Document:

exv10w17

EXHIBIT 10.17

NETEZZA CORPORATION

Amended and Restated Executive Retention Agreement

     THIS AMENDED AND RESTATED EXECUTIVE RETENTION AGREEMENT by and between Netezza Corporation, a
Delaware corporation (the “Company”), and                      (the “Executive”) is made as of December
     , 2008 (the “Effective Date”).

     WHEREAS, the Company recognizes that the possibility of a termination without cause or for
good reason may also result in the departure or distraction of the Executive to the detriment of
the Company and its stockholders, and

     WHEREAS, the Company recognizes that the possibility of a change in control of the Company
exists and that such possibility, and the uncertainty and questions which it may raise among key
personnel, may result in the departure or distraction of key personnel to the detriment of the
Company and its stockholders, and

     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that appropriate
steps should be taken to reinforce and encourage the continued employment and dedication of the
Company’s key personnel without distraction from the events and circumstances referred to above.

     WHEREAS, the Company and the Executive originally entered into this Executive Retention
Agreement on                     , and now desire to amend and restate it to reflect certain
developments in the tax law.

     NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its
employ, the Company agrees that the Executive shall receive the severance benefits set forth in
this Agreement in the event the Executive’s employment with the Company is terminated under the
circumstances described below.

     1. Key Definitions.

     As used herein, the following terms shall have the following respective meanings:

          1.1 “Change in Control” means an event or occurrence set forth in any one or more of
subsections (a) through (c) below (including an event or occurrence that constitutes a Change in
Control under one of such subsections but is specifically exempted from another such subsection)
and that also constitutes a “change of control” within the meaning of Section 409A of the United
States Internal Revenue Code of 1986, as amended, and the guidance issued thereunder (“Section
409A”):

               (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”)
of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 30% or more
of either (x) the then-outstanding shares of

 

 

common stock of the Company (the “Outstanding Company Common Stock”) or (y) the combined
voting power of the then-outstanding securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”); provided, however,
that for purposes of this subsection (a), the following acquisitions shall not constitute a Change
in Control: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable
for common stock or voting securities of the Company, unless the Person exercising, converting or
exchanging such security acquired such security directly from the Company or an underwriter or
agent of the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or

               (b) such time as the Continuing Directors (as defined below) do not constitute a majority of
the Board (or, if applicable, the Board of Directors of a successor corporation to the Company),
where the term “Continuing Director” means at any date a member of the Board (i) who was a member
of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected
subsequent to such date by at least a majority of the directors who were Continuing Directors at
the time of such nomination or election or whose election to the Board was recommended or endorsed
by at least a majority of the directors who were Continuing Directors at the time of such
nomination or election; provided, however, that there shall be excluded from this
clause (ii) any individual whose initial assumption of office occurred as a result of an actual or
threatened election contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents, by or on behalf of a person other than the Board;
or

               (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory
share exchange involving the Company or a sale or other disposition of all or substantially all of
the assets of the Company in one or a series of transactions (a “Business Combination”), unless,
immediately following such Business Combination, each of the following two conditions is satisfied:
(i) all or substantially all of the individuals and entities who were the beneficial owners of the
Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more than 50% of the
then-outstanding shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination (which shall include, without limitation, a
corporation which as a result of such transaction owns the Company or substantially all of the
Company’s assets either directly or through one or more subsidiaries) (such resulting or acquiring
corporation is referred to herein as the “Acquiring Corporation”) in substantially the same
proportions as their ownership, immediately prior to such Business Combination, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person
(excluding any employee benefit plan (or related trust) maintained or sponsored by the Company or
by the Acquiring Corporation) beneficially owns, directly or indirectly, 30% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of
the then-outstanding securities of such corporation entitled to vote generally in the

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election of directors (except to the extent that such ownership existed prior to the Business
Combination).

          1.2 “Change in Control Date” means the first date on which a Change in Control occurs.
Anything in this Agreement to the contrary notwithstanding, if (a) a Change in Control occurs, (b)
the Executive’s employment with the Company is terminated prior to the date on which the Change in
Control occurs, and (c) it is reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken steps reasonably calculated to
effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a
Change in Control, then for all purposes of this Agreement the “Change in Control Date” shall mean
the date immediately prior to the date of such termination of employment.

          1.3 “Cause” means a good faith finding by the Company that:

               (a) the Executive has breached any of his or her material legal or contractual obligations to
the Company (other than as a result of incapacity) which breach (i) has not been cured by the
Executive within 10 business days following written notice by the Company to the Executive
notifying him or her of such breach and (ii) would have a material adverse effect on the Company;
or

               (b) the Executive has engaged in gross or persistent misconduct with respect to the Company;
or

               (c) the Executive has been convicted of or pleaded guilty or nolo contendere to (i) any
misdemeanor relating to the affairs of the Company which is injurious to the Company or (ii) any
felony.

          1.4 “Good Reason” means the occurrence, without the Executive’s written consent, of
any of the following:

               (a) a material reduction of the Executive’s annual base salary, provided that the reduction is
at least 15%;

               (b) a significant diminution in the Executive’s authority and duties, such that the
Executive’s employment duties and responsibilities are no longer of an executive nature; or

               (c) the relocation of the Executive’s principal place of employment to a location that is more
than 30 miles further away from the Executive’s residence than is the Executive’s current principal
place of employment.

          Any termination by the Executive for Good Reason shall be communicated by means of a written
notice delivered by the Executive to the Company within 90 days of the initial existence of the
occurrence or condition on which the Executive bases his claim for Good Reason. If the condition
is capable of being corrected, the Company shall have 30 days during which it may remedy the
condition. If the condition is fully remedied within such time period, the Company shall not owe
the amounts otherwise required to be paid under this Agreement. If the condition

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is not corrected, the Executive must leave employment within one year after the Company fails
to cure the condition giving rise to the Executive’s claim for Good Reason.

          1.5 “Disability” means the Executive’s absence from the full-time performance of the
Executive’s duties with the Company for 180 consecutive calendar days as a result of incapacity due
to mental or physical illness which is determined to be total and permanent by a physician selected
by the Company or its insurers and acceptable to the Executive or the Executive’s legal
representative.

     2. Term of Agreement. This Agreement, and all rights and obligations of the parties
hereunder, shall take effect upon the Effective Date and shall continue in effect until the
fulfillment by the Company of all of its obligations under Sections 4 and 5.2. Notwithstanding
anything else to the contrary in this Agreement, any provision of this Agreement which provides the
Executive with payment rights not previously held by the Executive shall be effective with respect
to a voluntary termination (including a termination for Good Reason) only if (x) the date of such
termination occurs after the earlier of (i) the date that is at least 12 months and one day after
the date of this Agreement or (ii) the first date upon which said provisions may be effective with
respect to such termination without causing payments or benefits hereunder to constitute
nonqualified deferred compensation subject to Section 409A, and (y) the Executive remains
continually employed by the Company prior to such termination date.

