; cme @

Chicago Mercantile Exchange
March 7, 2006 ;
Ms. Jean A. Webb £
Office of the Secretariat cs :
Commodity Futures Trading Commission a a

Three Lafayette Centre
1155 21" Street, NW
Washington, DC 20581

RE: LMM Allocation Algorithm for E-mini Russell 1000 Futures

Submitted per Sec. 5c(c)(1) of the CEA and Regulation Sec. 40.6(a).
CME Submission # 06-18.

Dear Ms. Webb:

Chicago Mercantile Exchange (“CME” or “Exchange”) hereby certifies with the
Commission the following amendments to the interpretation to Rule 580. GLOBEX Trade
Algorithms. The Exchange certifies that this amendment complies with the Act and rules
thereunder.

Effective immediately, trading of E-mini Russell 1000 Index futures on Exchange-Traded
Funds shall be subject to the Lead Market Maker (LMM) Allocation Algorithm. The text of the
interpretation to Rule 580. GLOBEX Trade Algorithms shall be amended as follows to reflect
the new trade algorithm, with additions double-underlined and deletions bracketed and
overstruck.

INTERPRETATION OF RULE 580.— GLOBEX TRADE ALGORITHMS
Pro Rata Allocation Algorithm
[unchanged]

Implied Order Algorithm

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


Ms. Jean A. Webb

March 7, 2006

Page 2 of 3

[unchanged]

Lead Market Maker (LMM) Allocation Algorithms

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

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

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

An order will lose Time Priority when an order at a better price is entered. Example: An order to

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

After the Time Priority order is filled, the LMM Allocation Algorithm is applied to the remainder

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

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

In the event that the Exchange designates a single LMM in a specified market, the LMM’s
allocated proportion shall be 40%. In the event that the Exchange designates two (2) LMMs in a
specified market, each LMM shall be allocated 20%. In the event that the Exchange designates
three (3) LMMs in a specified market, each LMM shall be allocated 15%.

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

[The remainder of the Chapter remains unchanged.]



Ms. Jean A. Webb
March 7, 2006
Page 3 of 3

Please do not hesitate to contact Mr. Richard Co at 312-930-3227 or rco@cme.com if any

questions arise during the processing of this submission. Please reference our CME Submission
#06-18 on all future correspondence for this submission.

Sincerely,

John W. Labuszewski, Managing Director
Research & Product Development