allocate the remaining contracts to, 2nd Generation
Implied orders. Allocations to Implied orders shall be made on the basis of
maturity of the contract(s) where nearby contracts receive priority over deferred



cmes

Chicago Mercantile Exchange

20 South Wacker Drive 312/930, 1000 tel
Chicago, IL 60606-7499 312/466.4410 fax
www.cme.com

September 8, 2006

Ms. Eileen Donovan
Office of the Secretariat

bs)
Commodity Futures Trading Commission a)
Three Lafayette Centre mae
1155 21* Street, N.W. ag
Washington, D.C. 20581 oO

RE: Section 5c(c) and Regulation §40.6 Submission - Exchange Certification of
Amendment to the Interpretation of Rule 580. CME Submission #06-77.

Dear Ms. Donovan:

Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) hereby submits, pursuant to
Section Sc(c) of the Act and Regulation §40.6 thereunder, notification of amendments to
Interpretation of Rule 580 - GLOBEX TRADE ALGORITHMS. These amendments extend

implied spreading to CME Housing and CME Eurozone HICP futures traded electronically on
the Globex trading platform.

CME certifies that these actions neither violate nor are inconsistent with any provision of the
Commodity Exchange Act or rules thereunder.

These amendments will apply to all CME Housing and CME Eurozone HICP futures on trade
date Monday, September 11, 2006.


Ms. Eileen Donovan
September 8, 2006
Page 12 of 12

identical quantities and are the largest orders, the Algorithm will perform an
"Electronic Coin Flip" and assign the remainder to the order that wins.

Use of the Best Price Priority Allocation Algorithm for foreign exchange futures
calendar spreads will be effective on Sunday, May 19, 2002, for the GLOBEX
trade date of Monday, May 20, 2002.

If my staff or I may assist you, please do not hesitate to contact Sayee Srinivasan at 312-
454-5205 or ssriniva@cme.com, or myself at 312-466-7469 or jlab@cme.com. We would be
appreciative if you could please reference our CME Submission Number 06-54 in any related
correspondence.

Sincerely,

John W. Labuszewski, Managing Director
Research & Product Development

ce: Thomas M. Leahy, Jr., CFTC Division of Economic Analysis

/ss


Ms. Eileen Donovan
September 8, 2006
Page 11 of 12

20%. In the event that the Exchange designates three (3) LMMs in a specified
market, each LMM shall be allocated 15%.

The LMM Allocation Algorithm (Option B) operates in a manner similar to
Option A as described above, except that LMMs will be allocated a specified
minimum proportion of the trade provided that the LMM’s bid or offer matches
the best available bid or offer regardless of whether the LMM had achieved Time
Priority.

Best Price Priority Allocation Algorithm

The Exchange has determined to use a Best Price Priority Allocation Algorithm to match orders
in foreign exchange (currency and currency cross-rate and E-mini) futures calendar spreads
(intra-currency futures spreads) entered in the GLOBEX Electronic Trading System. Unless
specifically referenced in this Interpretation, all other futures and options contracts, including
currency options, will continue to use the normal matching algorithm based on price and time
priority. Foreign exchange futures calendar spread contracts were chosen to use a Best Price
Priority Allocation Algorithm because they, like Eurodollar futures contracts, usually trade in a
narrow price range, and price levels are represented by size, particularly during the rollover
period. The Best Price Priority Allocation Algorithm operates as follows:

After the opening, Price Priority is assigned to all orders at the price that betters
the market when orders are received. All buy orders and all sell orders at the best
price have Price Priority at any given time. Orders with Price Priority at the best
price are matched according to an Allocation Algorithm in proportion to all orders
bid or offered at that best price as follows. Example: Suppose the best bid of a
June/September calendar spread is 14 and a total of 1,210 contracts are bid at that
price by four different orders as follows: 1,000 contracts by Order 1; 100
contracts by Order 2; 100 contracts by Order 3; and 10 contracts by Order 4, then
when a sell order hits the 14 bid by selling 500 contracts, the GLOBEX system
will allocate 414 contracts (1,000/1,210 * 500 plus 1 remainder) to Order

. 1; 41 contracts each (100/1,210 * 500) to Orders 2 and 3; and 4 contracts (10/1,210 * 500)

to Order 4.