     3. Employment Status; Notice of Termination of Employment.

          3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does
not constitute a contract of employment or impose on the Company any obligation to retain the
Executive as an employee and that this Agreement does not prevent the Executive from terminating
employment at any time.

          3.2 Notice of Termination of Employment.

               (a) Any termination of the Executive’s employment by the Company or by the Executive (other
than due to the death of the Executive) shall be communicated by a written notice to the other
party hereto (the “Notice of Termination”), given in accordance with Section 7. Any Notice of
Termination shall: (i) indicate whether the termination is for Cause or Good Reason, (ii) to the
extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination for Cause or Good Reason and (iii) specify the Date of Termination (as
defined below). The effective date of an employment termination (the “Date of Termination”) shall
be the close of business on the date specified in the Notice of Termination (which date may not be
less than 10 days or more than 90 days after the date of delivery of such Notice of Termination),
in the case of a termination other than one due to the Executive’s death, or the date of the
Executive’s death, as the case may be.

               (b) The failure by the Executive or the Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any
right of the Executive or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting any such fact or circumstance in enforcing the Executive’s or
the Company’s rights hereunder.

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               (c) Any Notice of Termination for Cause given by the Company must be given within 90 days of
the occurrence of the event(s) or circumstance(s) which constitute(s) Cause.

     4. Benefits to Executive.

          4.1 Severance Benefits. If the Executive’s employment with the Company is terminated
by the Company (other than for Cause, Disability or death) or by the Executive for Good Reason,
then the Executive shall be entitled to the following benefits, subject to Sections 4.5 and 4.8:

               (a) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date
of Termination the sum of (i) the Executive’s base salary through the Date of Termination, (ii) any
accrued bonus which the Executive is entitled to receive as of the Date of Termination, (iii) the
amount of any compensation previously deferred by the Executive (together with any accrued interest
or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid
(the sum of the amounts described in clauses (i), (ii), and (iii) shall be hereinafter referred to
as the “Accrued Obligations”);

               (b) for 12 months after the Date of Termination, the Company shall continue to pay to the
Executive, beginning on the 30th day after the Date of Termination, in accordance with
its normal payroll practices, compensation at an annual rate equal to the sum of (i) his or her
highest annual base salary during the three-year period prior to the Date of Termination plus (ii)
the amount of the incentive bonus or bonuses paid to the Executive for the most recently completed
fiscal year for which all such bonuses to which the Executive is entitled have been paid; and

               (c) for 12 months after the Date of Termination, the Company shall continue to provide to the
Executive medical and dental benefits on substantially the same terms as were provided to the
Executive on the Date of Termination; provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive a particular type of benefits from such employer
on terms at least as favorable to the Executive and his or her family as those being provided by
the Company, then the Company shall no longer be required to provide those particular benefits to
the Executive and his or her family.

          4.2 Resignation without Good Reason; Termination for Cause or for Death or Disability.
If the Executive voluntarily terminates his or her employment with the Company, excluding a
termination for Good Reason, or the Executive’s employment with the Company is terminated by the
Company for Cause or by reason of the Executive’s death or Disability, then the Company shall pay
the Executive (or his or her estate, if applicable), in a lump sum in cash within 30 days after the
Date of Termination, the Accrued Obligations.

          4.3 Stock Acceleration. If the Executive’s employment is terminated by the Company
without Cause or by the Executive for Good Reason following a Change in Control, then all stock
options, restricted stock or other equity awards subject to vesting that are held by the Executive
as of such employment termination shall become vested in full effective immediately prior to such
employment termination.

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          4.4 Taxes.

               (a) Notwithstanding any other provision of this Agreement, except as set forth in Section
4.4(b), in the event that the Company undergoes a “Change in Ownership or Control” (as defined
below), the Company shall not be obligated to provide to the Executive a portion of any “Contingent
Compensation Payments” (as defined below) that the Executive would otherwise be entitled to receive
to the extent necessary to eliminate any “excess parachute payments” (as defined in Section
280G(b)(1) of the Internal Revenue Code of 1986, as amended (the “Code”)) for the Executive. For
purposes of this Section 4.4, the Contingent Compensation Payments so eliminated shall be referred
to as the “Eliminated Payments” and the aggregate amount (determined in accordance with Treasury
Regulation Section 1.280G-1, Q/A-30 or any successor provision) of the Contingent Compensation
Payments so eliminated shall be referred to as the “Eliminated Amount.”

               (b) Notwithstanding the provisions of Section 4.4(a), no such reduction in Contingent
Compensation Payments shall be made if (i) the Eliminated Amount (computed without regard to this
sentence) exceeds (ii) 110% of the aggregate present value (determined in accordance with Treasury
Regulation Section 1.280G-1, Q/A-31 and Q/A-32 or any successor provisions) of the amount of any
additional taxes that would be incurred by the Executive if the Eliminated Payments (determined
without regard to this sentence) were paid to him or her (including, state and federal income taxes
on the Eliminated Payments, the excise tax imposed by Section 4999 of the Code payable with respect
to all of the Contingent Compensation Payments in excess of the Executive’s “base amount” (as
defined in Section 280G(b)(3) of the Code), and any withholding taxes). The override of such
reduction in Contingent Compensation Payments pursuant to this Section 4.4(b) shall be referred to
as a “Section 4.4(b) Override.” For purpose of this paragraph, if any federal or state income
taxes would be attributable to the receipt of any Eliminated Payment, the amount of such taxes
shall be computed by multiplying the amount of the Eliminated Payment by the maximum combined
federal and state income tax rate provided by law.

               (c) For purposes of this Section 4.4 the following terms shall have the following respective
meanings:

                    (i) “Change in Ownership or Control” shall mean a change in the ownership or effective control
of the Company or in the ownership of a substantial portion of the assets of the Company determined
in accordance with Section 280G(b)(2) of the Code.

                    (ii) “Contingent Compensation Payment” shall mean any payment (or benefit) in the nature of
compensation that is made or made available (under this Agreement or otherwise) to a “disqualified
individual” (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning
of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company.

