(b) A majority of any committee or subcommittee will constitute a quorum, and a
majority of a quorum is necessary for committee or subcommittee action. A committee or
subcommittee may act by unanimous consent in writing, including by electronic mail, without a
meeting.

RULE 2.6 VOTING BY INTERESTED BOARD MEMBERS

Commission regulations governing contract markets, such as HedgeStreet, exempt those
markets from Commission Regulation 1.69. However, Core Principle 15 of Section 5(d) of the
CEA requires that contract markets have adequate procedures to prevent conflicts of interest.
Therefore, HedgeStreet has adopted an amended version of Commission Regulation 1.69 as a
Rule of HedgeStreet. Commission Regulation 1.69 prohibits a member of the HedgeStreet board
of directors or any disciplinary or oversight committee or subcommittee from taking part in any
deliberations or voting on any matter in which the board, committee, or subcommittee member
has an interest or has a relationship with a named party in interest. Regulation 1.69 also requires
disclosure by board, committee, or subcommittee members of interests and relationships in
certain circumstances. HedgeStreet board, committee, and subcommittee members shall not
deliberate or vote on any matter in which the board, committee, or subcommittee member has an
interest or has a relationship with a named party in interest and shall disclose such interests in
accordance with Regulation 1.69. Regulation 1.69 as amended to be made applicable to
HedgeStreet is a Rule of HedgeStreet and is included in Chapter 11] of these Rules.

RULE 2.7 INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHERS

HedgeStreet will indemnify to the full extent authorized by law any person who was or is
a party or is threatened to be made a party to any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, or investigative in nature, by reason of the
fact that such person is or was a director, officer, employee, or agent of HedgeStreet or is or was
serving at the request of HedgeStreet as a director, officer, employee, or agent of HedgeStreet
against expenses, including attomeys’ fees, judgments, fines, and amounts paid in connection
with such action, suit, or proceeding. Such indemnification shall not be deemed exclusive of any
other rights to which a person may be entitled under any agreement or as a matter of law or
otherwise. HedgeStreet may purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee, or agent of HedgeStreet against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of such person’s
status as such, whether or not HedgeStreet would have the power to indemnify such person
against such liability under the provisions of this Rule. However, no person shall be indemnified
from liability for fraud, bad faith, willful misconduct, or gross negligence. Further, no person
shall be indemnified against a civil penalty imposed by the Commission under Section 6b of the
CEA.

RULE 2.8 PROHIBITION ON USE OF MATERIAL, NON-PUBLIC INFORMATION
(a) Commission Regulation 1.59 prohibits employees and members of the board of
directors of HedgeStreet from using or disclosing material, non-public information gained
through their employment or board service in certain circumstances. This Rule prohibits the use
8
(Revised 4448:20054/).0/2006)


(i)_¢2}-You are prohibited from engaging in any activity that presents a risk of harm to
HedgeStreet, its Members, Customers or the public.

(j)_4}—You are prohibited from engaging in any activity that adversely affects the
integrity of the Market or its underlying systems.

(k)_}—You are prohibited from intentionally providing erroneous or fraudulent
information to HedgeStreet on your membership application or otherwise.

()_G)}—You are prohibited from violating or failing to timely comply with the terms of
any agreement between you and HedgeStreet or the Clearing Corporation, or any order or
arbitration decision or award of HedgeStreet, NFA or the Clearing Corporation.

(m)_()—Y ou are prohibited from engaging in any activity that is intended to, or has the
effect of, manipulating the market in violation of Sections 6(c) and 9(a)(2) of the CEA and from
engaging in any other activity that would violate the CEA or the Commission’s Regulations.

{n)_4}~You are prohibited from entering any bids, offers or transactions on the Market
when you have, or should know that you are subject to early warning reporting requirements
under Commission Regulation 1.12, are subject to a proceeding in bankruptcy or are otherwise
unable to pay your obligations as they become due, without the prior written approval of
HedgeStreet.

(9) 4##}-Y ou are prohibited from knowingly carrying an account, entering an order or
effecting any transactions for any employee of HedgeStreet or the Clearing Corporation without
the prior written consent of the employer.

(p)_ (You are prohibited from directly or indirectly guaranteeing the execution of an
order to buy or sell a Contract on HedgeStreet, or any of its terms, including quantity and price
unless such order has been executed or reported on the Market.

(g)_(e}- You are prohibited from handling, maintiagmaintaing or soliciting any
Customer orders, accounts or funds unless you are properly registerred with the NFA in
accordance with the CEA and Commission Regulation adopted thereunder to conduct futures-
related business with the public.

RULE_5.25_RUEE-S.23—-SPECULATIVE POSITION LIMITS

(a) HedgeStreet has imposed Speculative Position Limits on certain Classes of Contracts
as defined in Chapter 12 of these Rules. Any Member who exceeds or causes any Person to
exceed a Speculative Position Limit shall be deemed in violation of this Rule $23-5,25, In
addition, any Member accepting or entering bids or offers, if accepted, causing any Person to
exceed the applicable Speculative Position Limit shall be in violation of this Rule.

29
(Revised +448:29054/10/2006)


Contract, Contract month, price and quantity of the transaction. Within five (5) minutes of
reporting the details of the Block Trade, the-Cleariag Member who is the Block Trade buyer (or
whose Customer is the Block Trade buyer) shall confirm such Block Trade on the screen. Block
Trades must be reported to HedgeStreet within five minutes of the Time of Execution. Time of
Execution means the time the agreement is entered into between the buyer and the seller. The
report must include the Contract, Contract month, price and quantity of the transactions.
HedgeStreet shall immediately publish that Block Trade report onto the Market.

(i) Each time a Glearing-Member arranges a Block Trade on the Market, the Clearing
Member has the responsibility of ensuring that the execution of such Block Trade promotes a fair
and orderly Market. Upon the request of HedgeStreet and/or NFA, a-Clearing Member must
provide satisfactory evidence that a Block Trade was arranged in accordance with these Rules.

RULE 5.14 TRANSFER TRADES

(a) A Clearing Member may transfer a trade in ‘Hedgelets from one account to another
account i) within the same Clearing-Member or ii) to another-Clearing Member, provided that the
transfer would not result in a change in beneficial ownership in any ‘Hedgelet, unless the transfer
is made in order to;

(i) correct an error in a previously executed transaction, provided that the
Clearing Member is able to provide evidence of such error in a form prescribed by
HedgeStreet;

(ii) reflect a change in ownership occurring by operation of law due to the
death or bankruptcy of a Person having an ownership interest in such iHedgelet, or;

(iii) facilitate a merger, consolidation, disposition of a line of business,
reorganization, or similar event effecting such Person.

(b) A Clearing Member that transfers an iHedgelet trade shall notify HedgeStreet and
CCorp of the transfer in a manner and form as prescribed by HedgeStreet and CCorp.

(c) Transfers of Clearing Member, Trading Member or Customer trades shall be made at
the historic price at which such transactions were executed.

RULE 5.15 CROSS TRADES

(a) No Member shall enter into a Cross Trade unless the following conditions are
satisfied;

(i) In the case of a Customer order, the Customer has given consent to
enter into such Cross Trade (which may be in the form of a blanket consent);

(ii) During pre-negotiations and in executing Cross Trades for a
Customer, the Clearing Member ensures that;

(1) it acts with due skill, care and diligence, and
25

(Revised 44820054/10/2006)


(e) If the findings of the Disciplinary Committee are contested, the compliance officer’s
report and the Member’s response will be submitted to a HedgeStreet hearing officer. The
hearing officer will conduct a telephonic hearing with the compliance officer and the Member
within 20 days of receipt of the Member’s response contesting the Disciplinary Committee’s
finding and/or proposed sanction and, within 20 days after that hearing, issue findings, which
will be delivered to the Member by electronic mail. Prior to the hearing, the parties may (but
need not) submit proposed findings, briefs, and exhibits (including affidavits), and during the
hearing the parties may present witnesses. The telephonic hearing will be recorded, and all
information submitted by the parties (including the compliance officer’s report and the
Member’s response) as well as the recording of the hearing, will be preserved by the hearing
officer, along with the hearing officer’s findings, as the record of the proceedings (the “hearing
record”). The findings of the hearing officer will contain the following information:

(i) a brief description of the allegations;
(ii) a brief summary of the evidence received;
(iii) findings and conclusions;

(iv) a declaration of any penalty to be imposed on the Member as the
result of the findings and conclusions;

(v) the effective date and duration of that penalty; and

(vi) a statement that the Member has the right to appeal any adverse
decision by the hearing officer to the HedgeStreet board of directors, but must do so
within 15 days.

(f) Either the Member or the compliance officer may appeal the decision of the hearing
officer within 15 days by filing an appeal by electronic mail with the HedgeStreet board of
directors and forwarding a copy to the other parties to the appeal. Any penalties will be stayed
pending appeal unless the hearing officer determines that a stay pending appeal would likely be
detrimental to the exchange, other Members, or the public. The board of directors will review
the hearing record and any information submitted by the compliance officer and the Member on
appeal and issue its decision, which shall be final. The member shall be notified of the decision
by electronic mail. The hearing record, any information submitted on appeal, and the board’s
decisions shall be preserved as the record on appeal. The decision will contain the information
listed in paragraph (e) of this Rule, except for (e)(vi), and will also contain:

(i) a statement that any person aggrieved by the action may have a right to
appeal the action pursuant to Part 9 of the Commission’s Regulations, within 30 days of
service; and

(ii) a statement that any person aggrieved by the action may petition the

Commission for a stay pursuant to Part 9 of the Commission’s Regulations, within 10
days of service.

34
(Revised 44448-29054/10/2006)


(g) ”Closing Trade Value” means the rate, level, amount, measure, or other value of the
Underlying of a Variable Payout iHedgelet Contract at which the iHedgelet is closed in a

ClearingCustomer’s or Member’s account.

(h) “Commodity Futures Trading Commission” or “Commission” means the Federal
regulatory agency established by the Commodity Futures Trading Act of 1974 to administer the
Commodity Exchange Act.

(i) “Customer” has the meaning set forth in Commission Regulation 1.3(k).

(k)_ 4}—“Dollar Multiplier” means the monetary amount by which the rate, level,
amount, measure, or other value of an Underlying of a Variable Payout iHedgelet Contract is
multiplied to determine the Settlement Value.

(1)_4}—“Eligible Contract Participant” has the meaning set forth in CEA Section
1(a)(12).

(n)_()}—“Expiration” or “Expiration Date” means the date established by these Rules
on which the Expiration Value of each iHedgelet Contract is determined.

‘n)._4)—“Expiration Value” means the rate, level, amount, measure, or other value of
the Underlying at Expiration.

(0) (#}—“Fixed Payout iHedgelet” means the right to receive a fixed Settlement Value,
not to exceed $10,000 per contract, from the Clearing Corporation on the Settlement Date
dependent upon whether you are holding a long position or short position in a Fixed Payout
iHedgelet. If you are holding a long position in a Fixed Payout iHedgelet, you have the right to
receive a fixed Settlement Value from the Clearing Corporation on the Settlement Date, if, and
only if, the Fixed Payout /Hedgelet’s Payout Criteria encompasses the Expiration Value at
Expiration. Conversely, if you are holding a short position in a Fixed Payout iHedgelet, you
have the right to receive a fixed Settlement Value if, and only if, the Fixed Payout iHedgelet’s
Payout Criteria does NOT encompass the Expiration Value at Expiration.

(p)_ e}-“Floor” means the minimum rate, level, amount, measure, or other value of the
Underlying of a Variable Payout iHedgelet Contract that may be the Expiration Value or the
Closing Trade Value. If the actual rate, level, amount, measure or other value of the Underlying
meets or falls below the Floor on the Expiration Date, the Floor will be the Expiration Value.

(q) (p}—“iHedgelet Contract”, “iHedgelet” or “Contract” means a Fixed Payout
iHedgelet Contract or a Variable Payout iHedgelet Contract that may only be traded by-Clearing
Members and cleared and settled by the Clearing Corporation..

2

(Revised 4448/26054/10/2006)


(1) Was found within the prior three years by a final decision of a self-regulatory
organization, an administrative law judge, a court of competent jurisdiction or the Commission
to have committed a disciplinary offense;

(2) Entered into a settlement agreement within the prior three years in which any of
the findings or, in the absence of such findings, any of the acts charged included a disciplinary
offense;

(3) Currently is suspended from trading on any contract market, is suspended or
expelled from membership with any self-regulatory organization, is serving any sentence of
probation or owes any portion of a fine imposed pursuant to either:

(i) A finding by a final decision of a self-regulatory organization, an
administrative law judge, a court of competent jurisdiction or the Commission that such person
committed a disciplinary offense; or,

(ii) A settlement agreement in which any of the findings or, in the absence
of such findings, any of the acts charged included a disciplinary offense.

(4) Currently is subject to an agreement with the Commission or any self-
regulatory organization not to apply for registration with the Commission or membership in any
self-regulatory organization;

(5) Currently is subject to or has had imposed on him within the prior three years a
Commission registration revocation or suspension in any capacity for any reason, or has been
convicted within the prior three years of any of the felonies listed in section 8a(2)(D) (ii) through
(iv) of the Act; or

(6) Currently is subject to a denial, suspension or disqualification from serving on
the disciplinary committee, arbitration panel or governing board of any self-regulatory
organization as that term is defined in section 3(a)(26) of the Securities Exchange Act of 1934.

(c) No person may serve on a disciplinary committee, arbitration panel, oversight panel
or governing board of HedgeStreet if such person is subject to any of the conditions listed in
paragraphs (b) (1) through (6) of this Rule.

(d) HedgeStreet shall submit to the Commission a schedule listing all those rule
violations which constitute disciplinary offenses as defined in paragraph (a)(6)(i) of this Rule
and to the extent necessary to reflect revisions shall submit an amended schedule within thirty
days of the end of each calendar year. HedgeStreet must maintain and keep current the schedule
required by this section, post the schedule in a public place designed to provide notice to
members and otherwise ensure its availability to the general public.

(e) HedgeStreet shall submit to the Commission within thirty days of the end of each
calendar year a certified list of any persons who have been removed from its disciplinary
committees, arbitration panels, oversight panels or governing board pursuant to the requirements
of this regulation during the prior year.

44
(Revised 4448/20054/10/2006)


(c) Members of HedgeStreet’s governing boards and committees and HedgeStreet
consultants; HedgeStreet’s Rules. HedgeStreet must maintain in effect Rules which have been
submitted to the Commission pursuant to Section Sc(c) of the Act and Commission Regulations
38.4(a) or 39.4(a) and 40.5 which provide that no member of HedgeStreet’s governing board or
of a committee of HedgeStreet and no HedgeStreet consultant shall use or disclose, for any
purpose other than the performance of such person’s official duties as a governing board or
committee member or consultant, material, non-public information obtained as a result of such
person’s participation on any committee or governing board of HedgeStreet or as a consultant of
HedgeStreet.

(d) Prohibited conduct.

(1) No person who is an employee of, a member of the governing board of, or a
member of any committee of, or a consultant of HedgeStreet shall:

(i) Trade for such person’s own account, or for or on behalf of any other
account, in any commodity interest on the basis of any material, non-public information obtained
through special access related to the performance of such person’s official duties as an employee,
board or committee member, or consultant; or

(ii) Disclose for any purpose inconsistent with the performance of such
person’s official duties as an employee, board or committee member, or consultant, any material,
non-public information obtained through special access related to the performance of such
duties.

(2) No person shall trade for such person’s own account, or for or on behalf of any
account, in any commodity interest, on the basis of any material, non-public information that
such person knows was obtained in violation of paragraph (d)(1) from an employee of, a member
of the governing board of, a member of any committee, or a consultant of a self-regulatory
organization.

RULE 11.2 SERVICE ON SELF-REGULATORY ORGANIZATION GOVERNING
BOARDS OR COMMITTEES BY PERSONS WITH DISCIPLINARY HISTORIES
(ADAPTED FROM COMMISSION REGULATION 1.63)

(a) Definitions. For purposes of this section:

(1) Self-regulatory organization means a “self-regulatory organization” as defined
in Commission Regulation | .3(ee), and includes a “clearing organization” as defined in
Commission Regulation 1.3(d), except as defined in paragraph (b)(6) of this Rule.

(2) Disciplinary committee means any person or committee of persons, or any
subcommittee thereof, that is authorized by a self-regulatory organization to issue disciplinary
charges, to conduct disciplinary proceedings, to settle disciplinary charges, to impose
disciplinary sanctions or to hear appeals thereof.

(3) Arbitration panel means any person or panel empowered by a self-regulatory
organization to arbitrate disputes involving such organization’s members or their customers.

42
(Revised +44820054/ 0/2006)


(A) The most recent large trader reports and clearing records
available to HedgeStreet;

(B) Information provided by the member with respect to positions
pursuant to paragraph (b)(2)(ii) of this Rule; and

(C) Any other source of information that is held by and reasonably
available to HedgeStrect.

(3) Participation in deliberations.