All orders at the best price will lose Price Priority when an order (or orders) at a
better price is (are) entered. Example: An order to buy 50 contracts is entered at
12. This order is the first order in at this price level. Another order comes in and
betters the market, buy 25 contracts at 13. The buy order at the 13 level has Price
Priority now. The market sells off and the bid for 25 contracts at 13 is hit. The
bid for 50 contracts at 12 regains its Price Priority because it is now the best price
and this order will be allocated according to size along with all the other 12 bids.

If the "Initial Allocation” results in a fraction, the Algorithm will "Round Down"
or drop the fractional amount. Any contracts still to be allocated after the "Initial
Allocation" has run are added to the largest order. If two or more orders have


Ms. Eileen Donovan
September 8, 2006
Page 8 of 12

the limit price or better shall remain as a resting order at such limit price until
filled or cancelled.

* Stop limit orders, that are entered into the GLOBEX System where the Implied
Order Algorithm is effective, are activated and placed into the order book when
the order’s specified stop price is traded, at which time the order may be executed
at the specified limit price or better. Such stop limit orders are initially allocated
to actual and Ist Generation Implied orders. If the quantity of the stop limit order
exceeds the quantity of opposite actual and Ist Generation Implied orders,
GLOBEX will create, and allocate the remaining contracts to, 2nd Generation
Implied orders. Allocations to Implied orders shall be made on the basis of
maturity of the contract(s) where nearby contracts receive priority over deferred
contracts. Any part of such stop limit order that is not filled at the limit price or
better shall remain as a resting order at such limit price until filled or cancelled.

Housing and Eurozone HICP Futures Contracts: Unless specifically _referenced_in_this
Interpretation, all other futures and options contracts will continue to use the Pro Rata Allocation
Algorithm. This Implied Order Algorithm for housing and HICP futures contracts operates as
follows:

+ __A “Ist Generation Implied In” order for a calendar spread may be derived on the
GLOBEX system from actual orders in the individual contracts or legs of the
calendar spread. E.g., a buy order for 15 contracts at 85.05 in a nearby housing
futures contract and a sell order for 10 contracts at 85.00 in a deferred housing
futures contract creates a_Ist Generation Implied In order to buy 10 calendar

spreads at 0.05.

+ __A “Ist Generation Implied Out” order for an individual contract may be derived
on the GLOBEX system from (1) actual orders in a calendar spread that includes
that individual contract; and (2) actual orders in the other individual contract that.
comprises the calendar spread. E.g., a buy order for 5 contracts at 85.15 in a
nearby housing futures contract and a sell order for 10 calendar spreads, that
include that nearby contract and a deferred contract, at 0.05 creates an Implied
Out order to buy 5 contracts in the deferred leg of calendar spread at 85.10.

: A “2nd Generation Implied In” order for a calendar spread may be derived on the
GLOBEX system from (1) actual orders in one individual contract of the calendar
spread; and (2) Ist Generation Implied Out orders in the other individual contract
that comprises the calendar spread.

+ A “2nd Generation Implied Out” order for an individual contract may be derived
on the GLOBEX system from (1) actual orders in a calendar spread that includes
that individual contract; and (2) 1st Generation Implied Out orders in the other
individual contract that comprises the calendar spread.



Ms. Eileen Donovan
September 8, 2006
Page 4 of 12

The GLOBEX system will create 2nd Generation Implied In and Out orders, for
matching purposes only, if there are insufficient quantities of actual and Ist
Generation Implied In and Out orders to satisfy arriving orders. This may result
in a match with 2nd Generation Implied orders at more favorable prices than had
previously been available. Second Generation Implied orders will not be
disseminated to the marketplace.

