CME Regulatory Advisory 06-03
March 23, 2006
Page 4 of 5

106.N., 106.R (also known as Electronic Corporate Members) or 106.S., and other similar
member programs to be announced by CME.

CT13 - Applies to orders entered by member or non-member terminal operator for the account
of another individual member or an account controlled by such other individual member.

CTI 4 - Applies to all orders/transactions not included in CTI categories 1, 2, or 3. These
typically are orders entered by or on behalf of non-member entities.

Each order entered into CME Globex must be entered with the correct workstation operator identifier
as described in Section 3 of this Advisory.

Terminal operators that receive orders which are capable of and are immediately entered into CME
Globex are not required to create a written, timestamped order. Orders that cannot be entered
immediately into CME Globex must be reduced to writing and include the date, timestamp, order
instructions and account designation. See CME Rule 536.B. (“Recordkeeping Requirements for Pit,
GLOBEX, and Negotiated Trades - GLOBEX Order Entry”). CME Globex users are encouraged to
print and save a listing of orders they enter into CME Globex each session.

CME clearing member firms are responsible for maintaining or causing to be maintained an audit trail
for electronic orders entered into CME Globex through CME iLink, and must be able to display this
data in a pre-approved format using terminology and field names consistent with other CME systems.
See Rule 536.B.3. (“Clearing Member Requirements for Electronic Order Routing/Management
Systems”).

6. Pre-Execution Discussions Concerning CME Globex Trades

Market participants are allowed to engage in pre-execution discussions with regard to transactions
executed on CME Globex where one party wishes to be assured that a contra party will take the
opposite side of the order, provided that parties adhere to the requirements and procedures in CME
Rule 539.C.

Some circumstances in which pre-execution discussions might take place are as follows:

e A firm may wish to contact potential contra parties on behalf of its customers or for the benefit
of the firm proprietary account in order to gain some assurance that someone will be ready
and willing to take the opposite side of the order. These opposite parties could be the firm’s

_ Customers or house traders, other firms’ customers or proprietary traders, or individual traders;

e An individual member may contact potential contra parties to trade opposite his or her
personal trading account.

Firms must obtain permission from a customer prior to engaging in pre-execution discussions on
behalf of that customer. Once an individual or firm has participated in a pre-execution discussion,
they may not disclose that information to another party, or take advantage of the information for their
benefit. Firms may not enter orders into CME Globex that result from pre-execution discussions when
such orders are from two or more accounts with the same beneficial ownership.

After a pre-execution discussion involving any CME Globex product other than CME Eurodollar
options, the order from the party who initiated the pre-execution discussion must be entered into CME
Globex first, and the other party’s order may not be entered into CME Globex for a period of 5


CME Regulatory Advisory 06-03
March 23, 2006
Page 3 of 5

4. CME Globex Order Entry Rules

This section is intended to highlight the most commonly referred to CME rules and requirements for
orders entered into CME Globex on behalf of others; it is not intended as an exhaustive list of all such
CME rules and requirements.

e Every order entered into CME Globex must include an account designation, although there is
an exception to the requirement of entering the actual account number if the order is entered
by an eligible account manager for accounts eligible for post-trade allocation as set forth in
CME Rule 536.B.2. (“Bunched GLOBEX Orders”). Also, please follow the link below to
display Regulatory Advisory RA-05-01 from February 2, 2005, which contains additional
information on the appropriate procedures for the entry of suspense accounts into CME
Globex in lieu of actual account numbers.
http://www.cme.com/trading/res/req/adv/11727.html

* No person may enter an order for an account they own, an account in which they have a
financial interest or an account over which they have discretion when the person is in
possession of any order for another party that CME Globex is capable of accepting except as
provided in CME Rule 539.C. See CME Rule 530 (“Priority of Customers’ Orders”).

e All customer orders must be entered into CME Globex in the order received. See CME Rule
548 (“Priority of Execution’).

e No person may withhold or withdraw any order from the market for the benefit of any person
other than the person placing the order. See CME Rule 529 (“Withholding Orders
Prohibited”).

« Aperson in possession of a customer order shall not knowingly enter into a transaction for
that order opposite himself except in accordance with the provisions of CME Rule 539.C.
(“Prearranged, Pre-Negotiated and Noncompetitive Trades Prohibited — Pre-Execution
Discussions Regarding GLOBEX Trades”). See CME Rule 531 (“Trading Against Customers’
Orders Prohibited”).

e No person may disclose another person's order except in accordance with the provisions of
CME Rule 539.C. See CME Rule 532 (“Disclosing Orders Prohibited”).

e No person shall knowingly participate in a transaction in which the same beneficial owner is
both the buyer and seller, or accept simultaneous buy and sell orders for the same beneficial
owner when such orders are for the same product and expiration month, and , for a put or call
option, the same strike price. See CME Rule 534 (“Simultaneous Buy and Sell Orders for the
Same Beneficial Owner Prohibited”).