               (d) Any payments or other benefits otherwise due to the Executive following a Change in
Ownership or Control that could reasonably be characterized (as determined by the Company) as
Contingent Compensation Payments (the “Potential Payments”) shall not be made until the dates
provided for in this Section 4.4(d). Within 30 days after each

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date on which the Executive first becomes entitled to receive (whether or not then due) a
Contingent Compensation Payment relating to such Change in Ownership or Control, the Company shall
determine and notify the Executive (with reasonable detail regarding the basis for its
determinations) (i) which Potential Payments constitute Contingent Compensation Payments, (ii) the
Eliminated Amount and (iii) whether the Section 4.4(b) Override is applicable. Within 30 days
after delivery of such notice to the Executive, the Executive shall deliver a response to the
Company (the “Executive Response”) stating either (A) that he or she agrees with the Company’s
determination pursuant to the preceding sentence, or (B) that he or she disagrees with such
determination, in which case he or she shall set forth (i) which Potential Payments should be
characterized as Contingent Compensation Payments, (ii) the Eliminated Amount, and (iii) whether
the Section 4.4(b) Override is applicable. If and to the extent that any Contingent Compensation
Payments are required to be treated as Eliminated Payments pursuant to this Section 4.4(d), then
the Payments shall be reduced or eliminated, as determined by the Company, in the following order:
(A) any cash payments, (B) any taxable benefits, (C) any nontaxable benefits, and (D) any vesting
of equity awards, in each case in reverse order beginning with payments or benefits that are to be
paid the farthest in time from the date that triggers the applicability of the excise tax, to the
extent necessary to maximize the Eliminated Payments. In the event that the Executive fails to
deliver an Executive Response on or before the required date, the Company’s initial determination
shall be final. If the Executive states in the Executive Response that he or she agrees with the
Company’s determination, the Company shall make the Potential Payments to the Executive within
three business days following delivery to the Company of the Executive Response (except for any
Potential Payments which are not due to be made until after such date, which Potential Payments
shall be made on the date on which they are due). If the Executive states in the Executive
Response that he or she disagrees with the Company’s determination, then, for a period of 60 days
following delivery of the Executive Response, the Executive and the Company shall use good faith
efforts to resolve such dispute. If such dispute is not resolved within such 60-day period, such
dispute shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may be entered on the
arbitrator’s award in any court having jurisdiction. The Company shall, within three business days
following delivery to the Company of the Executive Response, make to the Executive those Potential
Payments as to which there is no dispute between the Company and the Executive regarding whether
they should be made (except for any such Potential Payments which are not due to be made until
after such date, which Potential Payments shall be made on the date on which they are due). The
balance of the Potential Payments shall be made within three business days following the resolution
of such dispute. Subject to the limitations contained in Sections 4.4(a) and (b) hereof, the
amount of any payments to be made to the Executive following the resolution of such dispute shall
be increased by the amount of the accrued interest thereon computed at the prime rate announced
from time to time by Silicon Valley Bank, compounded monthly from the date that such payments
originally were due.

               (e) The provisions of this Section 4.4 are intended to apply to any and all payments or
benefits available to the Executive under this Agreement or any other agreement or plan of the
Company under which the Executive receives Contingent Compensation Payments.

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          4.5 Payments Subject to Section 409A. Subject to the provisions in this Section 4.5
any severance payments or benefits under this Agreement shall begin only upon the date of the
Executive’s “separation from service” (determined as set forth below) which occurs on or after the
date of termination of employment. The following rules shall apply with respect to distribution of
the payments and benefits, if any, to be provided to the Executive under this Agreement:

               (a) It is intended that each installment of the severance payments and benefits provided under
this Agreement shall be treated as a separate “payment” for purposes of Section 409A of the
Internal Revenue Code and the guidance issued thereunder (“Section 409A”). Neither the Executive
nor the Company shall have the right to accelerate or defer the delivery of any such payments or
benefits except to the extent specifically permitted or required by Section 409A.

               (b) If, as of the date of the Executive’s “separation from service” from the Company, the
Executive is not a “specified employee” (within the meaning of Section 409A), then each installment
of the severance payments and benefits shall be made on the dates and terms set forth in this
Agreement.

               (c) If, as of the date of the Executive’s “separation from service” from the Company, the
Executive is a “specified employee” (within the meaning of Section 409A), then:

                    (i) Each installment of the severance payments and benefits due under this Agreement that, in
accordance with the dates and terms set forth herein, will in all circumstances, regardless of when
the separation from service occurs, be paid within the short-term deferral period (as defined under
Section 409A) shall be treated as a short-term deferral within the meaning of Treasury Regulation
Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A; and

                    (ii) Each installment of the severance payments and benefits due under this Agreement that is
not described in paragraph (i) above and that would, absent this subsection, be paid within the
six-month period following the Executive’s “separation from service” from the Company shall not be
paid until the date that is six months and one day after such separation from service (or, if
earlier, the Executive’s death), with any such installments that are required to be delayed being
accumulated during the six-month period and paid in a lump sum on the date that is six months and
one day following the Executive’s separation from service and any subsequent installments, if any,
being paid in accordance with the dates and terms set forth herein; provided, however, that the
preceding provisions of this sentence shall not apply to any installment of severance payments and
benefits if and to the maximum extent that that such installment is deemed to be paid under a
separation pay plan that does not provide for a deferral of compensation by reason of the
application of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an
involuntary separation from service). Any installments that qualify for the exception under
Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of the
Executive’s second taxable year following the Executive’s taxable year in which the separation from
service occurs.

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               (d) The determination of whether and when the Executive’s separation from service from the
Company has occurred shall be made and in a manner consistent with, and based on the presumptions
set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this paragraph (d),
“Company” shall include all persons with whom the Company would be considered a single employer as
determined under Treasury Regulation Section 1.409A-1(h)(3).

               (e) All reimbursements and in-kind benefits provided under this Agreement shall be made or
provided in accordance with the requirements of Section 409A to the extent that such reimbursements
or in-kind benefits are subject to Section 409A, including, where applicable, the requirement that
(i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter
period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement
during a calendar year may not affect the expenses eligible for reimbursement in any other calendar
year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the
calendar year following the year in which the expense is incurred and (iv) the right to
reimbursement is not subject to set off or liquidation or exchange for any other benefit.

               (f) The Company may withhold (or cause to be withheld) from any payments made under this
Agreement, all federal, state, city or other taxes as shall be required to be withheld pursuant to
any law or governmental regulation or ruling.

               (g) The Company makes no representation or warranty and shall have no liability to the
Executive or any other person if the payments and/or benefits under this Agreement are determined
to constitute deferred compensation subject to Section 409A but do not satisfy the conditions of
such section..

          4.6 Exclusive Severance Benefits. The making of the payments and the provision of the
benefits by the Company to the Executive under this Agreement shall constitute the entire
obligation of the Company to the Executive as a result of the termination of his or her employment,
and the Executive shall not be entitled to additional payments or benefits as a result of such
termination of employment under any other plan, program, policy, practice, contract or agreement of
the Company or its subsidiaries.