(i) Under the Rules required by this section, a HedgeStreet governing
board, disciplinary committee or oversight panel may permit a member to participate in
deliberations prior to a vote on a significant action for which he or she otherwise would be
required to abstain, pursuant to paragraph (b)(2) of this Rule, if such participation would be
consistent with the public interest and the member recuses himself or herself from voting on such
action.

(ii) In making a determination as to whether to permit a member to
Participate in deliberations on a significant action for which he or she otherwise would be
required to abstain, the deliberating body shall consider the following factors:

(A) Whether the member’s participation in deliberations is
necessary for the deliberating body to achieve a quorum in the matter; and

(B) Whether the member has unique or special expertise,
knowledge or experience in the matter under consideration.

(iii) Prior to any determination pursuant to paragraph (b)(3)(i) of this
Rule, the deliberating body must fully consider the position information which is the basis for the
member’s direct and substantial financial interest in the result of a vote on a significant action
pursuant to paragraph (b)(2) of this Rule.

(4) Documentation of determination. HedgeStreet’s governing boards, disciplinary
committees, and oversight panels must reflect in their minutes or otherwise document that the
conflicts determination procedures required by this section have been followed. Such records
also must include:

(i) The names of all members who attended the meeting in person or who
otherwise were present by electronic means;

(ii) The name of any member who voluntarily recused himself or herself
or was required to abstain from deliberations and/or voting on a matter and the reason for the
recusal or abstention, if stated; and

(iii) Information on the position information that was reviewed for each
member.

48

(Revised 4448-29054/10/2006)


HEDGE
Street.

The Futures of RiskTM

HedgeStreet, Inc.
1825 S. Grant Street
Suite 500

San Mateo, CA 94402

General Telephone
650.638.3500
Facsimile
650.638.3501

www.hedgestreet.com

HedgeStreet Account Number:

Clearing Firm Number (at a Clearing
Organization):

OR

Division Firm Number (Clearing Division of a
Clearing Firm at a Clearing Organization):
The Division referenced above clears through
the following Clearing Firm:

OR (For Trading Members only)

Name of the Clearing Firm:

Block Trading Facility (if applicable):

Clearing Member Operations Contact
Name of Department

Appendix 2

DECLARATION OF
CLEARING AUTHORIZATION

Complete Name of [Company/Individual] Trading Member

Street Address #1

Street Address #2 (optional)

City, State, ZIP Code, Country

Contact Name

Telephone?

Facsimile#

E-mail Address

Street Address #1

Street Address #2 (optional)

City, State

ZIP/ Postal Code

Contact Name

Title/ Position

Telephone #

Facsimile #

© HedgeStreet, Inc.

10f2


RULE 11.1 ACTIVITIES OF SELF-REGULATORY ORGANIZATION EMPLOYEES AND
GOVERNING MEMBERS WHO POSSESS MATERIAL, NON-PUBLIC
INFORMATION (ADAPTED FROM COMMISSION REGULATION 1.59)

(a) Definitions. For purposes of this Rule:

(1) Self-regulatory organization means “self-regulatory organization,” as defined in
Commission regulation 1.3(ee), and includes the term “clearing organization,” as defined in
Commission regulation 1.3(d).

(2) Governing board member means a member, or functional equivalent thereof, of
the board of govemors of a self-regulatory organization.

(3) Committee member means a member, or functional equivalent thereof, of any
committee of a self-regulatory organization.

(4) Employee means any person hired or otherwise employed on a salaried or
contract basis by a self-regulatory organization, but does not include:

(i) Any governing board member compensated by a self-regulatory
organization solely for governing board activities; or

(ii) Any committee member compensated by a self-regulatory
organization solely for committee activities; or

(iii) Any consultant hired by a self-regulatory organization.

(5) Material information means information which, if such information were
publicly known, would be considered important by a reasonable person in deciding whether to
trade a particular commodity interest on a contract market. As used in this Rule, “material
information” includes, but is not limited to, information relating to present or anticipated cash,
futures, or option positions, trading strategies, the financial condition of members of self-
regulatory organizations or members of linked exchanges or their customers or option customers,
or the regulatory actions or proposed regulatory actions of a self-regulatory organization or a
linked exchange.

(6) Non-public information means information which has not been disseminated in
a manner which makes it generally available to the trading public.

(7) Linked exchange means:
(i) any board of trade, exchange or market outside the United States, its
territories or possessions, which has an agreement with a contract market in the United States

that permits positions in a commodity interest which have been established on one of the two
markets to be liquidated on the other market;

40

(Revised +448-20054/10/2006)


RULE 3.4 RULE 33—CLEARING MEMBER OBLIGATIONS

(a) As a Clearing Member, you and/or your Authorized Trader(s) must comply with
these Rules, relevant provisions of the Commodity Exchange Act, and relevant Commission
regulations. You must also cooperate promptly and fully with HedgeStreet, its agents, and any
other Regulatory Agency in any investigation, call for information, inquiry, audit, examination,
or proceeding. Additionally, you must update your e-mail address within 24 hours after it has
changed and update all other information provided in your application for membership within
five days after that information has changed. If you fail to satisfy these obligations, HedgeStreet
may revoke or suspend your privileges in full or in part. You may also be subject to civil or
criminal prosecution.

(b) As a Clearing Member, you consent to allow HedgeStreet to provide all information
HedgeStreet has about you, including your trading activity, to any Regulatory Agency, law
enforcement authority, or judicial tribunal, including (as may be required by information sharing
agreements or other contractual, regulatory, or legal provisions) foreign Regulatory Agencies,
law enforcement authorities, or judicial tribunals.

(c) As a Clearing-Member, you and/or your Authorized Trader(s) are required to review
the “Notices” section of the HedgeStreet website to make yourself aware of material changes to
these Rules or other notices that may affect your rights and obligations as a Clearing- Member of
HedgeStreet.

(d) As a-Clearing Member, you must immediately notify HedgeStreet in writing upon
becoming aware:

(i) that you, any of your officers or any of your Authorized Traders has
had trading privileges suspended, access to, or membership or clearing membership in,
any Regulatory Agency denied;

(ii) that you, any of your officers or any of your Authorized Traders has
been convicted of, pled guilty or no contest to, or entered a plea agreement to, any
felony in any domestic, foreign or military court;

(iii) that you, any of your officers or any of your Authorized Traders has
been convicted of, pled guilty or no contest to, or entered a plea agreement to a
misdemeanor in any domestic, foreign or military court which involves:

(1) embezzlement, theft, extortion, fraud, fraudulent conversion, forgery,
counterfeiting, false pretenses, bribery, gambling, racketeering, or misappropriation of funds,
securities or properties; or

(2) any transaction in or advice concerning futures, options on futures, leveraged
transactions or securities;

(iv) that you, any of your officers or any of your Authorized Traders has
been subject to, or associated with a firm that was subject to regulatory proceedings
before any Regulatory Agency;

12
(Revised +4:4820054/1.0/2006)


(b) Ifa Member fails to reduce any position in a manner and time as directed by
HedgeStreet, HedgeStreet shall have the authority to liquidate the applicable position to a level
below the defined Speculative Position Limit stipulated under the relevant Class of Contracts in
Chapter 12 of these Rules.

(c) In addition to the restrictions and requirements imposed in Section $-235,25(a) and
(b), the first violation of a Speculative Position Limit by a Member shall result in a letter of
waming to be issued by the HedgeStreet Compliance Department to the Member.

(d) In addition to the restrictions and requirements placed in Section $-235,25(c), any
subsequent violation of a Speculative Position Limit within the preceding 12 months by a
Member shall result in the issuance of a second letter of warning to the Member and the
suspension or revocation of membership privileges in accordance with Chapter 9 of these Rules.

(e) Position limits shall apply to i) all positions in accounts for which any Person by
power of attorney or otherwise, directly or indirectly holds positions or controls trading, and ii)
positions held by two or more Persons acting pursuant to an express or implied agreement or
understanding the same as if the positions were held by, or the trading of the position were done
by, a single individual.

CHAPTER 6 CLEARING AND SETTLING HEDGELET FRADES AND
#HEDGELEFOF CONTRACTS-AFT-EXPIRATION,

RULE 6.1 CLEARING AND SETTLING iHEDGELETS-FOR-CLEARING MEMBERS

(a) Settlement of iHedgelet trades and expirations will be conducted in accordance with
the by-laws and rules of the Clearing Corporation.

(i)expressly define the Contracts covered thereunder and whether

30
(Revised 4148/20054/10/2006)


HEDG!
Street

CHAPTER 3 - MEMBERSHIP

Rule 3.1(c)

HedgeStreet added new Rule 3.1(c) in order to stipulate certain agreements that are
required to be in place between Trading Members and Clearing Members. The first
agreement requires that the Clearing Member agree to guarantee and clear all Trading
Member transactions executed on the Market or in accordance with HedgeStreet Rules
(Appendix 3). The second agreement is a declaration by the Clearing Member that it
authorizes the Trading Member to engage in specified activities as well as trade the
products stipulated in the declaration (Appendix 2).

Rule 3.1(g)
HedgeStreet added new rule 3.1(g) in order to allow any member to become a Clearing
Member if such member has been approved in accordance with the rules of CCorp.

Rule 3.4(f

HedgeStreet added new rule 3.4(f) requiring Trading Members to maintain a net worth of at
least $50,000 similar to Clearing Members that are not FCMs, while Trading Members that
are FCM’s will be required to comply with the financial requirements set forth by the
Commission, NFA or other contract markets.

Rule 3.4(g)

HedgeStreet added new rule 3.4(g) requiring Trading Members to ensure that all
transactions effected in /Hedgelets be carried in an account or accounts of FCMs that are
Clearing Participants of the Clearing Corporation.

CHAPTER 5 - METHOD FOR MEMBERS TO TRADE IHEDGELET
CONTRACTS

Rule 5.4(b

HedgeStreet added new Rule 5.4(b) to ensure that Trading Members deposit sufficient
funds to cover the maximum loss of any transaction entered on the market no later than the
day after the execution of such transactions on the market in accordance with HedgeStreet’s
amended DCM Order dated December 5, 2005.

1825 S. Grant Street
‘Suite 500
‘San Mateo, CA 94402
Tel: 650.638.3500
www.hedgestreet.com Fax: 650.638.3501


(b) For the purpose of this Rule, a “limit order” is an order to buy or sell the number of
Contracts you specify at the price you specify, or a better price if a better price is available.

RULE 5,12 TRADING AGAINST CUSTOMER ORDERS IS PROHIBITED

(a) No-Clearing Member or Authorized Trader in possession of a Customer order may
knowingly enter into a transaction for such order directly or indirectly for him/herself or any
other Person with whom such Person has a direct or indirect financial interest.

(b) The restriction imposed by Rule 5,12(a) will not apply to the following transactions;
(i) Transactions executed pursuant to Rule 5.13;

(ii) Transactions where a Customer has consented in writing no more than
12 months prior to the transaction to waive the restriction imposed in Rule 5.12(a).
Such transactions shall also be subject to the following conditions;

(1) the transaction shall conform to the requirements of Rule 5.15;

(2) the Member shall clearly identify all of the terms of such transactions, including
i) time of execution, ii) name of the Customer, iii) Series of Contract, iv) the date, v) price and
vi) quantity.

RULE 5.13 BLOCK TRADES

(a) Clearing Members acting on their own behalf or on behalf of their Customers, may
enter into privately negotiated transactions with respect to any Class of iHedgelet Contract
approved by HedgeStreet for such purpose (hereinafter referred to as “Block Trades”) provided
that all of the following conditions of this Rule 5.13 are met:

(b) Each party to a Block Trade must be a Clearing-Member or its Customer that
qualifies as an Eligible Contract Participant, provided that, if the Block Trade is entered into on
behalf of a Customer by a commodity trading advisor (‘CTA”) registered with the Commission
or NFA}“NFA“), or any investment advisor registered as such with the Securities and
Exchange Commission that is exempt from CTA registration under the CEA or Commission
regulations, in either case with total assets under management exceeding US $25 million, the
Customer need not be an Eligible Contract Participant.

(c) A-Clearing Member may not take the opposite side of a Block Trade with a Customer
without such Customer’s prior written consent, which may be in the form of a blanket consent to
all transactions effected after such consent is given.

(d) A Gleating-Member may effect a Block Trade on behalf of a Customer only if the
learing Member has received an order to do so from the Customer. Such order must be
recorded and time-stamped with the time the order is placed and the time the order is executed.

(e) Each buy or sell order underlying a Block Trade must:

23
(Revised 444820054/1.0/2006)


and disclosure forbidden by Commission Regulation 1.59. As amended, a form of Regulation
1.59 is a Rule of HedgeStreet and is set forth in Chapter 11 of these Rules for your information.

(b) No member of the board of directors or any committee established by the board of
directors or these Rules will use or disclose material, non-public information obtained as a result
of participation on the board of directors or such committee for any purpose other than the
performance of official duties as a board or committee member.

(c) No employee, consultant, or member of the board of directors or any committee of
HedgeStreet will disclose to any other person material, nonpublic information obtained as a
result of such person’s employment for purposes inconsistent with such person’s official duties.

(d) No employee, consultant, or member of the board of directors or any committee of
HedgeStreet will trade for such person’s account, or for or on behalf of any other account, in any
commodity interest on the basis of any material, non-public information obtained through special
access related to the performance of such person’s duties as an employee, consultant, or member
of the board of directors or committee.

(e) For purposes of this Rule, the terms “material information,” “non-public
information,” “linked exchange,” “commodity interest,” and “related commodity interest” have
the same meanings as they do in Commission Regulation 1.59.

(f) Any director, officer, or employee of HedgeStreet who violates any provision of this
Rule will be required to indemnify HedgeStreet for any losses, damages, or costs caused by that
violation.

CHAPTER 3 CLEARING MEMBERSMEMBERSHIP
RULE 3.1 ELIGIBILITY AND APPLICATION PROCEDURES
(a) To be eligible to become a-Clearing Member:
(i) if you are a natural person, you must;
(1) reside in the United States,
(2) certify that you are old enough to enter into a legally enforceable contract,
(ii) if you are an entity, you must
(1) be organized in the United States,
(2) certify that you are validly organized, in good standing, and authorized by your

governing body and, if relevant, documents of organization, to trade commodities, futures and
options contracts,

‘Ovi
ntro}_the entity applicant;

(Revised 4448/29054/10/2006)


RULE 3.5 RULE-34—COMMUNICATIONS BETWEEN HEDGESTREET AND
CLEARING-MEMBERS

You must provide HedgeStreet with your current electronic mail address and
immediately (and in any event within 24 hours) update that address whenever it changes. All
communications between HedgeStreet and you, including confirmation of all transactions
executed in your account, will be transmitted by electronic mail and/or posted on the
HedgeStreet website. You will be responsible for promptly reviewing and, if necessary,
responding to all electronic communications from HedgeStreet.

RULE 3.6 RULE-3.S—AUTHORIZED TRADERS

(a) Clearing Members other than natural persons must apply for authorization for all
Trader(s) who will access their accounts. Only Authorized Traders authorized by HedgeStreet
and the-Clearing Member may enter and execute transactions on the Market. Before an
Authorized Trader may enter orders or execute trades on the Market, he/she must acknowledge
having read and understood these Rules and agree to comply with these Rules.

(b) A Clearing Member may be required to submit evidence of the authority of an
Authorized Trader to act on behalf of the Clearing Member and such other information about any
Authorized Trader as HedgeStreet may request. A person may be conditionally approved as an
Authorized Trader of a-Clearing Member subject to any conditions HedgeStreet may consider
appropriate in the interests of promoting a fair and orderly market.

(c) HedgeStreet may withdraw or suspend the registration of any Authorized Trader of
any Clearing-Member if HedgeStreet determines that;

(i) an Authorized Trader has caused the Clearing-Member to fail to
comply with the Rules of HedgeStreet;

(ii) an Authorized Trader is not properly performing the responsibilities
of an Authorized Trader of a-Clearing Member or Market Maker;

(iii) an Authorized Trader has failed to comply with the conditions set
forth in paragraph (b) of this Rule; or

(iv) it is the best interests of maintaining a fair and orderly market to do
so.

(d) If HedgeStreet suspends the registration of any Authorized Trader, the Clearing
Member must ensure that the suspended Authorized Trader does not submit any quotes or orders
into the HedgeStreet system.

(e) The registration of an Authorized Trader will be withdrawn upon the written request
of the-Clearing Member for which an Authorized Trader is registered. Such written request shall
be submitted in a manner prescribed by HedgeStreet. Until such written request is received, or
an Authorized Trader’s registration is suspended or withdrawn pursuant to paragraph (c) of this

15
(Revised H4820054/] 0/2006)


(d)_(>}-HedgeStreet may investigate any Member applicant, Authorized Trader
designate, or other Person associated with an applicant.

(e)_(¢}-Submission of your membership application to HedgeStreet constitutes your
agreement to be bound by these Rules and other policies of HedgeStreet.