A “Ist Generation Implied In” order for a butterfly spread may be derived on the
GLOBEX system from (1) actual orders in the three individual contracts or legs
of the butterfly spread, e.g. a buy order for 10 contracts at 95.15 in the first of the
three contract months, a sell order for 20 contracts at 95.00 in the second of the
three contract months, and a buy order for 10 contracts at 94.95 in the last of the
three contract months create a Ist Generation Implied In order to buy 10 butterfly
spreads at 0.10; (2) actual orders in two calendar spreads, e.g., a buy order for 10
calendar spreads between the first two of the three contract months at 0.15 and a
sell order for 10 calendar spreads between the last two of the three contract
months at 0.05 create a Ist Generation Implied In order to buy 10 butterfly
spreads at 0.10; or (3) actual orders in two individual contracts and a calendar
spread, e.g. a buy order for 10 contracts at 95.15 in the first of the three contract
months, a sell order for 10 contracts at 95.00 in the second of the three contract
months and an actual sell order for 10 calendar spreads between the last two of
the three contract months at 0.05 create a Ist Generation Implied In order for 10
butterfly spreads at 0.10,

A “Ist Generation Implied Out” order for an individual contract from a butterfly
spread may be created from an actual order for a butterfly spread with (1) an
actual order for a calendar spread and an actual order for an individual contract,
e.g. a buy order for 10 butterfly spreads at 0.10, a buy order for 10 calendar
spreads between the last two of the three contract months at 0.05, and a buy order
for 10 contracts in the second of the three contract months at 95.00 create a Ist
Generation Implied Out buy order for 10 contracts in the nearby month at 95.15;
or (2) actual orders for two of the three individual contract months, e.g. a buy
order for 10 butterfly spreads at 0.10, a buy order for 20 contracts in the second of
the three contract months at 95.00 and a sell order for 10 contract in the last of the
three contract months at 94.95 create Ist Generation Implied Out buy order for 10
contracts in the nearby month at 95.15. A “Ist Generation Implied Out” order for
a calendar spread from a butterfly spread may be created from an actual order for
a butterfly spread with (1) an actual order for a calendar spread, e.g. a buy order
for 10 butterfly spreads at 0.10, a buy order for 10 calendar spreads between the
last two of the three contract months at 0.05 create a 1st Generation Implied Out
buy order for 10 calendar spreads between the first two of the three contract
months at 0.15; or (2) actual orders for two of the three individual contract
months, e.g. a buy order for 10 butterfly spreads at 0.10, a buy order for 10
contracts in the second of the three contract months at 95.00 and a sell order for


Ms. Eileen Donovan
September 8, 2006
Page 3 of 12

The Exchange has determined to use an Implied Order Algorithm to create orders for selected
individual contracts, calendar spreads, and butterfly spreads in Eurodollar futures and One-
Month LIBOR futures contracts, and in selected individual contracts and calendar spreads in
agricultural futures contracts, and calendar spreads in CME Eurozone HICP futures contracts.
and calendar and _inter-commodity spreads in CME Housing futures contracts entered in the
GLOBEX Electronic Trading System.

Eurodollar Futures and One-Month LIBOR Futures Contracts: For the purpose of this rule
interpretation, buying one butterfly spread (butterfly) means simultaneously buying and selling
contracts with three different expirations in the following proportion: buying one contract with
the most nearby of the three expirations, selling two contracts with the second of the three
expirations and buying one contract with the most deferred of the three expirations. Unless
specifically referenced in this Interpretation, all other futures and options contracts, will continue
to use the Pro Rata Allocation Algorithm. This Implied Order Algorithm for Eurodollar futures
and One-Month LIBOR futures contracts operates as follows:

+ A “Ist Generation Implied In” order for a calendar spread may be derived on the
GLOBEX system from actual orders in the individual contracts or legs of the
calendar spread. E.g., a buy order for 15 contracts at 95.05 in a nearby Eurodollar
futures contract and a sell order for 10 contracts at 95.00 in a deferred Eurodollar
futures contracts creates a Ist Generation Implied In order to buy 10 calendar
spreads at 0.05.