          4.7 Mitigation. The Executive shall not be required to mitigate the amount of any
payment or benefits provided for in this Section 4 by seeking other employment or otherwise.
Further, except as set forth in Section 4.1(c), the amount of any payment or benefits provided for
in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of
employment by another employer.

          4.8 Release. The obligation of the Company to make the payments and provide the
benefits to the Executive under clauses (b) and (c) of Section 4.1 is conditioned upon the
Executive signing a release of claims, in a customary and reasonable form requested by the Company
(the “Executive Release”), within 30 days following the Date of Termination. Payments shall be
made and benefits commence, pursuant to the terms of Section 4.1, on the 30th day after
the Date of Termination subject to the Executive Release becoming binding and any applicable
revocation period having lapsed as of such date. The Company shall not be obligated

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to make any payments to the Executive under Section 4.1(b) until the Executive Release has
become effective.

     5. Disputes.

          5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits
under this Agreement shall be directed to and determined by the Board and shall be in writing. Any
denial by the Board of a claim for benefits under this Agreement shall be delivered to the
Executive in writing and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the
Executive for a review of the decision denying a claim. Any further dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by arbitration in Boston,
Massachusetts, in accordance with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

          5.2  Expenses. The Company agrees to pay as incurred, to the full extent permitted by
law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as
a result of any claim or contest by the Company, the Executive or others regarding the validity,
enforceability or applicability of any provision of this Agreement, plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code.

     6. Successors.

          6.1 Successor to Company. This Agreement shall be binding upon the Company and its
successors and assigns (including the resulting or acquiring company in a Business Combination).
In the event of a Business Combination (and provided that, in the case of a Business Combination
structured as the sale or other disposition of all or substantially all of the assets of the
Company, the Executive accepts employment with the Acquiring Corporation effective on or about the
Change in Control Date), all references in this Agreement to the Company shall instead be deemed to
refer to the Acquiring Corporation.

          6.2 Successor to Executive. This Agreement shall inure to the benefit of and be
enforceable by the Executive’s duly authorized personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would still be payable to the Executive or his or her family hereunder if the
Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the executors, personal representatives or
administrators of the Executive’s estate, as appropriate.

     7. Notice. All notices, instructions and other communications given hereunder or in
connection herewith shall be in writing. Any such notice, instruction or communication shall be
sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii)
prepaid via a reputable nationwide overnight courier service, in each case addressed to the
Company, at 26 Forest Street, Marlborough, Massachusetts 01752, and to the Executive at the address
set forth below his or her name on the signature page hereto (or to such other address as

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either the Company or the Executive may have furnished to the other in writing in accordance
herewith). Any such notice, instruction or communication shall be deemed to have been delivered
five business days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier
service. Either party may give any notice, instruction or other communication hereunder using any
other means, but no such notice, instruction or other communication shall be deemed to have been
duly delivered unless and until it actually is received by the party for whom it is intended.

     8. Miscellaneous.

          8.1 Employment by Subsidiary. For purposes of this Agreement, the Executive’s
employment with the Company shall not be deemed to have terminated solely as a result of the
Executive continuing to be employed by a wholly-owned subsidiary of the Company.

          8.2 Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.

          8.3 Governing Law. The validity, interpretation, construction and performance of this
Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without
regard to conflicts of law principles.

          8.4 Waivers. No waiver by the Executive at any time of any breach of, or compliance
with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of
that or any other provision at any subsequent time.

          8.5 Counterparts. This Agreement may be executed in counterparts, each of which shall
be deemed to be an original but both of which together shall constitute one and the same
instrument.

          8.6 Tax Withholding. Any payments provided for hereunder shall be paid net of any
applicable tax withholding required under federal, state or local law.

          8.7 Entire Agreement. This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto in respect of the subject
matter contained herein; and any prior agreement of the parties hereto in respect of the subject
matter contained herein is hereby terminated and cancelled. This agreement supplements and
modifies the vesting provisions in any current or future stock option, restricted stock or equity
award agreement between the Executive and the Company; provided that if any such agreement has
acceleration-of-vesting provisions that are more favorable to the Executive than the terms of this
agreement, such more favorable provisions shall apply.

          8.8 Amendments. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Executive.

11

 

          8.9 Executive’s Acknowledgements. The Executive acknowledges that he or she: (a) has
read this Agreement; (b) has been represented in the preparation, negotiation, and execution of
this Agreement by legal counsel of the Executive’s own choice or has voluntarily declined to seek
such counsel; (c) understands the terms and consequences of this Agreement; and (d) understands
that the law firm of WilmerHale is acting as counsel to the Company in connection with the
transactions contemplated by this Agreement, and is not acting as counsel for the Executive.

[Remainder of page intentionally left blank.]

12

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first set forth above.

	 	 	 	 	 
	 	NETEZZA CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	Jitendra Saxena 	 
	 	 	Title:  	Chief Executive Officer 	 
	 
	 	[EXECUTIVE]

 	 
	 	 	 
	 
	 	Address:
	 
	 	 	 
	 

13EX-10.1

Exhibit 10.1

MORGAN STANLEY & CO.

INCORPORATED

Commodity Futures Account

Documents

Booklet 1 of 2

 

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT
 OR ESTABLISHING A NEW CUSTOMER RELATIONSHIP

To help the U.S. Government prevent the funding of terrorism and money laundering activities,
federal law requires all U.S. financial institutions to obtain, verify, and record information that
identifies each customer that opens an account.

What this means: When entering into a new customer relationship with Morgan Stanley, the firm will
ask for your name, address, date of birth (as applicable), and other identification information.
This information will be used to verify your identity. As appropriate, the firm may, in its
discretion, ask for additional documentation or information. If all required documentation or
information is not provided, Morgan Stanley may be unable to open an account or establish a
relationship with you.

 

COMMODITY FUTURES ACCOUNT APPLICATION

Please complete all of the following information

(attach continuation pages if necessary)

All Fields Mandatory

	I.	 	Customer Name/Mailing Address for all Notices and Statements

Legal Name of Customer (name of account owner):  

Customer’s Legal Address (address of organization):  

 

Telephone:
(     )             
   Facsimile:  (     ) 

Principal Business of Customer: 

Organized Under the Laws of (country of organization):  

U.S. Soc. Sec./Tax I.D. No.:  

Non-U.S. Government Issued I.D. No. and Type of I.D.:  

Name of Trustee (if organized as a Trust):  

Recipient and Mailing Address for Duplicate Statements: (If additional space is needed, please
attach a separate page) 

 

 

	II.	 	Financial Statement

Enclose copy of most recent audited/unaudited financial statement (required for credit
review)

 Prime Brokerage Account number (if Prime Brokered with Morgan Stanley).