(f)_(4)}-HedgeStreet may in its sole discretion approve, deny, or condition any Member
application as HedgeStreet deems necessary or appropriate.

ligible for reapplicati ing the six months immediately following such deni

RULE 3.3 RULE 3.2—PRIVILEGES

(a) If your application as a Clearing-Member is approved by HedgeStreet, you will be a
Clearing Member of HedgeStreet and will have the following-Clearing Member privileges,
which HedgeStreet may revoke, amend, or expand in accordance with, or by amending, these
Rules;

(i) to buy ‘Hedgelets for your own account or the account of your
Customers, subject to these Rules and the rules of the Clearing Corporation;

(ii) to sell #Hedgelets for your own account or the account of your
Customers, subject to these Rules and the rules of the Clearing Corporation;

(iii) to view “real-time” the same best bids to buy and offers to sell
iHedgelets traded on the Market as are available to all other Clearin- Members;

(iv) to receive access to the Market via the HedgeStreet website or a
dedicated private circuit;

(v) to view the current trading volume and open interest for the Contracts
traded on the Market; and

(vi) to view all non-secure parts of the HedgeStreet website, including

these Rules, description of iHedgelets traded on the Market as well as all secure parts of
the HedgeStreet website.

N
(Revised 44820084/10/2006)


(i) explicitly state that it is to be, or may be, executed by means of a
Block Trade; and

(ii) be for at least the applicable minimum threshold (“Block Size”) as
specified in the chart below:

(f) A Clearing Member may not aggregate separate Customer orders to meet the Block
Size requirements set forth in Rule 5.13(e)(ii), except that a Cleariag- Member with total assets
under management exceeding $25 million and who is an investment adviser with the Securities
and Exchange Commission, registered as a commodity trading-adviserCTA with the
Commission, or exempt from any such registration on the condition that any aggregated block
trade order executed by such exempt member is suitable for all Customers involved in such
Block Trade or a foreign Person performing a similar role or function subject as such to foreign
regulation may aggregate multiple orders to meet the Block Size for a Block Trade.

(g) The price at which the Block Trade is executed must be “fair and reasonable” in light
of:

(i) the size of the Block Trade;

(ii) the price and size of other transactions in the same Contract at the
relevant time;

(iii) the price and size of transactions in other relevant markets, including,
without limitation, the underlying cash and futures market (if applicable) at the relevant
time, or

(iv) the circumstances of the market or the parties to such block trades.

(h) Immediately upon agreeing to enter into a Block Trade transaction, or upon the
opening of the Market, if the transaction is agreed to be entered into by the parties at a time when
the Market is closed, the Cleating- Member who is the Block Trade seller (or whose Customer is
the Block Trade seller) shall report the details of the Block Trade on the screen. The report shall
include the name of the selling Cleating-Member, the name of the buying Clearing Member, the

Hede has Juded in-this submission the series of dHedgelets shatwill-be-eligibh cage in-block
‘i here sine requl fe a at des bs
24

(Revised HA829054/10/2006)


(c) The chief executive officer of HedgeStreet must be a member of the board of
directors. In the absence of the chairman, the chief executive officer will perform the chairman’s
duties. In the event of a disagreement between the chief executive officer and the board or the
chairman of the board as to an exchange matter, the chairman and/or board shall control.

(d) Subject to the direction of the board of directors and the chief executive officer, the
president will manage the day-to-day business of the exchange and is the chief operating officer
of the exchange. In the absence of the chief executive officer, the president will perform the
chief executive officer’s duties.

(e) The treasurer of HedgeStreet will be responsible for all funds and stock of
HedgeStreet and in general perform all duties incident to the office of treasurer and such other
duties as from time to time may be assigned by the chief executive officer or the board of
directors.

(f) The secretary of HedgeStreet will keep the minutes of the meetings of the board and
in general perform all duties incident to the office of secretary and such other duties as from time
to time may be assigned by the chief executive officer or the board of directors.

RULE 2.4 EMERGENCY RULES

(a) HedgeStreet may adopt emergency Rules in response to the emergencies that are
described in paragraph (c) of this Rule. In the event of one of those emergencies, the board of
directors may, without giving prior notice to, or securing prior approval from, the Commission,
adopt a temporary emergency rule to address the emergency. Adoption of a temporary
emergency rule requires the affirmative vote of two-thirds of the members of the board at a
meeting of the board at which a quorum is present. HedgeStreet may count a member of the
board of directors who abstains from voting on a temporary emergency mule to determine
whether a quorum exists.

(b) Any temporary emergency rule adopted under this Rule may authorize HedgeStreet
to act as the board of directors deems necessary or appropriate to meet the emergency, and those
actions may adversely affect your ability to trade on the Market. Therefore, the chance of an
emergency is one of the risks you should consider when deciding whether to trade on the Market.

(c) For the purposes of this Rule, an “emergency” is:

(i) any activity that manipulates or attempts to manipulate the Market;

(ii) any actual, attempted, or threatened corner, squeeze, or undue
concentration of positions;

(iii) any circumstance that may materially affect the performance of the
iHedgelet traded on HedgeStreet;

(iv) any action taken by the United States, any foreign government, any
state or local governmental body, any other contract market or board of trade, or any

6

(Revised 4448/20084/10/2006)


Source Agency. Unless otherwise specified in these mules, this Series shall have an Expiration
Date that is equal to the Last Trading Date of the current quarter as defined by the Source
Agency. For example, if the Source Agency reports a level for the Underlying every February,
May, August and November, a Bi-Annual Contract will have a Payout Criterion based on the
level reported in May with the Expiration Value based on the level of the Underlying scheduled
to be released in November.

(k) YEAR-END CONTRACTS means a Series of Contracts that have a Payout Criterion
based on the last reported level of the Underlying by the Source Agency prior to the issuance
date of the Contract. Unless otherwise specified in these rules, this Series of Contracts shall have
an Expiration Date that is equal to the Last Trading Date of the current year.

(1) TWO MONTH CONTRACTS mean a Series of Contracts that have a Payout
Criterion based on the last reported level of the Underlying from two months back as released by
the Source Agency. Unless otherwise specified in these mules, this Series shall have an
Expiration Date that is equal to the Last Trading Date of the current month as defined by the
Source Agency.

(m) HALTED MARKETS - In the event that any market irregularities are declared by
the President of the Exchange, a Hedgelet market may be halted for trading, and an explanation
will be posted on the HedgeStreet Notices section of the website within a reasonable amount of
time but no later than 24 hours after the initiation of the halt.

(n) CONTRACT MODIFICATIONS - Specifications shall be fixed as of the first day of
trading of a contract. If any U.S. governmental agency or body issues an order, ruling, directive
or law that conflicts with the requirements of these mules, such order, nuling, directive or law
shall be construed to take precedence and become part of these rules, and all open and new
contracts shall be subject to such government orders.

50
(Revised 4448/20054/10/2006)


TABLE OF CONTENTS

INTRODUCTION

CHAPTER | DEFINITIONS ..
RULE 1.1 DEFINITION!

CHAPTER 2 MARKET GOVERNANCE...
RULE 2.1 POWERS OF HEDGESTREET’S BOARD OF DIRECTORS..
RULE 2.2 RESTRICTIONS ON WHO MAY BE MEMBERS OF THE BOARD,

MEMBERS OF DISCIPLINARY COMMITTEES, MEMBERS OF
ARBITRATION OR OVERSIGHT PANELS, OR TEN PERCENT
OR GREATER OWNERS
RULE 2.3 OFFICERS OF HEDGESTREET .
RULE 2.4 EMERGENCY RULES...
RULE 2.5 COMMITTEES AND SUBCOMMITTEE:
RULE 2.6 VOTING BY INTERESTED BOARD MEMBERS ....
RULE 2.7 INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHERS..
RULE 2.8 PROHIBITION ON USE OF MATERIAL, NON-PUBLIC
INFORMATION ..... an ssseee

CHAPTER 3 CLEARING MEMBERS|
RULE 3.1 ELIGIBILITY AND APPLICATION ‘PROCEDURES
RULE 3.2 PRIVILEGES }OREJECTION OF APPLICANT
CLEARING— ry
RULE 3.3 Pk VILEGES
RULE 3.4 MEMBER OBLIGATIONS.
RULE 343.5 COMMUNICATIONS BETWEEN HEDGESTREET AND

CLEARING-MEMBERS ...
RULE 3-53.6 AUTHORIZED TRADERS ..
RULE 3.63.7 DUES, FEES, AND EXPEN:
MEMBERS....

CHAPTER 4 MARKET MAKERS
RULE 4.1] REGISTRATION OF MARKET MAKERS.
RULE 4.2 APPOINTMENT OF MARKET MAKERS
RULE 4,3 BENEFITS OF BECOMING A MARKET MAKER.
RULE 4.4 OBLIGATIONS OF MARKET MAKER.........

CHAPTER 5 METHOD FOR CLEARING-MEMBERS TO TRADE iHEDGELET
CONTRACTS...

RULE 5.1 PRIOR REVIE
THESE RULES AND ACCEPTANCE OF TERMS OF

MEMBERSHIP AGREEMENT IS REQUIRED.

ii


or Authorized Trader receives ana Customer order that cannot be immediately entered into the
HedgeStreet system, such Clearing-Member or Authorized Trader must prepare a written record
of the order and include the account designation, date and time of receipt and order instructions.
The written record of the order shall be time-stamped and appropriately indicate whether the
order was not-exeeuted; executed or cancelled.

(b) All time-stamps required under this Rule 5.6 must show the time to the nearest
minute.

(c) All written orders and any other original records pertaining to orders entered through
the HedgeStreet system must be retained for no less than five years. For orders that were entered
immediately upon receipt into the HedgeStreet system, the information contained in the
HedgeStreet system shall be deemed the original records of the transaction.

RULE 5.7 WITHHOLDING ORDERS PROHIBITED

(a) No-Gleating Member or Authorized Trader may withhold or withdraw from the
market any order or any part of an order for the benefit of any Person other than the Person
placing the order.

RULE 5.8 DISCLOSING ORDERS PROHIBITED

(a) It is a violation of this Rule 5.8 for any Person to disclose another Person’s order to
buy or sell iHedgelets except as may be requested by HedgeStreet or the Commission.

(b) It is a violation of this Rule 5.8 for any Person to take action or direct another Person
to take action based on non-public order information, however acquired.

RULE 5.9 ERRORS IN HANDLING ORDERS BY CLEARHNG-MEMBERS,

(a) If a Clearing Member (or an Authorized Trader of the Clearing Member), fails to
execute a Customer order or under buys or under sells on a Customer order (collectively
“Unfilled Order”), the Cleari#g-Member shall execute the order or the remainder of the order in
the market to correct the error made as a result of the Unfilled Order (“Filled Order”). If the
Filled Order is executed at a worse price than the Customer should have received but for the
Unfilled Order, the-Clearing Member may allocate the Filled Order to its error account and
assign the opposite side of the order to its error account at the price the Customer was entitled. If
the Filled Order is executed at a more favorable price, the Customer is entitled to the better price.

(b) If a Clearing Member executes i) a Customer order in the wrong Type, Class and/or
Series, andor ii) an order on the wrong side of the market (e.g. enters a buy order instead of a
sell order or enters a sell order instead of a buy order) (collectively, “Erroneous Execution”), and
the Erroneous Execution has been placed in the Clearing Member’s error account, the Erroneous
Execution may be corrected by executing the order with the correct terms (“Corrected
Execution”). If the Corrected Execution is executed at a worse price due to the Erroneous
Execution, the Clearing Member shall make an adjustment by check in a sufficient amount to
ensure that the Customer receives the better price.

21
(Revised +448/20054/10/2006)


(ii) To update quotations in response to changed market conditions in all
Designated Classes to which the Market Maker is appointed

CHAPTER 5 METHOD FOR-CLEARING MEMBERS TO TRADE iHEDGELET
CONTRACTS

RULE 5.1 PRIOR REVIEW OF RISK DISCLOSURE STATEMENT AND THESE RULES
AND ACCEPTANCE OF TERMS OF MEMBERSHIP AGREEMENT IS
REQUIRED

You may not trade jHedgelet Contracts on the Market until you have received, read,
understood, and accepted these Rules and the HedgeStreet Membership Agreement, and have
certified that you have done so. If you are a Clearing-Member that is not an Eligible Contract
Participant, you may not trade /Hedgelet Contracts on the Market until you have received, read,
understood and accepted the HedgeStreet Risk Disclosure Statement.

RULE 5.2 CLEARING MEMBER ACCESS TO HEDGESTREET

(a) During the HedgeStreet membership application process, you will be required to
choose a user identification (“ID”) and password. You will be required to enter the ID and
password to log onto and access secure portions of the HedgeStreet website. Each time you
submit your unique user ID and password to HedgeStreet to log onto HedgeStreet, you affirm
that you understand and agree to be bound by these Rules and other policies of HedgeStreet, as
amended.

(b) As a Clearing-Member, you will be able to access the Market, execute trades, and
otherwise access information regarding, or perform functions in, your account using your ID and
unique password.

(c) For account security and audit trail purposes, HedgeStreet will maintain logs of your
IP address when you are logged into the HedgeStreet website.

(d) You will be responsible for protecting your ID and password from improper
disclosure, and you may not knowingly or negligently permit any person not authorized by
HedgeStreet and by you to use your ID and password to access the secure portion of the
HedgeStreet website. You are required to immediately notify HedgeStreet if you know, or if you
have reason to believe, that your ID and/or password have been disclosed to any person not
authorized by HedgeStreet and you to use your ID and/or password. You will have reason to
believe that your ID and/or password have been disclosed to an unauthorized person 12 hours
after a trade is executed by that person in your account

(e) You will be liable for all costs and any losses that you may incur from transactions
executed on HedgeStreet by any person, authorized or not, using your ID and password.
HedgeStreet will not be responsible in any way for unauthorized transactions in your account.

(f) You are responsible for contracting with an Internet service provider and/or obtaining
a dedicated private circuit through which you will access the HedgeStreet Market and for having
a backup service provider and/or dedicated private circuit if you think it is necessary. If your

18

(Revised 41-4820054/10/2006)


HEDGE
Street

and to close or transfer to another Designated Clearing Member the positions of the
Trading Members for which the Clearing Member is responsible.

Rule 6.3
HedgeStreet added new Rule 6.3 to impose a responsibility on all Members to assist
Designated Clearing Members in the clearing of Contracts.

Rule 6.3(a)(i) requires all Members to provide a contact person available to assist in
resolving questions concerning Contracts at all times. Rule 6.3(a)(ii) allows Designated
Clearing Members the right and power to resolve any disputes relating to transactions by
the Member in a manner such Designated Clearing Member deems appropriate, if a
Member’s contact person cannot be reached.

Rule 6.4

HedgeStreet added new rule 6.4 requiring a Designated Clearing Member that is not ready,
willing or able to fulfill its contractual obligation in any maturing contract, to have the
responsibility of entering a liquidating transaction on the Market for such maturing
contracts.

Miscellaneous Rule Additions

HedgeStreet has added a few additional rules that relate to all members of the exchange as
well as made some grammatical edits. Additional rule amendments that are not
grammatical edits are briefly explained below.

Rule 2.3(a’

Pursuant to the recent equity investment by CBOE II, LLC and Norwest, HedgeStreet
added two additional board seats onto its board of directors and therefore, currently has a
total of seven board members. In addition, HedgeStreet amended the term that the member
of the Board of Directors may serve in order to ensure that this Rule is consistent with the
HedgeStreet By-Laws.

1825 S. Grant Street
Suite 500
‘San Mateo, CA 94402

Tel: 650.638.3500
www.hedgestreet.com Fax: 650.638.3501


HEDGE
Street

Rule 5.20(a) and Rule 5.21(a)

HedgeStreet added new rule 5.20(a) and rule 5.21(a) giving HedgeStreet the authority to
cancel orders and transactions entered by Trading Member or Clearing Members, if a
Clearing Member’s authorization to clear and settle transactions has been terminated.

Rule 5.24(g
HedgeStreet added new rule 5.24(g) prohibiting Trading Members from entering

transactions on the market unless such Trading Member has the prior written authorization
from the Designated Clearing Member.

Rule 5.24(h)

HedgeStreet added new rule 5.24 (h) prohibiting Clearing Members from knowingly
carrying an account, entering an order onto the Market or effecting any transaction in any
Contract for a Trading Member for which such Clearing Member is not the Designated
Clearing Member unless the Designated Clearing Member of record gives its consent to
engage in this activity.

CHAPTER 6 - CLEARING AND SETTLING OF CONTRACTS

Rule 6.2

HedgeStreet added new rule 6.2 requiring Trading Member applicants to enter into a
guarantee agreement with a Clearing Member that will be designated as such applicant’s
Designated Clearing Member prior to being approved as a Trading Member of
HedgeStreet. This agreement will require that the Designated Clearing Member guarantee
and assume all financial responsibility for all transactions entered by such Trading Member
as well as require such Designated Clearing Member to be a party to all disputes arising
from trades between the Trading Member and other Members (Appendix 3).

Rule 6.2(c) also requires that there be a declaration agreement in place between a Trading
Member and Designated Clearing Member allowing the Trading Member to effect trades
on the Market. The declaration must i) define the Contracts that the Trading Member may
effect transactions in and ii) provide that the Designated Clearing Member shall be
responsible for payment to HedgeStreet of all of the Trading Member’s HedgeStreet related
fees (Appendix 2).

