executable at the market price or at the price at which such purchase can be made for the
member's own account or for the account in which such member has an interest.

(b) Permissible Transactions. A member may execute, for his own account or for an account in
which he has any direct or indirect interest, the transactions described in Rules 104.31(a)(i) and
(ii) ("Dual Trading-Prohibited Transaction"), if and only if (i) the order of the other person
involves a different delivery month or option contract month than the order executed by the
member for his own account or for any account in which he has an interest and the transaction is
executed on the opening call; or (ii) the member, with the prior specific consent of his customer,
executes or attempts to execute the customer's order in accordance with the provisions of Rule
104.24 ("Crossing of Orders") and Rule 104.24(e) ("Crossing of Orders - Floor Member Crossing
with Customer").

Other specific situations that could violate the Trading Ahead prohibition are addressed
below:

Trading Ahead of Associated Broker’s Orders

A disciplinary committee may consider a Member to have traded ahead of an associated
broker’s order where circumstances indicate that the Member had actual knowledge of the
associate’s orders.

Trading Ahead of Market on Close Orders

Members are also reminded that the prohibitions described above extend to all forms of
orders, including Market-on-Close orders that may be executed ratably over an entire closing
range [Notice to Members 06-293, June 5, 2006].

If you have any questions, please contact Nancy Minett, Vice President, Compliance, at
(212) 299-2940, Russell Cloughen, Senior Director, Trade Practice Surveillance, at (212) 299-
2880, or Adam Wernow, Compliance Counsel, at (212) 299-2851.


October 19, 2006

Via E-Mail

Office of the Acting Secretary : s
Commodity Futures Trading Commission t
Three Lafayette Centre

1155 21st Street, N.W.
Washington, D.C. 20581 Po IS

Re: Rule Certification. NYMEX Submission 06.124: Notification
of a Compliance Advisory to Clarify NYMEX Division Rule
6.41 and COMEX Division Rule 104.31

Dear Ms. Eileen Donovan:

The New York Mercantile Exchange ("NYMEX" or the "Exchange") is notifying the
Commodity Futures Trading Commission (““CFTC” or “Commission”) of a Compliance
Advisory to clarify NYMEX Division Rule 6.41, Trading Standards for Floor Brokers, and
COMEX Division Rule 104.31, Dual Trading.

The Compliance Advisory (attached Notice No. 06-549) provides interpretive guidance
on impermissible trading while in possession of executable customer orders. Pursuant to Section
Se(c) of the Commodity Exchange Act (“‘Act”) and CFTC Rule 40.6, the Exchange hereby
certifies that the attached notification filing complies with the Act, including regulations under
the Act.

If you have any questions, please contact Nancy Minett, Vice President, Compliance, at
(212) 299-2940, Russell Cloughen, Senior Director, Trade Practice Surveillance, at (212) 299-
2880, or Adam Wernow, Compliance Counsel, at (212) 299-2851.

Sincerely,

Thomas F. LaSala
Senior Vice President
Compliance and Risk Management

ce: Brian Regan


Notice No. 06-549

October 19, 2006

TO: All Exchange Members, Member Firms and Clearing Members
FROM: James E. Newsome, President

RE: Compliance Advisory: Interpretive Guidance on Impermissible Trading
While in Possession of Executable Customer Orders.

NYMEX Division Rule 6.41 and COMEX Division Rule 104.31 both prohibit trading
ahead of an executable customer order on the same side of the market. Questions have arisen as
to whether these prohibitions include trading other months or other markets on the same side of
the market before the customer order is executed. The issues discussed below were addressed at
the Compliance Review Committee on October 16, 2006, and the Committee recommended
issuance of this Advisory.

Trading in front of an executable customer order in the same contract or in a related
contract (whether electronic or open outcry—for example, a cash-settled Crude Oil Globex®
execution in front of an executable physical Crude Oil order in the same month and side of
market) is prohibited. Members were advised that for purposes of the trading ahead prohibition
contained in NYMEX Division Rule 6.41 and COMEX Division Rule 104.31, a future or option
in “the same commodity” shall include any contract based on the same underlying physical
commodity, irrespective of the contract’s size or whether the contract is physically delivered or
cash-settled. [Also see Notice to Members 06-293, June 5, 2006—FAQ on side-by-side trading
issues; trading ahead.]

Other situations, for example trading in front of an order in a related month, are addressed
by other provisions in the Exchange rulebook. The trading ahead rules specifically address the
situation where an execution by a broker holding a customer order would have been appropriate
and should have been allocated to an executable customer order. However, Members must be
aware that where they are trading either for their own account or for an account in which they
have an interest, and such trading is done based, in whole or in part, on knowledge of an
executable customer order on the same side of the market, they are trading in violation of the
Exchange rules. Such trading is neither “Just and Equitable” [Exchange Rule 8.55(B)(2)] nor
executed in good faith [Exchange Rule 8.55(A)(2)].

Members who act as brokers on behalf of customers have a fiduciary duty to the customer
and must exercise due diligence in their trading for customers [NYMEX Division Rule 6.16,


COMEX Division Rule 104.65]. Thus, when a Member trades for his own account or for any
account in which he has an interest; where such trading relies on or is advantageous to the
Member because of information contained in an executable customer order or where such trading
disadvantages the customer; that Member is trading in bad faith and is subject to disciplinary
sanctions. For example, where a Member received a customer’s market order to buy a January
contract of sufficient size to cause an upward price movement, it could be considered a violation
of NYMEX rules if the Member first purchased February contracts for a personal account prior to
executing the order. The Member’s personal trades, executed in front of the customer order in
another contract month in this circumstance indicates that, in the execution of trades for his own
interest, the Member either disadvantaged a customer order, or took advantage of material
nonpublic information gained due to his handling of a customer order.

NYMEX Division Rule 6.41: Trading Standards for Floor Brokers, states in pertinent part that:

(A) No Trading Member shall purchase any commodity for future delivery, purchase any call
option, or sell any put option for any commodity options contract, for his own account, or for any
account in which he has an interest, while holding an order of another person for the purchase of
any future, any call option, or sale of any put option, in the same commodity which is executable
at the market price or at the price at which such transaction can be made for the Member's own
account or the account in which he has an interest.

(B) No Trading Member shall sell any commodity for future delivery, sell any call option or
purchase any put option for his own account, or for any account in which he has an interest,
while holding an order of another person for the sale of any future, any call option, or purchase of
any put option, in the same commodity which is executable at the market price or at the price at
which such transaction can be made for the Member's own account or the account in which he
has an interest.

COMEX Division Rule 104.31, Dual Trading, states:

(a) Prohibited Transactions.

(i) Except to the extent provided in 104.31(b) ("Dual Trading--Permissible Transactions"), a
floor member may not purchase any futures contract or futures call option or sell any futures put
option in a commodity for his own account or for any account in which he has any direct or
indirect interest while holding an order of another person for the purchase of a futures contract or
futures call option or for the sale of any futures put option in the same commodity which is
executable at the market price or at the price at which such purchase can be made for the
member's own account or for the account in which he has an interest.

(ii) Except to the extent provided in Rule 104.31(b) ("Dual Trading-Permissible Transactions"), a
floor member may not sell any futures contract or futures call option or purchase any futures put
option in a commodity for his own account or for any account in which he has any direct or
indirect interest while holding an order of another person for the sale of a futures contract or
futures call option or for the purchase of any futures put option in the same commodity which is