	III.	 	Customer Designation (check all that apply, at least one item must be checked)

	 	 	 	 	 
	o       Bank

	 	o       Partnership	 	 
	o       Commodity Pool

	 	o       Insurance Company
	 	o       State or Municipal Pension Plan
	o       Corporation

	 	o       LLC
	 	o       Trust
	o       Endowment

	 	o       LLP
	 	o       Other:           
                              
	o       ERISA

	 	o       Mutual Fund	 	 

	IV.	 	Evidence of Authorization

Please provide a copy of the following applicable document showing Customer’s authority to trade
futures:

	 	 	 
	Corporation

	 	-     Corporate Resolution
	LLC

	 	-     Operating Agreement
	LLP

	 	-     Partnership Agreement
	Partnership

	 	-     Partnership Agreement
	Trust

	 	-     Trust Agreement
	Mutual Fund

	 	-     Prospectus and SAI

Commodity Pool, ERISA, Bank, Insurance Company and other account types please contact Morgan
Stanley regarding required documentation.

	V.	 	Third Party Advisor

Are you giving discretionary authority over your account to a third-party advisor? o Yes o No

If yes, you must complete the Discretionary Trading Authorization and the Advisor must sign the
Representations of Advisor (both on page 3 attached) and such other evidence of authority as
requested by Morgan Stanley.

	 	 	 
	Name of Third Party Advisor:
	 	 
	  

	Advisor’s U.S. Soc. Sec./Tax ID Number
	 	 
	  

	Non-U.S. government issued ID Number:
	 	 
	  

	Advisor’s Mailing Address:
	 	 
	  

- 1 -

 

	VI.	 	Account Designation (Check one)

	 	o	 	Speculative. All orders placed by Customer for the Account will represent speculative
transactions.
	 
	 	o	 	Hedge. Except with prior written notice to the contrary by Customer to Morgan
Stanley, all orders placed by Customer for the Account will represent bona fide
hedging transactions as defined in CFTC Regulation §1.3(z).
	 
	 	 	 	If orders placed for the Account represent hedging transactions, please complete
Section 10 (o) (i) of the Commodity Futures Customer Agreement. Failure to choose one
of the above will designate the Account as Speculative.
	 
	 	o	 	For Customers Resident in Canada: Hedger. Except with prior written notice to the
contrary by Customer to Morgan Stanley, all orders placed by Customer for the Account
will represent hedger trades as defined under the Ontario Commodity Futures Act
(Canada).

	VII.	 	Information to be used by Morgan Stanley to prepare CFTC Form 102 upon regulatory demand
	 
	(a)	 	Contact person with control over trading in the Account

	 	 	 	Name:  
	 
	 	 	 	Office Address:  

 

	 
	 	 	 	Occupation:      Office Telephone:
(      ) 

	(b)	 	List any other commodity futures accounts at Morgan Stanley which are traded by the persons
trading this Account: (If none, check here 
o)
 
	 
	 	 	 

	 
	(c)	 	List any other persons or entities (“beneficial owners”) having a financial interest of 10% or
more in this Customer/Account: (If none, check here 
o)
 
	 
	 	 	 

	 
	(d)	 	List any other futures accounts at Morgan Stanley in which this Customer or any of its
controlling persons or beneficial owners holds a financial interest of 10% or more: (If none, check
here o)
 

 

	 
	 	 	 

	 
	VIII.	 	Customer Representations
	 
	 	 	The Customer has reviewed the registration requirements of the Commodity Exchange Act, as amended
(the Act”), and the membership requirements of the National Futures Association (“NFA”) relating to
commodity pool operators and commodity trading advisors, and the Customer, or as applicable
Customer’s sponsor: (Please check one)

	 	o	 	does not engage in activities requiring registration under the Act;
	 
	 	o	 	is appropriately registered with the Commodity Futures Trading Commission (“CFTC”) and are
members of the NFA; or
	 
	 	o	 	is exempt from CFTC registration requirements and has filed all notices of
eligibility and other documents necessary in connection therewith.

	IX.	 	Individual customers please complete the Commodity Futures Account Application — Individual
Customer Application Annex included with these documents.

- 2 -

 

** PLEASE COMPLETE ONLY IF YOU HAVE ENGAGED A **

THIRD PARTY ADVISOR TO DIRECT YOUR ACCOUNT

DISCRETIONARY TRADING AUTHORIZATION

The undersigned Customer hereby authorizes                                          (the Advisor”) as its agent and attorney-in-fact to
purchase, sell (including short sales) and trade in commodities, commodity futures, option and
forward contracts thereon and interests therein (including exchange for physical transactions), on
margin or otherwise, in accordance with Morgan Stanley & Co. Incorporated’s (“Morgan Stanley”)
terms and conditions for the Customer’s account and risk and in the Customer’s name or number on
Morgan Stanley’s books. The Customer hereby confirms it has received a copy of Advisor’s disclosure
document or has received a written statement from Advisor explaining why the Advisor is not
required to provide a disclosure document.

This authorization is in addition to (and in no way limits or restricts) any rights which Morgan
Stanley may have under the Morgan Stanley Commodity Futures Customer Agreement executed by the
Customer and any other agreement or agreements between Morgan Stanley and the Customer.

This authorization may be terminated by the Customer at any time as of the actual receipt by Morgan
Stanley of written notice of termination. Termination of this authorization shall not affect any
liability in any way resulting from transactions initiated prior to such termination. This
authorization and indemnity shall inure to Morgan Stanley’s benefit and that of Morgan Stanley’s
successors and assigns.

	 	 	 	 	 
	 	 	 
	(Name of Customer – Please Print)
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	(Signature)

	 	(Date)	 	 
	 
	 	 	 	 
	 	 	 
	(Name & Title – Please Print)
	 	 	 	 

REPRESENTATIONS OF ADVISOR

The undersigned Advisor acknowledges that it has been designated as Customer’s agent and
attorney-in-fact pursuant to the Discretionary Trading Authorization. In this regard, the Advisor
hereby represents and warrants to Morgan Stanley & Co. Incorporated that: (a) the Advisor has
reviewed the registration requirements of the Commodity Exchange Act, as amended, and the National
Futures Association relating to commodity pool operators and commodity trading advisors and is
either appropriately registered with the CFTC and a member of the National Futures Association or
exempt or excluded from CFTC registration requirements; and (b) if required, the Advisor has
provided and will continue to provide Customer with an explanation of the nature and risks of the
strategies to be used in connection with all transactions, to be executed for Customer’s Account;
and (c) if required, the Advisor has provided Customer with a copy of its most recent CFTC
Disclosure Document, or has provided Customer with a written explanation of the reason why it is
not required to deliver a Disclosure Document to Customer.