Rule 6.2(d) allows the Designated Clearing Member to terminate the relationship with a
Trading Member for any reason upon prompt notice to the Trading Member and
HedgeStreet. Rule 6.2(d)(i) stipulates that the termination will not be effective until all
positions are closed out, cancelled or transferred to another Clearing Member.

Rule 6.2(e) allows the Clearing Corporation to terminate the authorization of a Designated
Clearing Member. Upon notice by the Clearing Corporation, HedgeStreet shall take
immediate action to ensure that the Clearing Member no longer has access to the Market

1825 S. Grant Street
Suite 500
‘San Mateo, CA 94402
Tel: 650.638.3500
www-hedgestreet.com Fax: 650.638.3501


other exchange, market, facility, or trade association (foreign or domestic) that may
have a direct impact on trading on HedgeStreet;

(v) any circumstances that may have a severe, adverse impact upon the
physical functions of HedgeStreet including, for example, natural disasters such as fire
or flood, terrorist acts such as bomb threats, physical plant breakdowns such as
plumbing, heating, or air conditioning problems, system breakdowns such as power,
telephony, cable, trading systems, or computer systems failures or interruptions to
communications, the network, or the Internet;

(vi) the imposition of any injunction or other restraint by any government
agency, court, or arbitrator that may affect the ability of a Member to perform on
Contracts;

(vii) any circumstance in which it appears that a HedgeStreet Member or
any other person is in such operational condition, or is conducting business in such a
manner, that such person cannot be permitted to continue in business without
jeopardizing the safety of HedgeStreet Members or HedgeStreet itself; and

(viii) any other unusual, unforeseeable, and adverse circumstance which,
in the opinion of the governing board, requires immediate action and threatens or may
threaten such things as the fair and orderly trading in, or the liquidation of or delivery
pursuant to ‘Hedgelets traded on HedgeStreet,

(d) If deemed necessary to combat perceived market threats caused by an emergency, a
HedgeStreet official authorized to do so may suspend trading on the Market during the duration
of the emergency or take any other action that the official thinks is necessary or appropriate. The
official will order an end to the action taken in response to the emergency as soon as the official
determines that the emergency has sufficiently abated to permit the Market to function properly.

(e) HedgeStreet will make every effort practicable to notify the Director of the Division
of Market Oversight, his delegates, and/or other persons designated by the Commission’s
Regulations that HedgeStreet intends to implement, modify, or terminate a temporary emergency
tule pursuant to Rule 2.4(a) or an action in response to an emergency pursuant to Rule 2.4(d)
prior to the implementation, modification, or termination of the rule or action. If it is not
possible to notify the Commission prior to the implementation, modification, or termination of
the rule or action, HedgeStreet will notify the Commission of the implementation, modification,
or termination of the rule or action at the earliest possible time, and in no event more than 24
hours after implementation, modification, or termination.

(f) Any time that HedgeStreet takes action in response to an emergency, either under
Rule 2.4(a) or Rule 2.4(d), HedgeStreet will document its decision-making process and reasons
for taking emergency action.

RULE 2.5 COMMITTEES AND SUBCOMMITTEES

(a) The HedgeStreet board of directors may create, appoint members of the board to
serve on, and delegate powers to, committees and subcommittees.
7

(Revised 44-42:29054/10/2006)


Appendix 1

DRAFF
HEDGESTREET, INC. INSTITUTIONAL

RULES


(v) that you, any of your officers or any of your Authorized Traders is
currently a party to any investigation or proceeding, the resolution of which could result
in an event described in Rule 3-33.4(d)(i)-(iv);

(vi) of any other material change in any information contained in the
Clearing Member’s membership application;

(vii) of any failure to maintain segregated funds as required by the
Commission when the Member is a Clearing Member_or a futures commission

merchant;
(viii) of becoming subject to early warning reporting under Commission
Regulation 142-when-the Memb Clearing Member-andL.12,;

(ix) of becoming the subject of a bankruptcy proceeding or being unable
to meet any financial obligation as it becomes due-, and;

equipment of the Member lo affst ansavionson the Mat ovaubiet io these Rules
angio the case ofa Clearing Member. 1o clear icansaclions effected on the Markel or
subject to these Rules, or t ation under
rin connection with tanssctions effected on ihe Markel or subject to. le Rules.

(e) As a-Clearing Member, you must diligently supervise all activities of your employees
and/or agents, including all Authorized Traders, relating to transactions effected on HedgeStreet
t les. Any violation of these Rules by any employee and/or agent, including
the Authorized Trader of a Clearing: Member shall constitute a violation of the Rules by such
‘Clearing Member.

(f) If you are a-Cleariag Member that is not an FCM, you must at all times maintain a net
worth! at or in excess of $50,000, provided-that, however, if you are a Clearing Member and
such amount is set-below the financial requirements of CCorp relating to CCorp Participant
qualifications, in-whieh-case-CCorp financial requirements shall be controlling. If you are a
Clearing Member that is also an FCM, you must comply with the financial requirements set forth
by the Commission, NFA and other contract markets.

(h)_¢s}-As a-Clearing Member, you must only handle, maintain and/or solicit Customer
orders, accounts or funds if you are properly registered with the NFA in accordance with the
CEA and Commission Regulations adopted thereunder to conduct futures-related business with
the public.

” For purposes of these rules, “Net Worth’ shall have the same meaning as “net asset value” pursuant to Commission
Regulation 4,10(b).
13

(Revised H-+8-29054/10/2006)



HEDGE
Street

April 13, 2006

VIA EMAIL: secretary@efte.gov

Ms. Jean A. Webb

Secretary of the Commission

Commodity Futures Trading Commission
3 Lafayette Centre

1155 21st Street, N.W.

Washington, D.C. 20581

RE: Certification: HedgeStreet introduces Trading Members on the
HedgeStreet Intermediated Market - Submission pursuant to Commission
Regulation §40.6

Dear Secretary Webb:

Pursuant to Section Sc(c)(1) of the Commodity Exchange Act, as amended (‘‘Act”), and
§40.6(a) of the regulations promulgated by the Commodity Futures Trading Commission
(the “Commission”) under the Act, HedgeStreet, Inc. (“HedgeStreet”) hereby submits rules
relating to the introduction of a new class of members on the HedgeStreet Intermediated
Market called Trading Members. In addition, HedgeStreet has added a few additional rules
as they relate to all members of HedgeStreet as well as made some grammatical edits to the
Intermediated Rules subsequent to such rules being approved by the Commission pursuant
to Regulation §40.5 on December 5, 2005.

The Rule amendments are explained in Exhibit A and a redlined version of the applicable
tules are contained in Appendix 1. In addition, HedgeStreet has also included with this
Certification the following three appendices:

- Appendix 2 - Clearing Authorization
- Appendix 3 - Clearing Guarantee
- Appendix 4 - Change of Clearing Relationship

All rule deletions are stricken out and amendments or additions are underlined.

1825 S. Grant Street

Suite 500

San Mateo, CA 94402

Tel: 650.638.3500
www.hedgestreet.com Fax: 650.638.3501


(c) suspension of membership status or privileges for a specified period, including partial
suspension of such privileges (for example, suspension of trading privileges in particular types of
Contracts or of placement of certain types of orders); and

(d) revocation of membership status or privileges, including partial revocation of such
privileges (for example, revocation of trading privileges in particular types of Contracts or of
placement of certain types of orders).

RULE 9.6 SUMMARY SUSPENSION

(a) HedgeStreet may summarily suspend or restrict a Member (or any of its authorized
representative’s) privileges if the chairman and the chief executive officer believe suspension or
restriction is necessary to protect the commodity futures markets, HedgeStreet, the public, or
other Members. If either the chief executive officer or the chairman or an entity with whom the
chief executive officer or chairman is associated has a financial, personal, or other direct interest
in the matter that is the basis of the summary action, the chief executive officer and/or chairman
will not make any decision with respect to summary action and that decision will instead be
made by a member of the board of directors chosen by a compliance officer to act in the place of
the chief executive officer and/or chairman.

(b) Whenever practicable HedgeStreet will notify the Member whose privileges are to be
summarily suspended by electronic mail before the action is taken. If prior notice is not
practicable, the Member shall be served with notice by electronic mail at the earliest opportunity.
This notice shall:

(i) state the action taken or to be taken;
(ii) briefly state the reasons for the action;

(iii) state the time and date when the action became or becomes effective
and its duration; and

(iv) state that any person aggrieved by the action may petition the
Commission for a stay of the effective date of the action pending a hearing pursuant to
Part 9 of the Commission’s Regulations, within 10 days of service.

(c) The Member whose privileges are to be summarily suspended shall be given an
opportunity for appeal under the procedures outlined in Rule 9.2(f) of these Rules. The decision
affirming, modifying, or reversing the summary suspension shall be furnished by electronic mail
to the suspended Member and the Commission no later than one business day after it is issued.
The decision shall contain:

(i) a description of the action taken and the reasons for the action;
(ii) a brief summary of the evidence received during the appeal process;

(ii) findings and conclusions;

36
(Revised H48200S4/10/2006)


RULE 9.3 SETTLEMENT OF INVESTIGATIONS
RULE 9.4 NOTICE AND PUBLICATION OF DECISIO’
RULE 9.5 PENALTIES......
RULE 9.6 SUMMARY SUSPENSION
RULE 9.7 ACTIONS RESPECTING NON-MEMBERS
RULE 9.8 REPRESENTATION BY COUNSEL...

CHAPTER 10 LIMITATION OF LIABILITY; TIME PERIOD IN WHICH TO BRING
ACTIONS; GOVERNING LAW; ARBITRATION

RULE 10.1 LIMITATION OF LIABILITY...

RULE 10.2 ARBITRATION OF MEMBER-MEMBER DISPUTE:

RULE 10.3 ARBITRATION OF HEDGESTREET-MEMBER DISPUTES ...............3

RULE 10.4 ARBITRATION OF CLEARHNG-MEMBER-CUSTOMER

DIPSUTE
RULE 10.5 FAILURE TO ABIDE BY ARBITRATION DECISION .
RULE 10.6 CHANGE IN ARBITRATION PROCEDURE

CHAPTER 1] COMMISSION REGULATIONS THAT HAVE BEEN ADAPTED TO.
BE PART OF THE RULES... aa
RULE 11.1 ACTIVITIES OF SELF-! REGULATORY ORGANIZATION -
EMPLOYEES AND GOVERNING MEMBERS WHO POSSESS
MATERIAL, NON-PUBLIC INFORMATION (ADAPTED FROM
COMMISSION REGULATION 1.59)
RULE 11.2 SERVICE ON SELF-REGULATORY ORGANIZATION
GOVERNING BOARDS OR COMMITTEES BY PERSONS WITH
DISCIPLINARY HISTORIES (ADAPTED FROM COMMISSION
REGULATION 1.63)
RULE 11.3 VOTING BY INTERESTED MEMBERS OF SELF-
REGULATORY ORGANIZATION GOVERNING BOARDS AND
VARIOUS COMMITTEES (ADAPTED FROM COMMISSION
REGULATION 1.69)...

CHAPTER 12 TERMS OF HEDGELET CONTRACTS TRADED ON
HEDGESTREE’
RULE 12.1 TERMS TH.

iv


RULE 5.2 CLEARING-MEMBER ACCESS TO HEDGESTREET....
RULE 5.3 TRADING iHEDGELETS
RULE 5.4 MARGIN...
RULE 5.5 ORDER ENTRY
RULE 5.6 RECORDKEEPING OF CUSTOMER ORDERS
RULE 5.7 WITHHOLDING ORDERS PROHIBITED.
RULE 5.8 DISCLOSING ORDERS PROHIBITED...
RULE 5.9 ERRORS IN HANDLING ORDERS BY CEEARHNG-MEMBERS
RULE 5,10 DISPUTED ORDERS...
RULE 5.1] ACCEPTABLE ORDERS.

RULE 5.12 TRADING AGAINST CUSTOMER ORDERS IS PROHIBITED.
RULE 5.13 BLOCK TRADES...
RULE 5.14 TRANSFER TRADES
RULE 5.15 CROSS TRADES
RULE 5.16 GIVE-UPS...
RULE 5.17 PRIORITY OF ORDER:
RULE 5.18 FILLING ORDERS TO TRADE CONTRACTS
RULE 5.19 MODIFICATION AND TON OF ORDERS ..
RULE 5.20 INVALI

Eb

BRBERE RS ISB ks keeles

A

CLEARING AUTHORIZATION... sass sspssnsassss
22. LU IN_OF Pe ay IN
CLEARING AUTHORIZATION.
RULE_5.22 VIEWING THE MARKET AND EXECUTED ORDERS ..

RULE $-245.23 HOURS FOR TRADING HEDGELET CONTRACTS
RULE 5.24 PROHIBITED TRANSACTIONS AND ACTIVITIES
RULE $235.25 SPECULATIVE POSITION LIMITS.

CHAPTER 6 CLEARING AND SETTLING #HEDGELETS-FRADES AND
#HEDGELETOE CONTRACTS-AF-EXPIRATION—

RULE 6.1 CLEARING AND SETTLING iHEDGELETS-FOR 30
RULE 6.2 CLEARING AUTHORIZATION . .

RULE _6.3 RESPONIBILITY OF MEMBERS.
RULE 6.4 LAST TRADING DAY... .

CHAPTER 7 ADJUSTMENTS NECESSITATED BY MATERIAL CHANGES IN
THE UNDERLYING......

RULE 7.1 ADJUSTMENTS......
RULE 7.2 GOVERNMENT ACTIONS,

CHAPTER 8 INVESTMENT OF CLEARING-MEMBER_AND CUSTOMER
ACCOUNT FUNDS...

RULE 8.1 INVESTMENT OF CLEAR}\G-MEMBER_AND CUSTOMER
FUNDS HELD AT THE CLEARING CORPORATION...

CHAPTER 9 RULE ENFORCEMENT...
RULE 9.1 MONITORING THE MARKET.
RULE 9.2 INVESTIGATIONS, HEARINGS, AND APPEALS..


CHAPTER 12 TERMS OF HEDGELET CONTRACTS TRADED ON HEDGESTREET

The following Rules set forth the terms of the Hedgelet Contracts traded on HedgeStreet.
You should not trade any Hedgelet unless you are certain that you completely understand its
terms. Additional information with respect to each Hedgelet can be found on the home page for
the specific Hedgelet Contract.

RULE 12.1 TERMS THAT ARE UNIFORM ACROSS CONTRACTS.
There are certain terms that are uniform across Hedgelets.
(a) The minimum unit of trading for each Hedgelet is one Contract.
(b) All Contract prices are quoted in U.S. dollars and cents per Contract.
(c) The minimum quote increment for each Contract is $.01 per Contract.

(d) All Expiration Values will be posted on HedgeStreet’s website no later than the close
of business of the Expiration Date of a Contract Series.

(e) DAILY CONTRACTS means a Series of Contracts that have a Payout Criterion
based on the last reported level of the Underlying by the Source Agency and have an Expiration
Date on the same day that they are issued.

(f) SPOT CONTRACTS means a Series of Contracts that have a Payout Criterion based
on the last reported level of the Underlying by the Source Agency and have an Expiration Date
on the date after they are issued.

(g) MONTHLY CONTRACTS mean a Series of Contracts that have a Payout Criterion
based on the last reported level of the Underlying at the end of the previous month by the Source
Agency. Unless otherwise specified in these rules, this Series shall have an Expiration Date that
is equal to the Last Trading Date of the current month.

(h) WEEKLY CONTRACTS mean a Series of Contracts that have a Payout Criterion
based on the last reported level of the Underlying by the Source Agency. Weekly Contracts have
an Expiration Date that is no less than five calendar days and no greater than seven calendar days
from the date on which the last reported level of the Underlying is released by the Source
Agency. Unless otherwise specified in these rules, this Series shall have an Expiration Date that
is equal to the Last Trading Date of the current week.

(i) QUARTERLY CONTRACTS mean a Series of Contracts that have a Payout
Criterion based on the last reported level of the Underlying during the previous quarter as
released by the Source Agency. Unless otherwise specified in these rules, this Series shall have
an Expiration Date that is equal to the Last Trading Date of the current quarter as defined by the
Source Agency.

(j) BI-ANNUAL CONTRACTS mean a Series of Contracts that have a Payout Criterion
based on the last reported level of the Underlying from two quarters back as released by the

49

(Revised 448:20054/10/2006)


Contracts of the affected Series. In addition, if the outcome of the underlying event is unclear,
HedgeStreet may, at its sole discretion, delay settlement of the Series until the outcome is clear
to HedgeStreet as determined by reasonable means. While it is impossible to provide in advance
for all possible events that could require an adjustment to be made, HedgeStreet will abide by
any guidelines that may be established in this Chapter for making Contract adjustments.

RULE 7.2 GOVERNMENT ACTIONS

Any change in instructions, order, ruling, directive, or law issued or enacted by any court
or agency of the Federal Government of the United States that conflicts with the Rules contained
in this Chapter shall take precedence, immediately become a part of these Rules, and be effective
for all currently traded and newly listed Series.