+ A “Ist Generation Implied Out” order for an individual contract may be derived
on the GLOBEX system from (1) actual orders in a calendar spread that includes
that individual contract; and (2) actual orders in the other individual contract that
comprises the calendar spread. E.g., a buy order for 5 contracts at 95.15 in a
nearby Eurodollar futures contract and a sell order for 10 calendar spreads, that
include that nearby contract and a deferred contract, at 0.05 creates an Implied
Out order to buy 5 contracts in the deferred leg of calendar spread at 95.10.

+ A “2nd Generation Implied In” order for a calendar spread may be derived on the
GLOBEX system from (1) actual orders in one individual contract of the calendar
spread; and (2) Ist Generation Implied Out orders in the other individual contract
that comprises the calendar spread.

+ A “2nd Generation Implied Out” order for an individual contract may be derived
on the GLOBEX system from (1) actual orders in a calendar spread that includes
that individual contract; and (2) Ist Generation Implied Out orders in the other
individual contract that comprises the calendar spread.

* Implied In orders for calendar spreads and Implied Out orders for an individual
contract based on orders for calendar spread and another individual contract shall
be for a quantity representing the smaller of the two orders from which the
Implied order is derived.


Ms. Eileen Donovan
September 8, 2006
Page 2 of 12

Amendments to the Interpretation of Rule 580 are presented below, with additions
underlined and deletions bracketed and overstruck:

INTERPRETATION OF RULE 580.— GLOBEX TRADE ALGORITHMS

Pro Rata Allocation Algorithm

The Exchange has determined to use a Pro Rata Allocation Algorithm to match orders in
Eurodollar and One-Month LIBOR futures contracts entered in the GLOBEX Electronic Trading
System. Unless specifically referenced in this Interpretation, all other futures and options
contracts, including Eurodollar options, will continue to use the default matching algorithm
based on price and time priority. Eurodollar futures contracts were chosen to use the Pro Rata
Allocation Algorithm because they usually trade in a narrow price range, and each price level is
represented by size. The Pro Rata Allocation Algorithm operates as follows:

+ After the opening, Time Priority is assigned to the first order at a price that
betters the market when the order is received (the “TOP order”). Only one buy
order and one sell order can have Time Priority at any given time. Orders with
Time Priority (TOP orders) are matched first regardless of size.

+ An order will lose Time Priority when an order at a better price is entered.
Example: An order to buy 50 contracts is entered at 105. This order is the first
order in at this price level. Another order comes in and betters the market, buy 25
contracts at 106. The order at the 106 level has Time Priority now and is the TOP
order. The market sells off and the bid for 25 contracts at 106 is hit. The bid for
50 contracts at 105 does not regain its Time Priority and will be allocated
according to size along with all the other 105 bids.

+ After the Time Priority or TOP order is filled, the Pro Rata Allocation Algorithm
is applied to the remainder of the resting orders at that price level. The Algorithm
will attempt to match quantities to orders in proportion to the size of each order.
Example: There are orders to buy 10 and 20 contracts at the same price, and
neither order has Time Priority. A sell order for 15 contracts at that price is
entered. The Algorithm will match the sell order against the buy orders so that
50% of each buy order is matched. The minimum quantity the Pro Rata
Allocation Algorithm will allocate is two contracts.

. If the "Initial Allocation" results in a fraction, the Algorithm will "Round
Down" or drop the fractional amount. Any contracts still to be allocated after the
"Initial Allocation" has run will be allocated on a first in, first out basis.

Implied Order Algorithm