	 	 	 	 	 
	 	 	 
	(Name of Advisor — Please Print)
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	(Signature)

	 	(Date)	 	 
	 
	 	 	 	 
	 	 	 
	(Name & Title — Please Print)
	 	 	 	 

- 3 -

 

COMMODITY FUTURES CUSTOMER AGREEMENT

This Commodity Futures Customer Agreement (“Agreement”) between Morgan Stanley & Co. Incorporated
(“Morgan Stanley”) and the customer named below (“Customer”) shall govern the purchase and sale by
Morgan Stanley of commodity futures contracts, options thereon, and interests therein including,
without limitation, exchange for physical transactions, exchange for swap transactions and block
trades and to the extent not governed by any other agreement between the parties, commodities
delivered as a result of the settlement thereof (collectively, “Contracts”) for the account and
risk of Customer through one or more accounts, including reactivated accounts, carried by Morgan
Stanley on behalf and in the name of Customer (collectively, the “Account”).

	1.	 	Applicable Law. The Account and all Contracts, transactions and agreements in respect of the
Account shall be subject to all applicable U.S. or non-U.S., Federal, state, provincial,
exchange, clearing house and self-regulatory organization laws, rules, regulations and
interpretations and custom and usage of the trade. All such rules, regulations,
interpretations, custom and usage, as in effect from time to time, are hereinafter
collectively referred to as “Applicable Law.”

	2.	 	Customer’s Representations and Warranties. At the time of entering into this Agreement and
again upon the entry into any Contracts or transactions under this Agreement, Customer
represents and warrants that (a) Customer has full right, power and authority to enter into
this Agreement, and the person executing this Agreement on behalf of Customer is authorized to
do so; (b) this Agreement is binding on Customer and enforceable against Customer in
accordance with its terms; (c) Customer may lawfully establish and open the Account for the
purpose of effecting purchases and sales of Contracts through Morgan Stanley; (d) performance
of this Agreement and of transactions entered into pursuant to this Agreement will not violate
any Applicable Law to which Customer is subject or any agreement to which Customer is subject
or a party; (e) performance of this Agreement and of transactions entered into pursuant to
this Agreement will comply with the Customer’s Constitutive Documents; and (f) all of
Customer’s information in the Account Application preceding this Agreement (which Application
and the information contained therein hereby is incorporated into this Agreement) is true and
correct in all material respects and Customer shall promptly notify Morgan Stanley of any
material change in such information. “Constitutive Documents” means any (i) incorporating
documents, including any articles of incorporation or unanimous shareholders’ agreement, (ii)
partnership agreement, (iii) trust deed, agreement or declaration, (iv) by-laws, (v) plan
documents, including any statement of investment policies and procedures, in the case of an
employee benefit plan, pension plan or master trust in which the assets of a pension plan are
invested, and (vi) prospectus or offering memorandum and annual information form, all as
applicable, and as amended, replaced, or supplemented from time to time, together with any
attachments, schedules, exhibits and documents incorporated by reference.

	3.	 	Payment Obligations Of Customer. Customer shall pay Morgan Stanley upon demand (a) all
brokerage charges, give-up fees, commissions and service fees as Morgan Stanley and Customer
may from time to time agree; (b) all exchange, clearing house, National Futures Association
(“NFA”) or clearing member fees or charges; (c) any tax imposed on such transactions by any
competent taxing authority; (d) the amount of any trading losses in the Account; (e) any debit
balance or deficiency in the Account; (f) interest on any debit balances or deficiencies in
the Account, at the overnight rate customarily charged by Morgan Stanley, together with costs
and reasonable attorneys’ fees incurred in collecting any such debit balance or deficiency;
and (g) any other amounts owed by Customer to Morgan Stanley with respect to the Account or
any transactions therein.
	 
	4.	 	Customer’s Events Of Default; Morgan Stanley’s Remedies.

	 	(a)	 	Events of Default. As used herein, any of the following is an “Event of Default”:

	 	(i)	 	the commencement of a proceeding under any bankruptcy, insolvency, arrangement
or reorganization regime existing under Applicable Law, or the filing of a petition
for the appointment of a receiver by or against Customer, an assignment made by
Customer for the benefit of creditors, an admission in writing by Customer that it
is insolvent or is unable to pay its debts when they mature, or the suspension by
the Customer of its usual business or any material portion thereof;

- 4 -

 

	 	(ii)	 	the issuance of any warrant or order of attachment against the Account or the
levy of a judgment against the Account;
	 
	 	(iii)	 	if Customer is an employee benefit plan or other pension fund (or
administrator or trustee of such a plan, fund or master trust in which the fund
assets are invested), (A) any step is taken by the Customer, any governmental
authority or body or regulator, or other person to terminate, wind-up or liquidate
Customer, the fund or the plan, in whole or in part; (B) any event or condition
occurs or exists that would entitle any court or regulator to require the
termination, wind-up or liquidation of the Customer, the fund or the plan, in whole
or in part, or the termination or close-out of any Contract; (C) the Customer is
unable to pay benefits under the relevant employment or pension benefit plan when
due; (D) the Customer or any other person does anything or takes any action or step
to merge, consolidate or combine the fund with any other pension fund or its
assets, whereby assets are transferred from the fund or are to become available for
the payment of any liabilities of the other fund without the consent of Morgan
Stanley;
	 
	 	(iv)	 	if Customer is a trust or investment fund, (A) any step is taken by the
Customer, any governmental authority or body or regulator, or other person to
terminate, wind-up or liquidate Customer or the fund; (B) any event or condition
occurs or exists that would entitle any court or regulator to require the
termination, wind-up or liquidation of the Customer or the fund or to issue a cease
trade order in respect of the Customer (including a suspension of redemptions by
unit holders or limited partners of the fund), in whole or in part, or the
termination or close-out of any Contract; (C) the Customer or any other person does
anything or takes any action or step to merge, consolidate or combine the fund with
any other fund or its assets, whereby assets are transferred from the fund or are
to become available for the payment of any liabilities of the other fund without
the consent of Morgan Stanley;
	 
	 	(v)	 	the failure by Customer to deposit or maintain margins, to pay required
premiums, or to make payments required by Section 3 hereof;
	 
	 	(vi)	 	if Morgan Stanley determines that any material representation or warranty made
by Customer to Morgan Stanley is untrue or inaccurate; or
	 
	 	(vii)	 	the failure by Customer to perform, in any material respect, its other
obligations hereunder.