CHAPTER 8 INVESTMENT OF CLEARING-MEMBER AND CUSTOMER

ACCOUNT FUNDS
RULE 8.1 INVESTMENT OF CLEARING-MEMBER_AND CUSTOMER FUNDS HELD AT
THE CLEARING CORPORATION
Clearing Member funds, Trading Member funds and teCustomer funds efheld with a
Clearing Member-Cus positatthe Ch e-Corp will be deposited and

invested in accordance with ‘the Clearing Corporation’s policies and rules.
CHAPTER 9 RULE ENFORCEMENT
RULE 9.1 MONITORING THE MARKET

HedgeStreet’s trading system will record and store for a period of not less than 5 years in
a searchable, read-only database a record of all data entered into the HedgeStreet trading system,
including the Member’s identity and the information in Rule 5.5. Programs are run on this data
by HedgeStreet and by an organization with which HedgeStreet has entered into an agreement to
provide certain market surveillance and trade practice surveillance and investigatory services,
and those programs will alert HedgeStreet or its market/trade practice surveillance services
provider when potentially unusual trading activity takes place. HedgeStreet or its services
provider will initiate investigations upon receipt of notice of unusual trading activity, and
HedgeStreet and/or its service provider will review and further investigate any reports of such
activity provided by its market surveillance services provider. HedgeStreet will also investigate
any time it has other reason to believe that inappropriate activity of any sort is taking place on
the Market or its website.

RULE 9.2 INVESTIGATIONS, HEARINGS, AND APPEALS

(a) HedgeStreet has a compliance department consisting of one or more compliance
officers. In addition, HedgeStreet may enter into agreements with one or more investigatory
service providers in order to perform the specified functions assigned by these Rules to
HedgeStreet compliance officers. Compliance officers investigate unusual trading activity or
other activity that compliance officers have reasonable cause to believe could constitute a
violation of these Rules. HedgeStreet has a Disciplinary Committee that determines whether

32

(Revised 4448/20054/10/2006)



PARTICIPANTS. THE FOREGOING SHALL APPLY REGARDLESS OF WHETHER A
CLAIM ARISES IN CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY OR
OTHERWISE.

RULE 5.4 MARGIN

(a) Clearing-Members shall collect sufficient margin from its Customers in an amount no
less than 100 percent of the premiuntaneuntmaximum loss of aany transaction.

the tr:

(c)_45}Clearing-Members shall abide by all rules and policies of CCorp, including,
without limitation, all rules relating to margin requirements.

(d)_(¢}-No-Clearing Member shall extend any credit or give any rebate or gratuity of
any kind to any Person for the purpose of circumventing or evading margin requirements.

RULE 5.5 ORDER ENTRY

(a) You will enter orders to purchase and sell iHedgelets Contracts by electronic
transmission over the Internet or a dedicated private circuit, and HedgeStreet will maintain an
electronic record of your order entries.

(b) You will enter an order to trade one or more Contracts by indicating to HedgeStreet
in the manner required by HedgeStreet including, but not limited to: (i) order type (i.e., buy or
sell); (ii) the Series of Contract; (iii) the price at which to buy or sell the Contract; (iv) the
number of Contracts to be bought or sold; (v) whether the trade is for your account or the
account of your Customer and, (vi) whether the trade is an opening or closing transaction.

(c) Upon entry of an order to trade one or more Contracts, you will be required to
confirm the order before it is sent to HedgeStreet. Once the order is accepted by HedgeStreet,
HedgeStreet will send to you by electronic mail an order confirmation number. You will be
responsible for any and all order entries confirmed for your account and accepted by
HedgeStreet.

(d) HedgeStreet’s trading system will keep an electronic record of all orders to trade
Contracts and all executed Contract trades. The records kept by HedgeStreet will include all of
the terms identified in paragraphs (b) and (c) of this Rule as well as the date and time that the
transaction was completed, to the nearest tenth of a second for all executed Contract trades, and
to the nearest second for all orders to trade Contracts.

RULE 5.6 RECORDKEEPING OF CUSTOMER ORDERS

(a) No separate record need be made for Customer orders received by a Clearing:
Member or Authorized Trader which are capable of being immediately entered onto the
HedgeStreet system, unless otherwise required by these Rules. However, if a Clearing: Member

20

(Revised H4820054/10/2006)


(iv) a determination as to whether the summary action that was taken
should be affirmed, modified, or reversed;

(v) a declaration of any action to be taken against the suspended Member
as the result of that determination;

(vi) the effective date and duration of that action;

(vii) a determination of the appropriate relief based on the findings and
conclusions;

(viii) a statement that any person aggrieved by the action may have a right
to appeal the action pursuant to Part 9 of the Commission’s Regulations, within 30 days
of service; and

(ix) a statement that any person aggrieved by the action may petition the
Commission for a stay pursuant to Part 9 of the Commission’s Regulations, within 10
days of service.

RULE 9.7 ACTIONS RESPECTING NON-MEMBERS

(a) If HedgeStreet has reason to believe that any non-Member is conducting trading
activities in violation of the CEA or that would be a violation of these Rules if the non-Member
were a Member, HedgeStreet may require any Clearing-Member that acts on behalf of the non-
Member, to appear, produce documents and testify, at a HedgeStreet Compliance Department
interview or investigation, or a disciplinary proceeding before a hearing officer.

(b) If it is determined at the conclusion of the disciplinary proceeding that the actions of
the non-Member violate the CEA or would violate these Rules if the non-Member were a
Member, the hearing officer may:

(i) order any Cleariag-Member to liquidate any or all portion of such non-
Member’s positions;

(ii) order that no Glearing-Member accept new positions on behalf of any such
non-Member,;

(iii) deny or terminate access of such non-Member to the Market; or
(iv) order such other action as the hearing officer deems is necessary or advisable
to prevent the actions that may violate the CEA or would violate these Rules if the non-
Member were a Member.
RULE 9.8 REPRESENTATION BY COUNSEL
A Member has the right to retain and be represented by counsel during any and all
proceedings under this Chapter.

37

(Revised 4448-20054/10/2006)


sole connection with the Market is via the internet, you are also responsible for maintaining an
Internet connection speed adequate for your needs. HedgeStreet will not be responsible in any
way for any orders delayed or trades missed or not executed in a timely fashion because of
failure of your Internet service provider and/or dedicated private circuit or slowness of your
Internet connection speed and/or dedicated private circuit. No communication from you will be
deemed to have been received by HedgeStreet until that communication is logged by the
HedgeStreet server.

RULE 5.3 TRADING iHEDGELETS

(a) Every iHedgelet executed on the Market or subject to HedgeStreet Rules must be
effected for the account of or through a Clearing Member authorized Py the Clearing Corporation
and-HedgeStreet- ches Cleariig rte + otiHedgel

(b) As a-Clearing Member, you will be able to trade Fixed Payout or Variable Payout
iHedgelets on the Market for your account(s) or the account(s) of your Customers by entering
bids and offers at prices in which you or your Customer are willing to open or close such
Contracts. After logging onto the secure portion of the HedgeStreet website, you will input
orders into the HedgeStreet trading system. When an order is matched, it will be reported to the
Clearing Corporation. The rules of the Clearing Corporation will govern all matched trades.

(c) Each Clearing Member must require each Customer to execute an agreement
including at least the following acknowledgements and agreements, which the parties may not
modify in any material respect:

THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS
PROVIDED BY THE CLEARING CORPORATION (“‘CCORP”) TO SUBSCRIBERS OF
THE HEDGESTREET (“HS”) SYSTEM RELATING TO ANY OF THE SERVICES OR
FACILITIES PROVIDED BY CCORP, INCLUDING BUT NOT LIMITED TO THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE OR USE.

EXCEPT AS MAY OTHERWISE BE SPECIFICALLY AGREED WITH CCORP, IN NO
EVENT SHALL CCORP OR ANY OF ITS GOVERNORS, DIRECTORS, OFFICERS OR
EMPLOYEES, BE FINANCIALLY RESPONSIBLE FOR, OR OTHERWISE GUARANTEE
THE PAYMENT OR RETURN BY CCORP OR ANY THIRD PARTY OF ANY ORIGINAL
MARGIN OR COLLATERAL DEPOSIT, VARIATION MARGIN, OPTION PREMIUM,
SETTLEMENT AMOUNT OR DELIVERY OBLIGATION IN RESPECT OF ANY HS
CONTRACT. NEITHER CCORP NOR ANY OF ITS GOVERNORS, DIRECTORS,
OFFICERS OR EMPLOYEES SHALL BE LIABLE TO ANY PERSON FOR ANY LOSSES,
DAMAGES, COSTS OR EXPENSES (INCLUDING, BUT NOT LIMITED TO, LOSS OF
PROFITS, LOSS OF USE, DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES) ARISING FROM ANY FAILURE OR MALFUNCTION, OR ANY FAULT IN
DELIVERY, DELAY, OMISSION, SUSPENSION, INACCURACY OR TERMINATION,
OR ANY OTHER CAUSE, IN CONNECTION WITH THE FURNISHING,
PERFORMANCE, MAINTENANCE, USE OF OR INABILITY TO USE ALL OR ANY
PART OF THE SERVICES PROVIDED BY CCORP TO HS OR TO CCORP

19

(Revised 44-4820054/100/2006)


Change of Clearing Relation Form

The change(s) above are expected to take effectiveness as of the close of business on the following date
(DD/MMIYYYY).

The undersigned recognizes that the statements herein may be verified by investigation, and hereby
declare that they are true, complete and accurate. The undersigned also agrees to immediately notify
HedgeStreet of any changes regarding the above-referenced clearing relationship, in written form.

Name of HedgeStreet Member (Please Print) Signature of HedgeStreet Member/ Date

In the case where Section A is applicable:

Name of (New) Clearing Firm (Please Print) Authorized Signature of Clearing Firm Member/ Date

© HedgeStreet, Inc. 20f2


Street
Rule 3.1(a)fii)(3

HedgeStreet added new Rule 3.1(a)(ii)(3) in order to ensure that HedgeStreet is familiar
with those individuals who have control over the management of any Member.

Rule 3.2

HedgeStreet added new rule 3.2 in order to inform member applicants who are denied
membership on HedgeStreet an opportunity to appeal the decision of HedgeStreet to the
President of the exchange. If the President decides to deny membership, the member can
reapply 6 months after the denial was issued.

Rule 3.4(d)00)

HedgeStreet added new rule 3.4(d)(x) in order to ensure that Members immediately inform
HedgeStreet of system failures or any event that may prevent such Members from effecting
transactions or, if the Member is a Clearing Member, to clear transactions on the Market or
in accordance with HedgeStreet Rules.

[The remainder of this page is intended to be blank]

1825 S. Grant Street
‘Suite 500

‘San Mateo, CA 94402
Tel: 650.638.3500

www.hedgestreet.com Fax: 650.638.3501


(4) 3}designate Authorized Traders to trade your account,

(5)_(4}-designate at least one officer who is responsible for supervising all
activities of your employees relating to transactions effected on HedgeStreet or subject to
HedgeStreet Rules and provide any information HedgeStreet may request regarding such
officer(s),

(iii) you must certify that you have read and understand the HedgeStreet
Risk Disclosure Statement if you are not an Eligible Contract Participant, and
Membership Agreement,

(iv) you must agree to be bound by these Rules-and_

(v) you must complete and submit the HedgeStreet membership
application, which includes the Membership Agreement;;

(vi) you must provide HedgeStreet with any other information
HedgeStreet may request:;

(vii) you must have adequate financial resources and credit-as- determined

y ie 3 5

(viii) st-be-a-CCorp-Pasticipant Jstanding of the Clearing

(ix) if you are a futures commission merchant registered with the
Commission (“FCM”), you must submit to HedgeStreet a letter confirming that you
maintain all Customer funds deposited with you in appropriately labeled customer
segregated funds accounts separated from funds of non-customers, as required by
Commission regulations; and

(x) you must meet any other criteria or complete any additional
applications that HedgeStreet and/or the Clearing Corporation may request.

(b) Clearing Member applicants p in good standing with the
Clearing Corporation,

(Revised 444829054/10/2006)


interest. Taking into consideration the exigency of the committee action, such determinations
should be based upon:

(A) Information provided by the member pursuant to paragraph
(b)(1)(ii) of this Rule; and

(B) Any other source of information that is held by and reasonably
available to HedgeStreet.

(2) Financial interest in a significant action—

(i) Nature of interest. A member of a HedgeStreet governing board,
disciplinary committee or oversight panel must abstain from such body’s deliberations and
voting on any significant action if the member knowingly has a direct and substantial financial
interest in the result of the vote based upon either exchange or non-exchange positions that could
reasonably be expected to be affected by the action.

(ii) Disclosure of interest. Prior to the consideration of any significant
action, each member of a HedgeStreet governing board, disciplinary committee or oversight
panel must disclose to the appropriate HedgeStreet staff the position information referred to in
paragraph (b)(2)(iii) of this Rule that is known to him or her. This requirement does not apply to
members who choose to abstain from deliberations and voting on the subject significant action.

(iii) Procedure for determination. HedgeStreet must establish procedures
for determining whether any member of its governing board, disciplinary committees or
oversight committees is subject to a conflicts restriction under this section in any significant
action. Such determination must include a review of:

(A) Gross positions held at HedgeStreet in the member’s personal
accounts or “controlled accounts,” as defined in Commission Regulation 1.3(j);

(B) Gross positions held at HedgeStreet in proprietary accounts, as
defined in Commission Regulation |.17(b)(3), at the member’s affiliated firm;

(C) Gross positions held at HedgeStreet in accounts in which the
member is a principal, as defined in Commission Regulation 3. 1(a);

(D) Net positions held at HedgeStreet in “customer” accounts, as
defined in Commission Regulation 1.17(b)(2), at the member’s affiliated firm; and

(E) Any other types of positions, whether maintained at
HedgeStreet or elsewhere, held in the member’s personal accounts or the proprietary accounts of

the member’s affiliated firm that the self-regulatory organization reasonably expects could be
affected by the significant action.

(iv) Bases for determination. Taking into consideration the exigency of
the significant action, such determinations should be based upon:

47
(Revised +448/20054/10/2006)


Appendix 3

HEDGE CLEARING MEMBER
Street. GUARANTEE

The Futures of RiskTM

HedgeStreet, Inc.

1825 S. Grant Street ‘Complete Name of [Company/individual] Clearing Member
Suite 500
San Mateo, CA 94402 Street Address #1
General Telephone Street Address #2 (optional)
650.638.3500
Facsimile City, State, ZIP Code, Country
650.638.3501
Contact Name

www.hedgestreet.com

Telephone#

Facsimile#

Clearing Member CCorpi#

E-mail Address

In accordance with the Trading Membership requirements stipulated in HedgeStreet Rule 3.1(c), the
aforementioned Clearing Member (“Designated Clearing Member”) informs HedgeStreet that it hereby
guarantees and assumes all financial responsibility for all transactions entered onto the HedgeStreet
market or pursuant to HedgeStreet Rules (“Transactions”) for the Trading Member(s) or the Customers of
such Trading Members listed below (“Authorized Trading Member(s)"). The Designated Clearing
Member acknowledges and agrees that it shall assume all liability for all transactions made by Authorized
Trading Member(s) and shall be a party to all disputes arising from trades between an Authorized Trading
Member and other Members in accordance with HedgeStreet Rule 6.2(b).

Name of Authorized Trading Member(s)

1. 4.
2. 5.
3. 6.

The undersigned also agrees to immediately notify HedgeStreet of any changes regarding the above-
referenced guarantees and responsi s, in written form.

Name of HedgeStreet Clearing Member (Please Print) “Signature of HedgeStreet Member/ Date

© HedgeStreet, Inc. Clearing Member Guarantee 1 of 1



price(s) until all available sell offers under or equal to your limit price are filled or until your buy
order is completely filled. Likewise, if you enter a sell order at a price lower than the price of the
best buy offer, the system will fill your order at the better buy offer price(s) until all available
buy offers over your limit price are filled or your sell order is completely filled. If your order is
only partially filled, the unfilled portion or your order will be placed in the order book as a
resting order at the limit price you specified. Should a better order subsequently be placed in the
system, the unfilled portion of your original order will be executed at its limit price.

RULE 5.19 MODIFICATION AND CANCELLATION OF ORDERS

(a) You can either cancel or modify an order you have placed on the Market if it has not
yet been executed. All your pending orders will be listed on your account page. To modify a
pending order, select the order to be changed and, using the prompts, (1) cancel the order, (2)
modify the order, or (3) leave the order unchanged. If you choose to cancel the order and the
order has not been executed, the HedgeStreet system will withdraw the order from the order
book and confirm the cancellation of the order. If you choose to amend the order, you will be
shown the details of the existing order and be allowed to change any part of the order except the
Underlying. You will then be given a new order confirmation number and be informed that the
system will treat the modified order as a new order, causing the amended order to lose its
original time priority.

(b) HedgeStreet will attempt to modify or cancel your order as soon as possible after you
enter a modification or cancellation order. However, the order may be executed before
HedgeStreet is able to cancel or modify it. If your order has been filled in whole or in part, you
may modify or cancel only that portion of the order (if any) that has not been executed.