5. CME Globex Recordkeeping Requirements

For each order entered into CME Globex, CME Rule 536.B. requires the terminal operator to input the
price, quantity, product, expiration month, Customer Type Indicator (“CT! code”) and account number,
and, for options, put or call and strike price. A description of the four CTI codes appears below:

CTI - Applies to transactions initiated and executed by an individual member for his own
account, for an account he controls, or for an account in which he has an ownership or
financial interest. However, transactions initiated and executed by a member for the
proprietary account of a member firm (as defined below) must be designated as CTI 2
transactions.

CTI 2 - Applies to orders entered/trades executed for the proprietary accounts of CME
Clearing Member firms, firms holding a membership pursuant to CME Rules 106.H., 106.1.,


CME Regulatory Advisory 06-03
March 23, 2006
Page 5 of 5

seconds in the case of futures orders or a period of 15 seconds in the case of non-Eurodollar options
orders.

With respect to CME Eurodollar options orders that result from pre-execution discussions, automated
functionality has been implemented that requires a two-sided order be sent to CME Globex via a
Request for Cross message. Additionally, a Request for Quote must be entered prior to engaging in a
pre-execution discussion with respect to CME Eurodollar options orders on CME Globex.

More detailed information, including the text of CME Rule 539.C. and a Question and Answer
document concerning the policies and procedures concerning CME Globex pre-execution discussions
are available on the CME website via the following links:

http:/Awww.cme.com/trading/res/reg/adv/17328.html
http://www.cme.com/trading/res/reg/adv/17301.html

Failure to follow CME rules and procedures concerning CME Globex trades that result from pre-
execution discussions may result in disciplinary action. Additionally, pre-execution discussions
concerning trades intended for open outcry/pit execution are not allowed under any circumstances
and constitute a violation of CME Rule 539.

7. CME Globex Trade Cancellations

CME Rule 588 (“GLOBEX Trade Cancellations”) sets forth CME’s trade cancellation policy which
authorizes the CME Globex Control Center to mitigate market disrupting events caused by the
improper or erroneous use of the CME Globex system by adjusting trade prices or canceling trades.
The intent of the policy is to balance the adverse effects on market integrity of executing trades and
publishing trade information inconsistent with prevailing market conditions while preserving legitimate
expectations that executed transactions will not be cancelled. The rule also provides, in certain
instances, for claims for losses resulting from adjusted trade prices or cancellations. The text of CME
Rule 588, which includes the CME Globex no bust ranges for the various CME Globex products, is
available in the CME online rulebook.

8. Records Retention

Each firm or individual with CME Globex trading privileges must keep full, complete and systematic
records of CME Globex transactions and retain these records for a period of five (5) years. Records
required to be maintained include, but are not limited to, audit trails, order tickets, verifications,
confirmations and trade logs. Additional information concerning the requirements for CME Clearing
Member firms can be found in CME Rule 536.B.3. (“Clearing Member Requirements for Electronic
Order Routing/Management Systems”) which is available in the electronic version of the CME
Rulebook on the CME website.

If you have any questions about compliance/regulatory issues or specific CME Globex rules, contact
one of the following:

CME Market Regulation Department — 312/930.8525
Member's Hotline — 312/930.3333


cme @

Chicago Mercantile Exchange

20 South Wacker Drive
Chicago, IL 60606-7499
www.cme.com

March 23, 2006

Ms. Jean A. Webb

Office of the Secretariat

Commodity Futures Trading Commission
Three Lafayette Centre

1155 21° Street, NW

Washington, DC 20581

RE: CME Regulatory Advisory, RA-06-03
Submission No. 06-29

Dear Ms. Webb:

Q

fom)

Chicago Mercantile Exchange Inc. (“CME” or “Exchange") hereby notifies the Commission that
the Exchange has issued a Regulatory Advisory to CME members and employees of members
regarding CME Globex trading rules and requirements. This advisory provides a brief summary of
CME's rules and policies relating to CME Globex and acts as a guide to some of the most commonly
referred to questions on electronic trading. A copy of this regulatory advisory is attached.

The Exchange certifies that this regulatory advisory neither violates nor is inconsistent with any
provision of the Commodity Exchange Act or of the rules and regulations thereunder.
If you have any questions regarding this matter, please call me at (312) 648-5422.

Sincerely,

/S/ Stephen M. Szarmack
Director and Associate General Counsel

‘SMS/elnv5684 SUB 06-29.doc



cme @

Chicago Mercantile Exchange
20 South Wacker Drive 312/930.1000 tel
Chicago, IL 60606-7499 312/466.4410 fax

www.cme.com

Regulatory Advisory .