	 	(b)	 	Remedies. Upon the occurrence of an Event of Default, Morgan Stanley shall have the
right, in addition to any other remedy available to Morgan Stanley at law or in equity, to
liquidate any or all open Contracts held in or for the Account (including without
limitation, through the use of exchange for physical transactions, exchange for swaps
transactions, block trades or any other means), set-off or calculate any net amount owing
with respect to any or all Contracts, apply any cash margin to any amount owed by Customer
to Morgan Stanley, sell any or all of the securities or other property of Customer held by
Morgan Stanley and to apply the proceeds thereof to any amounts owed by Customer to Morgan
Stanley, borrow or buy any options, securities, Contracts or other property for the Account
and cancel any unfilled orders for the purchase or sale of Contracts for the Account, or
take such other or further actions Morgan Stanley, in its
commercially reasonable discretion, deems necessary or appropriate for its protection, all
without demand for margin and without notice or advertisement. Any such action may be made
at the discretion of Morgan Stanley in any commercially reasonable manner. In the event
Morgan Stanley’s position would not be jeopardized thereby, Morgan Stanley will make
commercially reasonable efforts under the circumstances to notify Customer prior to taking
any such action. A prior demand or margin call of any kind from
Morgan Stanley or prior notice from Morgan Stanley shall not be considered a waiver
of Morgan Stanley’s right to take any action without notice or demand. In the event
Morgan Stanley exercises any remedies available to it under this Agreement,
Customer shall reimburse, compensate and indemnify Morgan Stanley for any and all
costs, losses, penalties, fines, taxes and damages that

- 5 -

 

	 	 	 	Morgan Stanley may incur, including reasonable attorneys’ fees incurred in
connection with the exercise of its remedies and the recovery of any such costs,
losses, penalties, fines, taxes and damages.

	5.	 	Limitation Of Liability. Neither Morgan Stanley nor its affiliates shall have any
responsibility or liability to Customer hereunder (i) in connection with the performance or
non-performance by any contract market, clearing house, clearing firm, electronic trading
system, facility or service (collectively “Electronic Trading Systems”), or other third party
(including, without limitation, floor brokers and banks) to Morgan Stanley of its obligations
in respect of any Contract or other property of Customer; (ii) as a result of any prediction,
recommendation or advice made or given by a representative of Morgan Stanley whether or not
made or given at the request of Customer; (iii) as a result of Morgan Stanley’s reliance on
any instructions, notices and communications that it reasonably believes to be that of an
individual authorized to act on behalf of Customer; (iv) as a result of any delay in the
performance or non-performance of any of Morgan Stanley’s obligations hereunder directly or
indirectly caused by the occurrence of any contingency beyond the control of Morgan Stanley
including, but not limited to, the unscheduled closure of an exchange or contract market or
delays in the transmission of orders due to breakdowns or failures of transmission or
communication facilities, execution, and/or trading facilities or other systems (including,
without limitation, any Electronic Trading System), it being understood that Morgan Stanley
shall be excused from performance of its obligations hereunder for such period of time as is
reasonably necessary after such occurrence to remedy the effects therefrom; (v) as a result of
any action taken by or on behalf of Morgan Stanley or its floor brokers in compliance with
Applicable Law; (vi) for any acts or omissions of those neither employed nor supervised by
Morgan Stanley; or (vii) in connection with or arising out of any services provided under any
electronic trading agreement (“Electronic Trading Services”) between Customer and Morgan
Stanley (the terms and conditions of which in their entirety are incorporated herein by
reference). Further, with respect to any Electronic Trading Services Morgan Stanley expressly
disclaims any representation or warranty whatsoever (a) with respect to accuracy, completeness
or timeliness of such services, (b) that such services shall be uninterrupted or error free;
and (c) including any implied warranties of title, non-infringement, merchantability or
fitness for a particular purpose relating to such services. Morgan Stanley shall not be
responsible for any loss, liability, damage or expense except to the extent that such loss,
liability, damage or expense arises from its gross negligence or willful misconduct. In no
event will Morgan Stanley be liable to Customer for consequential, incidental, punitive or
special damages hereunder. Except as provided in Section 3 above, Customer shall not be liable
to Morgan Stanley for consequential, incidental, punitive or special damages hereunder.

	6.	 	General Agreements. The parties agree that:

	 	(a)	 	Morgan Stanley’s Responsibility. Morgan Stanley is not acting as a fiduciary,
foundation manager, commodity pool operator, commodity trading advisor or investment
adviser in respect of any Account opened by Customer. Customer is acting for its own
account and has made its own independent decisions to effect transactions in Contracts and
as to whether each transaction is prudent or appropriate for it based on Customer’s own
judgment and upon advice from such advisors as it has deemed necessary. Customer is solely
responsible for any trading decisions including order routing decisions made by Customer.
Morgan Stanley does not make any recommendation as to where such orders should be executed
and does not undertake to notify Customer of price improvement
opportunities or more advantageous execution quality at particular exchange venues. Morgan
Stanley shall have no responsibility hereunder for compliance with any law or regulation
governing the conduct of fiduciaries, foundation managers, commodity pool operators,
commodity trading advisors or investment advisers.
	 
	 	 	 	Without limitation of the foregoing, if Customer is an investment company registered under the
Investment Company Act of 1940 (i) Morgan Stanley shall comply with the segregation requirements of
Section 4d(2) of the Commodity Exchange Act (the “CEA”) and the rules of the Commodity Futures
Trading Commission (“CFTC”) promulgated pursuant to the CEA (“CFTC Rules”) or, if applicable, Part
30 of the CFTC Rules with respect to assets deposited by Customer hereunder; (ii)

- 6 -

 

	 	 	 	Morgan Stanley, as appropriate to Customer’s transactions and in accordance with
the CEA and CFTC Rules (including Part 30 of such Rules), may place and maintain
Customer’s assets to effect Customer’s transactions with another futures commission
merchant, a clearing organization or a foreign bank (as such terms are defined
under Rule 17f-6 of the Securities and Exchange Commission (“SEC”) promulgated
pursuant to the Investment Company Act of 1940) or a member of a foreign board of
trade, and shall obtain an acknowledgement, as required under CFTC Rules 1.20(a) or
30.7(c), as applicable, that such assets are held on behalf of Morgan Stanley’s
customers in accordance with the provisions of the CEA; and (iii) Morgan Stanley
shall promptly furnish copies of or extracts from its records or such other
information pertaining to Customer’s assets as the SEC through its employees or
agents may request.
	 
	 	(b)	 	Advice. All advice communicated by Morgan Stanley with respect to any Account opened or
transactions effected by Customer hereunder is incidental to the conduct of Morgan
Stanley’s business as a futures commission merchant and such advice will not serve as the
primary basis for any decision made by or on behalf of Customer. Morgan Stanley shall have
no discretionary authority, power or control over any decisions made by or on behalf of the
Customer in respect of the Account, regardless of whether Customer relies on the advice of
Morgan Stanley in making any such decision. Customer acknowledges that Morgan Stanley and
its managing directors, officers, employees and affiliates may take or hold positions in,
or advise other customers concerning, contracts that are the subject of advice from Morgan
Stanley to Customer. The positions and advice of Morgan Stanley and its managing directors,
officers, employees and affiliates may be inconsistent with or contrary to positions of,
and the advice given by, Morgan Stanley to Customer.
	 