RULE_5.20 INVALIDATION OF ORDERS UPON REVOCATION OF CLEARING

RULE_5.22_ RULE-S.20—-VIEWING THE MARKET AND EXECUTED ORDERS

27
(Revised 444829054/1 0/2006)


HedgeStreet will allow its Clearing-Members to view the current best bid and offer on the
Market. HedgeStreet will also allow-Clearing Members to view the last executed order to trade
Contracts.

RULE 5.23 RULE-S24—HOURS FOR TRADING HEDGELET CONTRACTS

The Market will be open for execution of your orders from 9:00 a.m. to 8:00 p.m. Eastern
Standard Time Monday through Friday (each, a “Trade Day”), with the exception of Market
holidays, which will be announced on the HedgeStreet website at least 30 calendar days in
advance. You may access account information and cancel any open orders while the Market is
closed, but you may not enter or modify orders unless the Market is open.

RULE_5.24 RULE-S.22-PROHIBITED TRANSACTIONS AND ACTIVITIES

(a) You are prohibited from accepting any order or attempting to enter into any trade on
the Market that is or has been directly or indirectly prearranged except in accordance with the
conditions and procedures under which such transactions may be permitted under these Rules.
In other words, you may not agree with another Person that one of you will enter a trade and the
other Person will attempt to match that trade by timing the orders or otherwise unless such
agreements are permitted pursuant to these Rules.

(b) You are prohibited from accepting any order or attempting to enter into or entering
into any trade on the Market that does not result in a change in beneficial ownership, that is
designed to unnaturally inflate trading volume, that in any way attempts to circumvent the
Market’s order processing, trade ordering, and trade execution systems, or otherwise to
circumvent exposure of the order to open and competitive bidding on the Market, or that has
some other illegitimate purpose.

(c) You are prohibited from accepting any order or entering into any trade designed or
used to cause any price for a Contract other than a true and bona fide price to be reported,
registered, or recorded by the Market.

(d) You are prohibited from knowingly accepting any bids or offers to be entered,
entering or causing to be entered;_any bids or offers onto the Market other than in good faith for
the purpose of executing bona fide transactions.

(e) You are prohibited from trading in, transferring, assigning, or otherwise disposing of
Contracts other than as provided for in these Rules.

(f) You are prohibited from agreeing to transfer or from transferring the benefit of any
position in any iHedgelet Contract to another Person other than through a transaction executed
through the Market except in accordance with the conditions and procedures under which such
transactions may be permitted under these Rules..

(Revised +4+48-20054/10/2006)


(4) Oversight panel means any panel authorized by a self-regulatory organization
to review, recommend or establish policies or procedures with respect to the self-regulatory
organization’s surveillance, compliance, rule enforcement or disciplinary responsibilities.

(5) Final decision means:

(i) A decision of a self-regulatory organization which cannot be further
appealed within the self-regulatory organization, is not subject to the stay of the Commission or a
court of competent jurisdiction, and has not been reversed by the Commission or any court of
competent jurisdiction; or,

(ii) Any decision by an administrative law judge, a court of competent
jurisdiction or the Commission which has not been stayed or reversed.

(6) Disciplinary offense means:

(i) Any violation of the rules of a self-regulatory organization except
those rules related to;

(A) Decorum or attire,
(B) Financial requirements, or

(C) Reporting or recordkeeping unless resulting in fines
aggregating more than $5,000 within any calendar year;

(ii) Any rule violation described in subparagraphs (a)(6)(i) (A) through
(C) of this Rule which involves fraud, deceit or conversion or results in a suspension or
expulsion;

(iii) Any violation of the Act or the regulations promulgated thereunder;

(iv) Any failure to exercise supervisory responsibility with respect to acts
described in paragraphs (a)(6)(i) through (iii) of this Rule when such failure is itself a violation
of either the rules of a self-regulatory organization, the Act or the regulations promulgated
thereunder; or

(v) A disciplinary offense must arise out of a proceeding or action which
is brought by a self-regulatory organization, the Commission, any federal or state agency, or
other governmental body.

(7) Settlement agreement means any agreement consenting to the imposition of
sanctions by a self-regulatory organization, a court of competent jurisdiction or the Commission.

(b) HedgeStreet must maintain in effect Rules which have been submitted to the
Commission pursuant to Section Sc(c) of the Act and Commission Regulations 38.4(a) or 39.4(a)
and 40.5 that render a person ineligible to serve on its disciplinary committees, arbitration
panels, oversight panels or governing board who:

43
(Revised +4-48:20054/10/2006)


Rule, a Clearing Member will be responsible for all order entry and trading activity of such
Authorized Trader(s).

RULE_3.7_RULE-3.6—DUES, FEES, AND EXPENSES PAYABLE BY CLEARING
MEMBERS

(a) Clearing Members are not required to pay dues.

(b) Cleaxing Members are charged fees for trading iHedgelet Contracts. The fees for
trading both Fixed Payout iHedgelet Contracts and Variable Payout iHedgelet Contracts are
charged in an amount to be reflected from time to time on HedgeStreet’s website.

(c) Clearing Members are charged fees for settlement of iHedgelet Contracts at
Expiration to HedgeStreet. Fees for settlement of iHedgelet Contracts will be charged in an
amount to be reflected from time to time on HedgeStreet’s website.

(d) If HedgeStreet determines in the future to impose dues or additional fees,
HedgeStreet will notify you of any dues or additional fees that will be imposed at least 30 days
before they take effect.

CHAPTER 4 MARKET MAKERS
RULE 4,1] REGISTRATION OF MARKET MAKERS

(a) In order to become a Market Maker you must already be a Clearing: Member of
HedgeStreet in good standing. A-Clearing Member shall file a written Market Maker application
with HedgeStreet. HedgeStreet shall consider such factors as business reputation, financial
resources and trading activity in relevant futures, options or related cash markets in determining
whether to approve a Market Maker application.

(b) The designation of any Market Maker may be suspended or terminated by
HedgeStreet at any time and for any reason.

RULE 4.2 APPOINTMENT OF MARKET MAKERS

(a) HedgeStreet shall appoint Market Makers to certain Classes of Contracts
(“Designated Classes”) traded on HedgeStreet. In making such appointments, HedgeStreet shall
consider (i) the financial resources available to the Market Maker, and (ii) the Market Maker’s
experience in market making in futures, options and other derivative products.

(b) No appointment of a Market Maker to a Designated Class shall be made without the
Market Maker’s consent to such appointment, provided that refusal to accept appointment to a

Designated Class may be deemed sufficient cause for denial, suspension, or termination of
registration as a Market Maker.

(c) HedgeStreet may suspend or terminate any appointment of a Market Maker to a
Designated Class and may appoint more than one Market Maker to the same Designated Class.

16

(Revised 44-48-20054/10/2006)


(8) Significant action includes any of the following types of HedgeStreet actions or
rule changes that can be implemented without the Commission’s prior approval:

(i) Any actions or rule changes which address an “emergency” as defined
in Commission Regulation 40.1; and,

(ii) Any changes in margin levels that are designed to respond to
extraordinary market conditions such as an actual or attempted corner, squeeze, congestion or
undue concentration of positions, or that otherwise are likely to have a substantial effect on
prices in any contract traded or cleared at HedgeStreet; but does not include any rule not
submitted for prior Commission approval because such rule is unrelated to the terms and
conditions of any contract traded at HedgeStreet.

(b) HedgeStreet Rules. HedgeStreet shall maintain in effect Rules that have been
submitted to the Commission pursuant to Section Sc(c) of the Act and Commission Regulations
38.4(a) or 39.4(a) and 40.5 to address the avoidance of conflicts of interest in the execution of its
self-regulatory functions. Such Rules must provide for the following:

(J) Relationship with named party in interest—

(i) Nature of relationship. A member of HedgeStreet’s governing board,
disciplinary committee or oversight panel must abstain from such body’s deliberations and
voting on any matter involving a named party in interest where such member:

(A) Isa named party in interest;

(B) Is an employer, employee, or fellow employee of a named
party in interest;

(C) Is associated with a named party in interest through a “broker
association” as defined in Commission Regulation 156.1;

(D) Has any other significant, ongoing business relationship with
a named party in interest, not including relationships limited to executing futures or option
transactions opposite of each other or to clearing futures or option transactions through the same
clearing member; or

(E) Has a family relationship with a named party in interest.

(ii) Disclosure of relationship. Prior to the consideration of any matter
involving a named party in interest, each member of a HedgeStreet governing board, disciplinary
committee or oversight panel must disclose to the appropriate HedgeStreet staff whether he or
she has one of the relationships listed in paragraph (b)({1)(i) of this Rule with a named party in
interest.

(iii) Procedure for determination. HedgeStreet must establish procedures
for determining whether any member of its governing board, disciplinary committees or
oversight committees is subject to a conflicts restriction in any matter involving a named party in

46
(Revised 444820084/10/2006)


HEDGE
Street.

The Futures of RiskTM

HedgeStreet, Inc.
1825 S. Grant Street
Suite 500

San Mateo, CA 94402

General Telephone
650.638.3500
Facsimile
650.638.3501

www.hedgestreet.com

HedgeStreet Account Number:

A. Change of Clearer

(Former) Clearing Firm Name:
(Former) Clearing Firm Member ID:
(New) Clearing Firm Name:
(New) Clearing Firm Member ID:

OR

B. Change of CFC Code
Clearing Firm Name:
Clearing Firm Member ID:
(Former) CFC Code:
(New) CFC Code:

C. If section A above, applies:
(New) Clearing Member Operations Contact

Name of Department

Street Address #1

Street Address #2 (optional)
City, State

ZIP/ Postal Code

Contact Name

Title/ Position

Telephone #

Facsimile #

© HedgeStreet, Inc.

Appendix 4

CHANGE OF
CLEARING RELATION

‘Complete Name of [Company/individual] Member

Street Address #1

Street Address #2 (optional)

City, State, ZIP Code, Country

Contact Name

Telephone#

Facsimile#

E-mail Address

4of2


HEDGE
Street

able to enter such orders. HedgeStreet Trading Members will have similar privileges that
are offered to trading members on other contract markets. If a Trading Member does
handle Customer orders, such Trading Member must be properly registered with the
National Futures Association (“NFA”), Trading Members will be required to enter into a
Clearing Authorization agreement with a Clearing Member which grants such Trading
Member the authority to enter transactions on the market that will be cleared by such
Clearing Member (Appendix 2). The Clearing Member that clears a Trading Member’s
transactions will be that Trading Member’s Designated Clearing Member. In addition,
Trading Members will also be required to enter into an agreement with its Designated

Clearing Member that requires such Designated Clearing Member to guarantee and assume

financial responsibility for all contracts executed on the Intermediated Market on such
Trading Member’s behalf or on behalf of its Customers (Appendix 3).

HedgeStreet will not be required to amend its Regulatory Services Agreement (“RSA”)

with NFA nor is it required to change any of the reports that it currently sends to NFA in
order to accommodate the introduction of Trading Members. NFA will conduct the same
services stipulated in the current RSA for both Trading Members and Clearing Members.

However, HedgeStreet will assist NFA by providing an additional report to NFA that, inter

alia, informs NFA of the clearing relationship between Trading Members and Clearing
Members in accordance with the specification provided by NFA.

Trading Member Rules

Throughout the entire Intermediated Market Rulebook, any reference to Clearing Member
was changed to Member, except in those instances where the rule was only applicable to
Clearing Members.

CHAPTER 1 - DEFINITIONS

Rule 1.1()

HedgeStreet added new Rule 1.1(j) in order to define Designated Clearing Member which
is a Clearing Member that has been designated as the Clearing Member responsible for
guaranteeing all transactions effected by authorized Trading Members on the Market or in
accordance with HedgeStreet Rules.

Rule L1(w

HedgeStreet added new Rule 1.1(u) in order to define a Member which is any Person with
access to the Market. Anytime “Member” is referenced in HedgeStreet rules refers to both
Trading Members and Clearing Members.

Rule 1.1(gg)
HedgeStreet added new Rule 1.1(gg) in order to define Trading Member as a non-Clearing
Member.

www.hedgestreet.com

1825 S. Grant Street
Suite 500

San Mateo, CA 94402
Tel: 650.638.3500
Fax: 650.638.3501


RULE 9.3 SETTLEMENT OF INVESTIGATIONS

(a) HedgeStreet may enter into settlements with any Member or its authorized
representative who is the subject of an investigation. The Member, its authorized representative,
or a compliance officer may initiate a settlement offer. Any settlement offer shall be forwarded
to a HedgeStreet hearing officer with a recommendation by the compliance officer that the
proposed settlement be accepted, rejected, or modified. A settlement offer may be withdrawn at
any time before it is accepted by the hearing officer.

(b) The hearing officer may accept, reject, or offer a modification to the proposed
settlement, and the decision of the hearing officer will be final.

(c) Any settlement under this Rule will be written and will state:

(i) the charges or a summary of the charges;

(ii) the response, if any, or a summary of the response;

(iii) a summary of the investigation conducted;

(iv) findings and conclusions as to each charge, including each act the
person charged was found to have committed or omitted, be committing or omitting, or
be about to commit or omit, and each of these Rules that such act or practice violated, is
violating, or is about to violate; and

(v) any penalty imposed and the penalty’s effective date.

(d) Failed settlement negotiations, or withdrawn settlement offers, will not prejudice a
Member or otherwise affect subsequent procedures in the rule enforcement process.

RULE 9.4 NOTICE AND PUBLICATION OF DECISION
(a) HedgeStreet will provide to the person charged and to the Commission a copy of an
adverse investigation report, appeal determination, or settlement within 30 days after it becomes

final in accordance with the provisions of Commission Regulation 9.11.

(b) HedgeStreet will publish the outcome of all disciplinary proceedings and settlements
on its website.

RULE 9.5 PENALTIES

Asa result of a disciplinary proceeding or as part of a settlement, HedgeStreet may
impose one or more of the following penalties:

(a) a letter of warning, censure, or reprimand;

(b) a fine or penalty fee;

35

(Revised +448/20054/1 0/2006)


disciplinary action should be brought against a Member based on the findings of compliance
officers. HedgeStreet also retains hearing officers, who adjudicate findings by compliance
officers that are disputed by Members. Hearing officers and compliance officers may not
communicate regarding a matter brought before the hearing officer without informing the
Member who is the subject of the communication of its substance and allowing the Member an
opportunity to respond. Compliance officers and hearing officers may compel testimony,
subpoena documents, and require statements under oath from any Member or its authorized
representative. Compliance officers, hearing officers, and employees or agents of HedgeStreet
working under their supervision, may not be a Member or an authorized representative of a
Member or trade, directly or indirectly, in any commodity interest traded on or subject to the
tules of any registered contract market.

(b) Upon the conclusion of any investigation by a compliance officer, the officer will
draft a document detailing the facts that led to the opening of the investigation, the facts that
were found during the investigation, and the compliance officer’s analysis and conclusion. If the
compliance officer concludes that there is reasonable cause to believe a Member has violated
HedgeStreet’s Rules or other applicable statutes or regulations, the compliance officer will
present his/her analysis and conclusions to the HedgeStreet Disciplinary Committee for review
and final determination as to whether disciplinary proceedings should commence against the
Member. If the Disciplinary Committee determines that disciplinary proceedings should be
brought against the Member, the compliance officer will submit by electronic mail to the
Member whose activity is the subject of the investigation a report that will include:

(i) the reason the investigation was begun;

(ii) the charges or a summary of the charges;

(iii) the response, if any, or a summary of the response;
(iv) a summary of the investigation conducted;

(v) findings and conclusions as to each charge, including which of these
Rules the Member or its authorized representative violated, if any; and

(vi) the penalty, if any, proposed by the Disciplinary Committee.

(c) The Member whose activity is the subject of the investigation may contest the
Disciplinary Committee’s findings by forwarding a response to those findings by electronic mail
to the compliance officer within 15 days. The Member has a right to examine the evidence relied
upon by the compliance officer and Disciplinary Committee. The Member’s response must
contain a detailed response to the findings and conclusions as to each charge and any other
information the Member thinks is relevant.

(d) If the findings of the Disciplinary Committee are not contested by the Member,
HedgeStreet will deem those findings admitted by the Member and impose the penalty (if any)
proposed by the Disciplinary Committee. The Member will be notified of the imposition of any
penalty by electronic mail.

33

(Revised 448:20084/10/2006)


(n)_¢)—”Last Trading Day” means the last date on which a Clearing-Member may

trade an ModgeletiHedeelets on the Market_or effect a transaction.in Hedgelets subject to
Hed;

(s) (“Long Variable Payout iHedgelet Contract” means (i) the right to receive at
the time the Contract is closed or on the Settlement Date any positive number resulting from
subtracting the Opening Trade Value from (A) the Closing Trade Value, if the Variable Payout
iHedgelet Contract was closed by an offsetting transaction before Expiration, or (B) the
Expiration Value, if the Variable Payout iHedgelet Contract was held to Expiration, and then
multiplying the resulting figure by the Dollar Multiplier and (ii) the obligation to pay at the time
the contract is closed or on the Settlement Date any positive number resulting from subtracting.
from the Opening Trade Value (A) the Closing Trade Value, if the Variable Payout /Hedgelet
Contract was closed by an offsetting transaction before Expiration, or (B) the Expiration Value,
if the Variable Payout ‘Hedgelet Contract was held to Expiration, and then multiplying the
resulting figure by the Dollar Multiplier.