TO: All Members, Clearing Firms and CME Globex® Users RA-06-03
FROM: CME Market Regulation Department t a
DATE: March 23, 2006 ;

wn

SUBJECT: CME Globex Trading Rules and Requirements

penny

The information contained in this Advisory is intended to provide a brief summary of the CME rules
and policies most applicable to the CME Globex electronic trading platform (“CME Globex’). It is not
intended as a complete list of all rules and policies relating to CME Globex but rather as a short guide
to the most commonly referred to questions on electronic trading. The Advisory is divided into the
following seven sections:

CME Globex Access

Clearing Member Firm Responsibilities

Identification of CME Globex Workstation Users

CME Globex Order Entry Rules

CME Globex Recordkeeping Requirements

Pre-Execution Discussions Concerning CME Globex Trades
CME Globex Trade Cancellations

Records Retention

PNOGTPWN>

All CME Globex users (whether member, employee, or customer) are expected to know and adhere
to CME rules and policies and the rules and the regulations under the Commodity Exchange Act
(“Act”). Individuals and entities that violate CME rules or the Act, that threaten the integrity or liquidity
of any contract, or that fail to cooperate in a CME investigation may have their access to CME Globex
suspended or terminated. CME members, CME clearing member firms and other parties and entities
within the direct jurisdiction of CME pursuant to CME Rule 400 (“General Provisions”) may be subject
to disciplinary action by CME. Additionally, the Commodity Futures Trading Commission (“CFTC”) or
other regulatory agencies may also bring actions against market participants for failure to comply with
CME rules and policies. The complete texts of CME rules cited in this Advisory or applicable to CME
Globex are available on the CME website via the online version of the CME Rulebook.

1. CME Globex Access

CME Rule 574 (“GLOBEX Access Restrictions”) sets forth certain requirements concerning access to
CME Globex. The complete text of CME Rule 574 appears on the following page.



CME Regulatory Advisory 06-03
March 23, 2006
Page 2 of 5

574. GLOBEX ACCESS RESTRICTIONS

All connections to the GLOBEX system must be guaranteed by a clearing member that
assumes financial responsibility for all activity through the connection.

All individuals entering non-member customer orders in other than a clerical capacity must
have appropriate industry registration. Non-member customer orders may only be entered
from designated areas on the floor of the Exchange or from the premises of an entity
registered to conduct customer business.

Clearing members shall assist the Exchange in any investigation into potential violations of the
rules or the Act which occur through or with respect to a GLOBEX connection guaranteed by
the clearing member. Such assistance must be timely and may include, but not be limited to,
requiring any non-member customer to produce documents, to’answer questions from the
Exchange, and/or to appear in connection with an investigation.

Clearing members shall suspend or terminate a non-member customer's GLOBEX access if
the Exchange determines that the actions of the non-member customer threaten the integrity
or liquidity of any contract or violates any Exchange rule or the Act, or if the non-member
customer fails to cooperate in an investigation.

2. Clearing Member Firm Responsibilities

CME Rules 574 and 901.M. (“General Requirements and Obligations”) require that all connections to
CME Globex be guaranteed by a CME clearing member firm that assumes complete financial
responsibility for all activity entered through the connection. Additionally, any CME clearing member
firm providing direct CME Globex access to its customers must comply with all CME Credit Control
requirements as set forth in Schedule 6 of the Customer Connection Agreement.

3. Identification of CME Globex Workstation Users

CME Rule 576 (“Identification of GLOBEX Terminal Operators”) requires that each individual user
must use a unique user ID, also known as a workstation operator identifier (“identifier”), to access
CME Globex. This unique identifier is in addition to a password, and is required regardless of the
entry point into the CME Globex system (CME iLink®, CME Globex Trader, etc.). CME Clearing
Member firms are responsible for ensuring that each of the users it guarantees has been assigned a
unique identifier and for maintaining an historical record of the identity of each user for a five year
period. When firm employed terminal operators end their shifts or otherwise leave their terminals they
must sign out and any new user must sign on with his/her unique identifier and password.

Accurate entry of a unique identifier is necessary for regulatory purposes, and in some circumstances
is required for the proper fees to be applied. Failure to submit accurate data into the Exchange Fee
System (“EFS”) with respect to identifiers may be a violation of CME Rule 576.

For additional guidance on requirements concerning EFS registration of identifiers and identifier
requirements for orders entered through CME iLink connections, including trades sent to CME Globex
by an Automated Trading System (“ATS”), please see CME Regulatory Advisory 06-02 from March
22, 2006. The Advisory is available on the CME website at
http:/www.cme.com/trading/res/reg/adv/17684.htm|