oor FoTORESENH

‘August 2, 2005 eS 3 AY B59

Via Electronic Mail

Ms. Jean A. Webb

Secretary

Commodity Futures Trading Commission
Three Lafayette Centre

1155 21st Street, N.W.

Washington, D.C. 20581

Re: CBOE Futures Exchange, LLC Rule Certification
Submission Number CFE-2005-22

Dear Ms. Webb:

Pursuant to Section Se(c)(1) of the Commodity Exchange Act, as amended ("Act"), and
§40.6(a) of the regulations promulgated by the Commodity Futures Trading Commission
("Commission") under the Act, CBOE Futures Exchange, LLC ("CFE” or "Exchange") hereby
submits this rule change ("Amendment") to revise CFE's error trade policy set forth in CFE
Policy and Procedure III. The Amendment makes clear that with respect to trades involving a
spread order (e.g., a combination order and not independent, separate legs), the CFE help desk
may also consider the theoretical net price of the spread order and apply the "no bust range” in
relation to that theoretical net price, as opposed to reviewing the prices received for the individual
legs of the spread order.

The Amendment will become effective on August 4, 2005.

CFE is not aware of any substantive opposing views to the Amendment. CFE hereby
certifies that the Amendment complies with the Act and the regulations thereunder.

The Amendment, marked to show additions in underlined text and deletions in
[bracketed] text, is attached as Exhibit A.

Questions regarding this submission may be directed to David Doherty at (312) 786-
7466. Please reference our submission number CFE-2005-22 in any related correspondence.

CBOE Futures Exchange, LLC

By: Ah 4

Edward J. Joyee —A TJ J

President

ce: Steven Benton (CFTC)
Mark Baumgardner (OCC)

400 South LaSalle Street Chicago, Illinois 60605-1023 www.cboe.com/cfe


Exhibit A

TL.
A

Resolution of Error Trades (Rule 416)
General Policy

1.

Invoking Error Trade Policy

Any request by a Trading Privilege Holder to invoke the error trade policy with
respect to any trade must be made to the help desk as soon as possible.
Additionally, an employee of the Exchange can bring a potential error trade to
the help desk’s attention. The help desk may provide assistance only to Trading
Privilege Holders. In all cases, if a potential error trade is not brought to the help
desk’s attention within eight minutes after the relevant trade occurred, such trade
will stand, except as provided in Part B below.

Procedure Followed by Help Desk

When a potential error trade is brought to the help desk’s attention, the help desk
will determine whether the trade price is in the “no bust range” for the relevant
Contract, as set forth in the Rules governing such Contract. With respect to
trades involving a Spread Order (e.g., a combination order and not independent,
separate legs), the help desk may also consider the theoretical net price of the
Spread Order and apply the "no bust range" in relation to that theoretical net
price (such that if the net trade price of the Spread Order was inside (outside) that
"no bust range”, all of the trades involving the Spread Order would be treated as
inside (outside) the "no bust range"). In making a determination regarding the
theoretical net price of a Spread Order, the help desk may consider all relevant
factors, including the net of the true market prices of the Contracts that comprise
the individual legs of the Spread Order (each determined in the manner described
above) and the net price of other Spread Orders of the same type.

In determining whether the trade price is within the “no bust range,” the help
desk will determine what the true market price for the relevant Contract was
immediately before the potential error trade occurred. In making such
determination, the help desk may consider all relevant factors, including the last
trade price for such Contract, a better bid or offer price, a more recent price in a
different contract month and the prices of related contracts trading in other
markets,

Trade Price Inside “No Bust Range”

If the help desk determines that the trade price of a potential error trade was
inside the “no bust range” for the relevant Contract, such trade will stand and no
further action will be taken. No such trade can be busted by agreement of the
parties to such trade.

Trade Price Outside “No Bust Range”

If the help desk determines that the trade price of a potential error trade was
outside the “no bust range” for the relevant Contract, it will send an alert to all


CBOE Workstations that are able to receive text messages for such Contract from
the CBOE System, indicating that such trade may be an error trade. The help
desk will also attempt to contact all parties to such trade.

If all parties to a trade agree to bust such trade within 10 minutes from the time
that the error trade alert message was sent, then such trade will be busted. If any
party to such trade cannot be contacted or does not agree to bust such trade,
Exchange staff will review the circumstances surrounding such trade to
determine whether such trade should be busted. The factors that may be
considered by Exchange staff in this connection include: the market conditions
immediately before and after such trade occurred; the volatility of the market; the
prices of related instruments in other markets; whether one or more parties to
such trade believe that such trade was made at a valid price; and any other factors
that Exchange staff may deem relevant. Exchange staff shall make its decision as
promptly as practicable. Such decision shall be final.

If a trade is busted, either by agreement of the parties thereto or by Exchange
staff, the help desk will cancel such trade. The error trade price and any invalid
price quotes due to an error trade that is busted will be removed from the
Exchange’s official record of time and sales.

If a trade is not busted, the parties thereto cannot reverse such trade, except as
provided in Part B below. The parties to any such trade may also not “trade out”
of such trade by entering into a pre-arranged offsetting transaction; provided that
the parties may engage in pre-execution discussions with each other in
accordance with procedures established by the Exchange from time to time.

Contingency Orders Triggered by Error Trade

If an error trade is busted, either by agreement of the parties thereto or by
Exchange staff, the help desk will also (a) bust all trades that were triggered as a
result of contingency Orders being triggered by such trade and (b) cancel all bids
and offers that were entered into the CBOE System as a result of contingency
Orders being triggered by such trade. The help desk will notify the Trading
Privilege Holders responsible for the trades so busted and the bids or offers so
cancelled so that the original Orders can be re-entered into the CBOE System.

Notice of Final Action

As soon as a decision regarding a potential error trade has been made, the help
desk will disseminate a notice, indicating whether such trade is busted or stands.
In the case of a busted trade, the help desk will attempt to facilitate a resolution
by re-establishing Orders and their respective priorities in the CBOE System.

No change.