(t)_(s}—“Market Maker” means a Member that is granted the privileges in exchange for
assuming certain responsibilities as set forth in Chapter 4 of these Rules for the purpose of
creating liquidity for certain Classes of iHedgelets.

3.Lto enter transacti t Wis

(v)_ 4}-“Membership Agreement” means the agreement between #he-Clearinga
Member and HedgeStreet authorizing the Clearing Member to trade on or otherwise provide
access to HedgeStreet. The-Clearing Member must acknowledge and agree to be bound by all of
the terms and conditions contained in the Membership Agreement, including, but not limited to
the HedgeStreet Rules and any other documentation HedgeStreet may require.

‘w)_(#}+—“Person” means an individual, sole proprietorship, corporation, limited liability
company, partnership, trust, or any other entity.

(x)_ (“Opening Trade Value” means the rate, level, amount, measure, or other value
of the Underlying of a Variable Payout iHedgelet at which the iHedgelet is opened in a

GlearingCustomer’s or Member’s account.

(y)_ @4)—“Payout Criterion” of an jHedgelet Contract means the Expiration Value or
range of Expiration Values that will cause that iHedgelet Contract to be “in-the-money.”

(2) 4)}—“Regulatory Agency” means any government body, including the Commission
and Securities and Exchange Commission, and any organization, whether domestic or foreign,
granted authority under statutory or regulatory provisions to regulate its own activities and the
activities of its members, and includes HedgeStreet, any other clearing organization or contract
market, any national securities exchange or clearing agency, the National Futures Association
(“NFA”) and the National Association of Securities Dealers (“NASD”).

(aa)_¢—“Series” means all iHedgelets of the same Class having identical terms,
including Payout Criterion and Expiration Date.

3

(Revised +448/20054/10/2006)


(f) Whenever HedgeStreet finds by final decision that a person has committed a
disciplinary offense and such finding makes such person ineligible to serve on that self-
regulatory organization’s disciplinary committees, arbitration panels, oversight panels or
governing board, HedgeStreet shall inform the Commission of that finding and the length of the
ineligibility in any notice it is required to provide to the Commission pursuant to either section
17(h)(1) of the Act or Commission Regulation 9.11.

RULE 11.3 VOTING BY INTERESTED MEMBERS OF SELF-REGULATORY
ORGANIZATION GOVERNING BOARDS AND VARIOUS COMMITTEES
(ADAPTED FROM COMMISSION REGULATION 1.69)

(a) Definitions. For purposes of this section:

(1) Disciplinary committee means any person or committee of persons, or any
subcommittee thereof, that is authorized by HedgeStreet to issue disciplinary charges, to conduct
disciplinary proceedings, to settle disciplinary charges, to impose disciplinary sanctions, or to
hear appeals thereof in cases involving any violation of the Rules of HedgeStreet except those
cases where the person or committee is authorized summarily to impose minor penalties for
violating Rules regarding decorum, attire, the timely submission of accurate records for clearing
or verifying each day’s transactions or other similar activities.

(2) Family relationship of a person means the person’s spouse, former spouse,
parent, stepparent, child, stepchild, sibling, stepbrother, stepsister, grandparent, grandchild,
uncle, aunt, nephew, niece or in-law.

(3) Governing board means HedgeStreet’s board of directors, board of governors,
board of managers, or similar body, or any subcommittee thereof, duly authorized, pursuant to a
tule of HedgeStreet that has been approved by the Commission or has become effective pursuant
to Section 5c(c) of the Act and Commission Regulations 38.4(a) or 39.4(a) and 40.5 to take
action or to recommend the taking of action on behalf of HedgeStreet.

(4) Oversight panel means any panel, or any subcommittee thereof, authorized by
HedgeStreet to recommend or establish policies or procedures with respect to HedgeStreet’s
surveillance, compliance, rule enforcement, or disciplinary responsibilities.

(5) Member’s affiliated firm is a firm in which the member is a “principal,” as
defined in Commission Regulation 3.1(a), or an employee.

(6) Named party in interest means a person or entity that is identified by name as a
subject of any matter being considered by a governing board, disciplinary committee, or
oversight panel.

(7) Self-regulatory organization means a “self-regulatory organization” as defined
in Commission Regulation 1.3(ee) and includes a “clearing organization” as defined in
Commission Regulation 1.3(d), but excludes registered futures associations for the purposes of
paragraph (b)(2) of this section.

45

(Revised H4829054/10/2006)


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IMarket/Rules/HS Rules_Institutional_Updated20060410.doc

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CHAPTER 2 MARKET GOVERNANCE
RULE 2.1 POWERS OF HEDGESTREET’S BOARD OF DIRECTORS

The board of directors of HedgeStreet has the power to manage and direct HedgeStreet
including but not limited to the power to define groups of people who may access the secure
portions of HedgeStreet’s website, the power to amend, adopt, or repeal these Rules, and the
power to oversee the business conduct of Members and impose penalties for violation of these
Rules.

RULE 2.2 RESTRICTIONS ON WHO MAY BE MEMBERS OF THE BOARD, MEMBERS,
OF DISCIPLINARY COMMITTEES, MEMBERS OF ARBITRATION OR
OVERSIGHT PANELS, OR TEN PERCENT OR GREATER OWNERS

Commission Regulation 1.63 prohibits certain individuals who have been charged with,
or have been found to have committed, disciplinary offenses (as defined in that section) within
the past three years from serving on the HedgeStreet board of directors or any disciplinary
committee of HedgeStreet. HedgeStreet will not permit any individual subject to disqualification
under Commission Regulation 1.63(b) from serving on its board of directors, any of its
disciplinary committees (including serving as compliance officer or hearing officer), oversight
panels, or arbitration panels. Additionally, HedgeStreet will not permit any individual subject to
disqualification under Commission Regulation 1.63(b) to own 10% or more of HedgeStreet or to
serve as a HedgeStreet hearing officer. An amended version of Commission Regulation 1.63 is a
Rule of HedgeStreet and is included for your information in Chapter 11 of these Rules.

RULE 2.3 OFFICERS OF HEDGESTREET

(a) HedgeStreet has a seven member board of directors elected by a majority vote of all

shareholders of HedgeStreet. Each director serves a svo-yeartermone year term. Each director,
x c: ffice until his successor is elected and
ti] hi jer resi i val.

(b) HedgeStreet has a chief executive officer, president, secretary, and treasurer. These
officers are appointed and may be dismissed (with or without cause) by majority vote of the
board of directors or the shareholders.

5
(Revised 4448/20054/10/2006)


HEDGE
Street

EXHIBIT A

Background

HedgeStreet is currently designated as a contract market (“DCM”) and registered as a
derivatives clearing organization (“DCO”) with the Commission offering small contract
sizes directly to the general public. Pursuant to HedgeStreet’s registration as a DCO, such
contracts must be fully collateralized prior to order entry'. HedgeStreet’s activities as a

DCO and DCM initially precluded intermediation on the market only allowing one class of

members who interact directly with the exchange on behalf of themselves (“Non-
Intermediated Market”).

On September 6, 2005, HedgeStreet requested that the Commission amend its DCM order

in order to allow for, inter alia, intermediation on a market that would allow HedgeStreet to

offer larger sized contracts (“iHedgelets”) to institutional members that could trade such

contracts for their own account or the accounts of their customers in a manner other than on

a fully-collateralized basis prior to order entry as long as such members were clearing
participants of the Clearing Corporation (“Intermediated Market”), the DCO with whom
HedgeStreet currently has an executed clearing services agreement. The Commission

granted HedgeStreet’s request and amended its order of designation as a contract market on

December 5, 2005 (‘Amended Order”) in order to allow intermediaries that are also
clearing participants of the Clearing Corporation to become Clearing Members of the
Intermediated Market to trade for their own accounts as well as the accounts of their
customers.

Subsequent to receiving the Amended Order, HedgeStreet received a great deal of interest
from institutional customers, such as hedge funds, wanting to become a member of the
Intermediated Market without necessarily becoming clearing participants of the Clearing
Corporation. Therefore, in accordance with the Amended Order, HedgeStreet is
introducing a different class of Members on the Intermediated Market. This new class of
member will be called Trading Members. Qualified Trading Members will have access to
the Intermediated Market as long as such Trading Members have the necessary agreements
with a Clearing Member authorized to clear iHedgelet contracts on HedgeStreet.

Overview of Trading Member Status
Trading Members are going to be members of HedgeStreet that will be permitted to enter

transactions on the Intermediated Market in accordance with HedgeStreet rules for
themselves or their Customers, in the same manner that Clearing Members are currently

' “Fully Collateralized” means that HedgeStreet must maintain at all times sufficient funds for each HedgeStreet Member to
cover the maximum possible loss that may be sustained by such Member upon liquidation of any or all HedgeStreet contracts
to which such Member is a party,

www.hedgestreet.com

1825 S. Grant Street
Suite 500

‘San Mateo. CA 94402
Tel: 650.638.3500
Fax: 650.638.3501


(2) the Customer’s interests are not prejudiced.

(iii) When a Customer order is on one side of the Cross Trade, then the
Customer order must be submitted onto the Market first.

(iv) If both parties agree to execute the transaction above the existing bid
price and below the existing offer price, the Cross Trade may be executed immediately
on the Market. In the absence of a bid and an offer price in the relevant iHedgelet
Series, then the Clearing Member seeking to execute a Cross-Trade must;

(1) Enter an order onto the Market;

(2) Allow the order to remain on the Market for 10 seconds, provided that, if the
order represents the first transaction in a Series, the order shal] remain on the Market for 60
seconds, and

(3) The-Clearing Member may immediately enter the opposite order after the 10
second or 60 second period has expired in accordance with Rule 5.15(a)(iv)(2).

(v) A Clearing Member must not enter a bid and/or an offer onto the
Market in an attempt to circumvent Rule 5.15(iv).

RULE 5.16 GIVE-UPS

(a) A Give-Up occurs when a CCorp Participant executes a trade (“Executing
Participant”) on behalf of another CCorp Participant (“Carrying Participant”) and subsequently
transfers the trade to the Carrying Participant.

(b) The Executing Participant must i) indicate that the transaction is being executed as a
Give-Up prior to order entry, and ii) indicate the Carrying Participant.

(c) The Executing Participant must submit Give-Up transactions to CCorp for clearing
and, remains responsible for the clearing and settlement of such Give-Up transaction as
determined by the rules of CCorp.

RULE 5.17 PRIORITY OF ORDERS

The Market’s trading algorithms execute all trades by matching orders according first by
price and then time priority. This means that orders entered at different prices will be executed
in order of price, from best to worst, regardless of what time they were placed on the Market, and
orders placed on the Market at the same price will be executed in order of time, from oldest to
most recent.

RULE 5.18 FILLING ORDERS TO TRADE CONTRACTS

The HedgeStreet trading system will fill all orders to trade Contracts on an “or better”
basis. This means that if you place an order to buy a Contract or Contracts at a price higher than
the price of the best sell offer on the market, the system will fill your order at the better sell offer

26
(Revised +148/20054/10/2006)


()_4}—As a Clearing Member, you must submit statements of financial condition at
such times and in such manner as shall be prescribed from time to time.

()_()-As aClearing Member, you must use due diligence in receiving and handling
orders from Customers, entering such orders onto HedgeStreet on behalf of such Customers,
responding to inquiries from Customers about their orders and reporting back to Customers the
execution of such orders.

(k)_6}~-As a Clearing: Member, you must confirm any trades entered on behalf of a
Customer to such Customer no later than the business day following the day upon which the
transaction was executed. Such confirmation shall i) be in writing, ii) show the (Hedgelet bought
or sold, iii) show the amount, iv) the price, and #¥y) the expiration date.

(1)_4k}-As a-Cleating Member, you must establish and enforce internal controls, policies
and procedures to reasonably ensure that each order received from a Customer is entered on
HedgeStreet prior to any order of the same Series being entered at the same price for;

(i) any proprietary account of the Clearine- Member,
(ii) any account in which the Authorized Trader(s) has an interest.or;

(iii) any account over which a Clearing Member or its Authorized
Trader(s) #avehas discretionary authority.

n})_(4}-Prior to entering an order for a Customer that is not an Eligible Contract
Participant, a Clearing Member must first provide such Customer with the HedgeStreet Risk
Disclosure Statement.

(n)_4)}—Each Clearing Member must make and file reports in accordance with
Commission Regulations in a manner and form and at such times as may be prescribed by the
Commission.

(Q)_¢}—Each-Cleating Member must make and file reports with HedgeStreet at such
times, in such manner and form, and containing such information as HedgeStreet may prescribe
from time to time.

(p)_(e}-Each Clearing-Member, upon a request of HedgeSteet-orby any Regulatory
Agency, must promplty respond to any requests for information that may be requested from time
to time.

(q)_¢p}-Each Clearing Member may invest Customer Funds as long as such funds are
invested pursuant to Commission Regulation 1.25.

(1)_(4}Each-Clearing Member must prepare, maintain and keep current those books and
records required by the rules of HedgeStreet, the CEA and/or the Commission’s Regulations.
Such books and records shall be open to inspection and promptly provided to HedgeStreet and/or
the Commission or the U.S. Department of Justice upon request.

14
(Revised 1448:26054/10/2006)


HEDGE

Street

HedgeStreet is not aware of any substantive opposing views to these rule amendments.
HedgeStreet hereby certifies that these rule amendments comply with the Commodity
Exchange Act, as amended, and the Commissions regulations adopted thereunder.

HedgeStreet intends to implement this rule amendment on Monday, April 17, 2006.

Should you have any questions or require additional information, please do not hesitate to
contact the undersigned at (650) 638-3511 or sford@hedgestreet.com.

Sincerely,

Stephanie Ford
Vice President, Legal & Compliance

ce: Riva Adriance — CFTC
Clarissa Manansala — HedgeStreet, Inc.

www.hedgestreet.com

1825 S. Grant Street
Suite 500

‘San Mateo, CA 94402
Tel: 650.638.3500
Fax: 650.638.3501


CHAPTER 10 LIMITATION OF LIABILITY; TIME PERIOD IN WHICH TO BRING
ACTIONS; GOVERNING LAW; ARBITRATION

RULE 10.1 LIMITATION OF LIABILITY

(a) | ASA MEMBER YOU AGREE THAT NEITHER HEDGESTREET, THE
CLEARING CORPORATION, NOR THEIR RESPECTIVE OFFICERS, DIRECTORS,
AGENTS AND/OR EMPLOYEES (COLLECTIVELY REFERRED TO AS “HEDGESTREET
PARTIES”) SHALL HAVE ANY RESPONSIBILITY FOR COMPLIANCE BY MEMBER
WITH ANY LAW OR REGULATION GOVERNING MEMBER’S CONDUCT.
MOREOVER, YOU ALSO AGREE THAT NO HEDGESTREET PARTY SHALL BE LIABLE
TN ANY MANNER WHATSOEVER FOR ANY LOSS OR DAMAGE SUSTAINED BY
MEMBER, INCLUDING ANY CONSEQUENTIAL LOSS, LOSS OF PROFIT OR LOSS OF
TRADING OPPORTUNITY, AS A RESULT OF ANY ACTUAL OR PROPOSED
TRANSACTIONS OR AS A DIRECT OR INDIRECT RESULT OF ANY SERVICES
PROVIDED BY HEDGESTREET PARTIES (INCLUDING, WITHOUT LIMITATION, ANY
FAILURE IN HEDGESTREET’S SYSTEMS OR ANY INACCURATE INFORMATION
PROVIDED BY A HEDGESTREET PARTY), UNLESS THE RELEVANT HEDGESTREET
PARTY IS DETERMINED BY FINAL RULING OF AN ARBITRATION PROCEEDING TO
HAVE ACTED OR FAILED TO ACT IN A MANNER THAT IS GROSSLY NEGLIGENT,
RECKLESS, OR FRAUDULENT. FOR THE AVOIDANCE OF DOUBT, NOTHING IN THIS
RULE IS INTENDED TO LIMIT THE LIABILITY OF ANY PERSON AS MAY BE
PROVIDED IN THE CEA, THE REGULATIONS OF THE COMMISSION, OR BY ACTS OF
WILLFUL OR WANTON MISCONDUCT OR FRAUD.

(b) AS A MEMBER, YOU AGREE THAT YOU MAY NOT BRING ANY ACTION
AGAINST A HEDGESTREET PARTY UNLESS YOU BRING SUCH ACTION WITHIN 2
YEARS OF THE FIRST OCCURRENCE OR LACK OF OCCURRENCE OF THE ACT OR
OMISSION COMPLAINED OF.

(c) AS A MEMBER, YOU AGREE THAT ANY ACTION YOU BRING AGAINST
HEDGESTREET PARTY WILL BE GOVERNED BY ILLINOIS LAW, WITHOUT REGARD
TO STATUTES, PRECEDENT, LEGAL DOCTRINE, OR CONTRACTUAL PROVISIONS
THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A DIFFERENT
JURISDICTION.

(d) AS A MEMBER, YOU AGREE THAT ANY ACTION YOU BRING AGAINST A
HEDGESTREET PARTY OR AGAINST ANOTHER HEDGESTREET MEMBER WILL BE
RESOLVED BY BINDING ARBITRATION, IN ACCORDANCE WITH THE RULES OF
THIS CHAPTER AND OTHER RULES OF HEDGESTREET, IF APPLICABLE.

RULE 10.2 ARBITRATION OF MEMBER-MEMBER DISPUTES

Any dispute, controversy, or claim between or among Members arising out of or relating
to transactions on HedgeStreet shall be submitted to binding arbitration in Cook County, Illinois
before, and according to the arbitration rules of, National Futures Association. The decision of
the arbitrator or arbitrators will be final, and judgment upon that decision may be entered in any

38
(Revised 4444820054/10/2006)


(c) If a Clearing Member over buys or over sells on an order in an attempt to correct an
Unfilled Order or Erroneous Execution, the Customer is not entitled to any of the excess. A
Clearing Member that has established an excess position due to an attempt to correct an Unfilled
Order or Erroneous Execution must place such excess position in the error account of the
Clearing Member or Authorized Trader responsible for the error. Any profits resulting from the
liquidation of the trades placed in the error account belong to the Clearing-Member or the
Authorized Trader, and may be retained or disbursed at the discretion of the-Clearing Member or
the Authorized Trader.

RULE 5.10 DISPUTED ORDERS

(a) If you believe that an order to buy or sell iHedgelets was incorrectly executed or
rejected by HedgeStreet you may request review of the order by providing the confirmation
number for the order and stating the grounds for your disagreement with the handling of the
order.

(b) Upon receipt of a request for review of an order and the accompanying confirmation
number, HedgeStreet will review its electronic audit trail to determine if the HedgeStreet trading
system correctly interpreted and executed your order.

(c) If the review described in paragraph (b) of this Rule reveals that the HedgeStreet
trading system made a mistake, the order will be cancelled and the accounts of all Members that
were party to the order will be returned to their state before the trade was executed.

(d) If the review described in paragraph (b) of this Rule reveals that the HedgeStreet
trading system did not make a mistake, HedgeStreet will inform you of its determination that the
order was properly handled, the evidence supporting that determination, and that an adjustment
will not be made.

(e) You may appeal a determination under paragraph (d) of this Rule to a HedgeStreet
compliance officer through the electronic mail address provided on the HedgeStreet website.
You will be required to provide a response to the evidence described in paragraph (d) of this
Rule that the order was properly handled, and you may provide any other information you wish
to disclose. If your appeal does not contain a response to the evidence described in paragraph
(d), it will be rejected. The compliance officer will decide your appeal no later than 10 days after
its receipt, and that decision will be final.

(f) HedgeStreet will document in writing all requests for review of orders received by
HedgeStreet, the time and manner in which HedgeStreet reviewed its electronic audit trail in
response to the request, the outcome of that review, and the action or actions taken by
HedgeStreet in response to that review, including the results of any appeal filed under paragraph
(e) of this Rule and the review conducted by the compliance officer in deciding that appeal.

RULE 5.11 ACCEPTABLE ORDERS

(a) You may only enter limit orders to trade Contracts on the Market except in
accordance with the conditions and procedures under which such orders may be permitted under
these Rules.

22

(Revised ++4820054/] 0/2006)


Designated Clearing Member shall have the right and power to resolve any disputes
din, sactions by the Member in th MS. a} i
Neor be : ii-dss tty

ative

transaction,
RULE 6.4 LAST TRADING DAY

CHAPTER 7 ADJUSTMENTS NECESSITATED BY MATERIAL CHANGES IN THE
UNDERLYING

RULE 7.1 ADJUSTMENTS

In the event that, during the term of a Series, changes beyond the control of HedgeStreet
occur in the way the Underlying is calculated or an Expiration Value for the Underlying is
unavailable or undefined in light of intervening events, HedgeStreet may adjust the terms of
outstanding Series as it deems appropriate in its discretion to achieve fairness to holders of

31

(Revised -48-20054/10/2006)


(d) HedgeStreet may periodically conduct an evaluation of any Market Maker to
determine whether it has fulfilled performance standards relating to, among other things, quality
of the markets, competitive market making, observance of ethical standards, and administrative
soundness. If the Market Maker fails to meet minimum performance standards, HedgeStreet
may, among other things, (i) suspend, terminate or restrict the Market Maker’s appointment to a
particular Designated Class, (ii) restrict the Market Maker from appointments to additional
Designated Class(es), andor (iii) suspend, terminate or restrict the Market Maker’s registration as
such.

RULE 4,3 BENEFITS OF BECOMING A MARKET MAKER

(a) Market Makers may have access to HedgeStreet via a dedicated private circuit for an
additional fee to be determined by HedgeStreet on a case-by-case basis. HedgeStreet will
provide a guaranteed throughput per day with a specified peak amount of orders that may be
traded per second to all Market Makers.

(b) Market Makers shall receive reduced trading fees and-or-participateintrevenue
sharing with HedgeStreetas an incentive for fulfilling the obligations of a market maker.

(c) Market Makers shall have access to a designated group of operational and
engineering specialists at HedgeStreet who handle issues relating to Market Makers.

RULE 4.4 OBLIGATIONS OF MARKET MAKERS

(a) General - Transactions of Market Makers should constitute a course of dealings
reasonably calculated to contribute to the maintenance of a fair and orderly market, and Market
Makers shall not make bids or offers or enter into transactions that are inconsistent with such a
course of dealings. Ordinarily, Market Makers shall be obligated to maintain two-sided
displayed quotes at a predefined spread (“Spread”) for a Series of Contracts for a certain period
of time throughout the trading day. In ordinary market conditions, quotes must be made within a
maximum Spread. This Spread will be set at the time a Series is opened for trading and will be
set in accordance with the maximum loss a Market Maker may incur by quoting within the
Spread. In fast market conditions, Market Makers will be permitted to widen their Spreads to a
level that will be set at the time a Series is opened for trading.

(b) A Market Maker has a continuous obligation to engage, to a reasonable degree under
the existing circumstances, in dealings for the account of the Market Maker when there exists, or
it is reasonably anticipated that there will exist, a lack of price continuity or a temporary
disparity between the supply of and demand for quotations in a Series of a Designated Class to
which the Market Maker is appointed. Without limiting the foregoing, a Market Maker is
expected to perform the following activities in the course of maintaining a fair and orderly
market;

(i) To post bid and ask quotations in all Designated Classes to which the
Market Maker is appointed that, absent changed market conditions, will be honored by
the Market Maker.
17
(Revised 44820054/1.0/2006)


Appendix 1

RULES OF HEDGESTREET, INC.

INTRODUCTION

The Commodity Exchange Act (“CEA”) requires that HedgeStreet and other contract
markets and derivatives clearing organizations adopt rules governing the way they conduct their
business. Those rules generally must be filed with the Commodity Futures Trading Commission
(“Commission”) and generally cannot be amended without giving notice to the Commission,
which can reject proposed rules and proposed amendments to existing rules. The following rules
are the rules of HedgeStreet (“Rules”) that inform yeeMembers of how the HedgeStreet
intermediated market (the “Market”) operates and of yeuxMember rights and obligations as-a

the Market. Please remember that these Rules may be amended in the
future, and if, they are amended, all Members will be required to abide by the Rules as amended.
HedgeStreet will notify all Members any time there is an amendment to the Rules.

CHAPTER 1 DEFINITIONS
RULE 1.] DEFINITIONS.
When used in these Rules:

(a) “Authorized Trader” means an individual or individuals employed by a Clearing
Member who is authorized by that Clearing: Member to have direct access to HedgeStreet,
provided the-Cleating Member maintains supervisory authority over such individual(s) trading
activities.

(b) “Cap” means the maximum rate, level, amount, measure or other value of the
Underlying of a Variable Payout iHedgelet Contract that may be the Expiration Value or the
Closing Trade Value. If the actual rate, level, amount, measure, or other value of the Underlying
meets or exceeds the Cap on the Expiration Date, the Cap will be the Expiration Value.

(c) “Class” means all iHedgelets of the same Type with the same Underlying.

(d) Clearing Corporation” (“CCorp”) means the derivatives clearing organization

designated by HedgeStreet, to clear transactions effected by-Clearing Members-onthe Marketon
(e) “Clearing Member”-er*Member” means anya Member of HedgeStreet that is also

a CCorp Participant of the Clearing Corporation authorized to clear and settle Hedgelets
executed on the Market.

(f) “CCorp Participant” means a Person that has been approved by the Clearing
Corporation to clear and settle *exchange contracts” traded on an “exchange market”, as both
terms are defined pursuant to the rules of the Clearing Corporation, but not a member of
HedgeStreet.


Declaration of Clearing Authorization

Email Address:

Please list all HedgeStreet
Products/ Instruments deemed
applicable to this Declaration of
Clearing Authorization:

Fees

HedgeStreet will charge all related fees to the Clearing Member for all transactions performed by its
Trading Members.

The undersigned recognizes that the statements herein may be verified by investigation, and hereby
declare that they are true, complete and accurate. The undersigned also agrees to immediately notify
HedgeStreet of any changes regarding the above-referenced clearing relationship, in written form.

Name of HedgeStreet Member (Please Print) Signature of HedgeStreet Member/ Date

Name of Clearing Firm (Please Print) Authorized Signature of Clearing Firm Member/ Date

© HedgeStreet, Inc. 2of2


court of competent jurisdiction. Unless the arbitrator or arbitrators find that one of the parties
has acted in bad faith, each party will pay its own expenses.

RULE 10.3 ARBITRATION OF HEDGESTREET-MEMBER DISPUTES

Any dispute, controversy, or claim brought against HedgeStreet by any Member shall be
submitted to binding arbitration in Cook County, Illinois before, and according to the arbitration
tules of, National Futures Association. The decision of the arbitrator or arbitrators will be final,
and judgment upon that decision may be entered in any court of competent jurisdiction. Unless
the arbitrator or arbitrators find that one of the parties has acted in bad faith, each party will pay
its own expenses. Upon request of either party the arbitrator or arbitrators will make a finding as
to whether HedgeStreet has acted in a manner that is grossly negligent, reckless, or fraudulent.

RULE 10.4 ARBITRATION OF CLEARING-MEMBER-CUSTOMER DISPUTES

Any dispute, controversy, or claim brought against any Cleari#g-Member by any
Customer arising out of or relating to transactions on HedgeStreet shall be submitted to binding
arbitration in Cook County, Illinois, before, and according to the arbitration rules of National
Futures Association, or in the case of any Customer which is an ECP, such other self-regulatory
organization as the parties may agree; provided, however, that the submission of such dispute to
arbitration shall be voluntary on the part of any Customer which is not an ECP. The decision of
the arbitrator or arbitrators or court of law, will be final, and judgment upon that decision may be
entered in any court of competent jurisdiction. The failure by any Clearing Member to comply
with any decision issued by the arbitrator or arbitrators in resolving any such dispute shall
constitute a violation of these Rules, unless the decision is the subject of pending judicial review.

RULE 10.5 FAILURE TO ABIDE BY ARBITRATION DECISION

It will be a violation of the HedgeStreet Rules for a Member to fail to pay an award or
otherwise satisfy or abide by a judgment in arbitration, and HedgeStreet may take disciplinary
action against any such Member, including suspension or revocation of Membership.

RULE 10.6 CHANGE IN ARBITRATION PROCEDURE
HedgeStreet will file all changes to its arbitration procedure with the Commission.
RULE 10.7 DISPUTES INVOLVING CLEARING OF iHEDGELETS

Notwithstanding anything to the contrary in these Rules, any disputes arising from or
connection with the clearance of iHedgelets shall be resolved pursuant to the procedures set forth
in the Clearing Corporation’s rules and policies.

CHAPTER 11 COMMISSION REGULATIONS THAT HAVE BEEN ADAPTED TO BE
PART OF THE RULES

The following Rules are adaptations of regulations adopted by the Commission. They
must be followed by Members and HedgeStreet itself, and any violation of these regulations will
be a punishable violation of the Rules.

39
(Revised +448-20054/10/2006)


(ii) any board of trade, exchange or market outside the United States, its
territories or possessions, the products of which are listed on a United States contract market or a
trading facility thereof; or

(iii) any securities exchange, the products of which are held as margin in
a commodity account or cleared by a securities clearing organization pursuant to a cross-
margining arrangement with a futures clearing organization which clears the products of any of
the foregoing markets.

(8) Commodity interest means any commodity futures or commodity option
contract traded on or subject to the rules of a contract market or linked exchange, or cash
commodities traded on or subject to the rules of a board of trade which has been designated as a
contract market.

(9) Related commodity interest means any commodity interest which is traded on
or subject to the rules of a contract market, linked exchange, or other board of trade, exchange or
market, other than the self-regulatory organization by which a person is employed, and with
respect to which:

(i) Such employing self-regulatory organization has recognized or
established intermarket spread margins or other special margin treatment between that other
commodity interest and a commodity interest which is traded on or subject to the rules of the
employing self-regulatory organization; or

(ii) Such other self-regulatory organization has recognized or established
intermarket spread margins or other special margin treatment with another commodity interest as
to which the person has access to material, nonpublic information.

(10) Pooled investment vehicle means a trading vehicle organized and operated as
a commodity poo! within Commission Regulation 4.10(d), and whose units of participation have
been registered under the Securities Act of 1933, or a trading vehicle for which Commission
Regulation 4.5 makes available relief from regulation as a commodity pool operator, i.e.,
registered investment companies, insurance company separate accounts, bank trust funds, and
certain pension plans.

(b) Employees of self-regulatory organizations; Self-regulatory organization rules.

(1) HedgeStreet must maintain in effect Rules which have been submitted to the
Commission pursuant to Section Sc(c) of the Act and Commission Regulations 38.4(a) or 39.4(a)
and 40.5 that, at a minimum, prohibit:

(i) Employees of HedgeStreet from trading, directly or indirectly, in any
commodity interest traded on or cleared by HedgeStreet or in any related commodity interest;

(ii) Employees of HedgeStreet from trading directly or indirectly in any
commodity interest traded on or cleared by contract markets or clearing organizations other than
HedgeStreet and in any commodity interest traded on or cleared by a linked exchange if the
employee has access to material non-public information concerning such commodity interest.

4)

(Revised +4-4+8/20054/1 0/2006)


(bb)_(2}—“Settlement Date” means the date on which money is paid to the account of a
Clearing Member_or Customer who has the right to receive money pursuant to a Fixed Payout
iHedgelet Contract or a Variable Payout iHedgelet Contract held until Expiration, and on which
money is paid from the account of a Clearing- Member_or Customer who is obligated to pay
money pursuant to a Variable Payout iHedgelet Contract held until Expiration. Unless otherwise
specified in these Rules, the Settlement Date is the same day as the Expiration Date.

{cc)_{aa)}—“Settlement Value” means the amount paid to the accounts of holders of in-
the-money iHedgelets. The Settlement Value of iHedgelets will be determined by the Clearing
Corporation in accordance with its rules.

(dd)_¢e6)}—“Short Variable Payout /Hedgelet Contract” means (i) the right to receive
at the time the Contract is closed or on the Settlement Date any positive number resulting from
subtracting from the Opening Trade Value (A) the Closing Trade Value, if the Variable Payout
iHedgelet Contract was closed by an offsetting transaction before Expiration, or (B) the
Expiration Value, if the Variable Payout iHedgelet Contract was held to Expiration, and then
multiplying the resulting figure by the Dollar Multiplier and (ii) the obligation to pay at the time
the Contract is closed or on the Settlement Date any positive number resulting from subtracting
the Opening Trade Value from (A) the Closing Trade Value, if the Variable Payout jHedgelet
Contract was closed by an offsetting transaction before Expiration, or (B) the Expiration Value,
if the Variable Payout iHedgelet Contract was held to Expiration, then multiplying the resulting
figure by the Dollar Multiplier.

ee) _tee}—“Source Agency” means the agency that publishes the Underlying economic
indicator and/or Expiration Value for any iHedgelet.

(ff)_¢d4d)}—“Speculative Position Limits,” or “Position Limit” means the maximum
position, either net long or net short, in one Series or a combination of various Series of a
particular Class that may be held or controlled by one Person as prescribed by HedgeStreet
and/or the Commission.

(gg) “Trading Member’ means a Member of HedgeStreet that is nota Clearing

Member,_

hh)_¢ee}—“Type” means the classification of an iHedgelet as a Fixed Payout iHedgelet
or Variable Payout iHedgelet.

Gi)_4-“Underlying” means the index, rate, risk, measure, instrument, differential,
indicator, value, contingency, occurrence, or extent of an occurrence the Expiration Value of
which determines whether (and, in the case of a Variable Payout ‘Hedgelet, to what extent) an
iHedgelet is in-the-money.

Gj) ¢s}“Variable Payout iHedgelet Contract” means a Short Variable Payout
iHedgelet and/or a Long Variable Payout iHedgelet that may be traded enly-by-Clearing
Members and is cleared and settled by the Clearing Corporation.

4
(Revised 44-4820054/10/2006)