	 	(c)	 	Recording. Each party may, in its commercially reasonable discretion, record, on tape
or otherwise, any telephone conversation between Morgan Stanley and Customer involving
their respective officers, agents and employees, and each party hereby agrees and consents
thereto.
	 
	 	(d)	 	Acceptance of Orders; Position Limits.

	 	(i)	 	Morgan Stanley shall have the right to limit the size of open positions
(net or gross) of Customer with respect to the Account at any time and to refuse
acceptance of orders to establish new positions, whether such refusal or limitation
is required by, or based on position limits imposed under, Applicable Law. Morgan
Stanley shall promptly notify Customer of its rejection of any order. To the extent
permitted by Applicable Law, Morgan Stanley is authorized to combine orders for
Customer’s Account with orders for other customers. Unless specified by Customer,
Morgan Stanley may designate the exchange or other markets (including, without
limitation, an exchange’s electronic trading platform) on or through which it will
attempt to execute orders.
	 
	 	(ii)	 	Customer shall file or cause to be filed all applications or reports required
under Applicable Law with the CFTC or the relevant contract market or clearing
house, and shall provide Morgan Stanley with a copy of such applications or reports
and such other information as Morgan Stanley may reasonably request in connection
therewith.

	 	(e)	 	Original and Variation Margin; Premiums; Other Contract Obligations. Customer shall
make, or cause to be made, all applicable original margin, variation margin, intra-day
margin and premium payments, and perform all other obligations attendant to transactions or
positions in such Contracts, as may be required by Applicable Law or by Morgan Stanley.
Requests for margin deposits and/or premium payments may, at Morgan Stanley’s election, be
communicated to Customer orally, telephonically or in writing. Customer margin deposits
and/or premium payments shall be made by wire transfer to Morgan Stanley’s Customer
Segregated Account or Secured Amount Account, as the case may be, and shall be in U.S.
dollars unless Morgan Stanley agrees otherwise in writing.
	 
	 	(f)	 	Security Interest and Rights Respecting Collateral.

- 7 -

 

	 	(i)	 	Except to the extent proscribed by Applicable Law not subject to waiver, all
Contracts, cash, securities, and/or any other property of Customer whatsoever and
the proceeds thereof (collectively, the “Collateral”) at any time held by Morgan
Stanley or its affiliates, or carried by others for the Account, hereby are pledged
to Morgan Stanley and shall be subject to a general lien and security interest in
Morgan Stanley’s favor to secure any indebtedness or other amounts, obligations
and/or liabilities at any time owing from Customer to Morgan Stanley (collectively,
the “Customer’s Liabilities”). Customer agrees to execute any documents
reasonably required by Morgan Stanley for the perfection or negotiation of such
general lien or security interest. Customer hereby grants Morgan Stanley the right,
subject to compliance with applicable Commodity Futures Trading Commission
regulations, to borrow, pledge, repledge, hypothecate, rehypothecate, loan or
invest any of the Collateral, including utilizing the Collateral to purchase United
States Government Treasury obligations pursuant to repurchase agreements or reverse
repurchase agreements with any party, in each case without notice to Customer and
without any obligation to pay or to account to Customer for any interest, income or
benefit that may be derived therefrom. The rights of Morgan Stanley set forth above
shall be qualified by any applicable requirements for segregation of customers’
property under Applicable Law.
	 
	 	(ii)	 	If Customer is resident of or domiciled in, or if any of the Collateral is
subject to Applicable Law of, any jurisdiction under which a security interest in
the Collateral cannot be created solely by means of Customer’s pledge of such
Collateral to Morgan Stanley (or any jurisdiction in which the security interest
arising under such a pledge would require local registration in order to be
perfected), then the parties agree that, with respect to such a jurisdiction, all
right, title and interest in and to the Collateral shall vest in Morgan Stanley
free and clear of any liens, claims, charges or encumbrances or any other interest
of Customer or of any third party (other than a lien routinely imposed on all
securities in a relevant clearance system).

	 	(g)	 	Québec Charge. This section applies only with respect to security interests if their
validity is governed by the laws of the Province of Québec. The Customer hereby
hypothecates and grants a general lien and a continuing first priority security interest in
all Collateral to Morgan Stanley for the amount of One Billion Dollars, with interest from
the date of this Agreement at [insert reference rate]. Morgan Stanley may sell or take the
Collateral in payment without giving prior notice or observing any time limits prescribed
in respect of such taking in payment or such sales in the Civil Code of Québec. The said
stated amount of the hypothec, lien and security interest is inserted to comply with the
requirements of the Civil Code of Québec and represents the maximum amount for which the
Collateral is hypothecated and granted. It does not represent the amount of the
indebtedness of the Customer secured by the hypothec, lien and security interest from time
to time nor the amount of any credit available to the Customer.
	 
	 	(h)	 	Reports and Objections. All confirmations, purchase and sale notices, correction
notices and account statements (collectively, “Statements”) shall be submitted to Customer
and absent manifest error shall be conclusive and binding on Customer unless Customer
notifies Morgan Stanley of any objection thereto prior to the opening of trading on the
contract market on which such transaction occurred on the business day following the day on
which Customer receives such Statement; provided that, with
respect to monthly Statements, Customer may notify Morgan Stanley of any objection thereto
within five business days after receipt of such monthly Statement, provided the objection
could not have been raised at the time any prior Statement was received by Customer as
provided for above. Any such notice of objection, if given orally to Morgan Stanley, shall
immediately (and no later than within one business day) be confirmed in writing by
Customer.
	 
	 	(i)	 	Delivery Procedures; Options Allocation Procedure.

- 8 -

 

	 	(i)	 	Customer will provide Morgan Stanley with instructions either to liquidate
Contracts previously established by Customer, make or take delivery under any such
Contracts, or exercise options entered into by Customer, within such time limits as
may be reasonably specified by Morgan Stanley. Morgan Stanley shall have no
responsibility to take any action on behalf of Customer or positions in the Account
unless and until Morgan Stanley receives oral or written instructions reasonably
acceptable to Morgan Stanley indicating the action Morgan Stanley is to take. Funds
sufficient to take delivery pursuant to such Contract or deliverable grade
commodities to make delivery pursuant to such Contract must be delivered to Morgan
Stanley at such time as Morgan Stanley may reasonably require in connection with
any delivery.
	 
	 	(ii)	 	Short option Contracts may be subject to exercise at any time. Exercise
notices received by
Morgan Stanley from the applicable contract market with respect to option
Contracts sold by Customer may be allocated to Customer pursuant to a
random allocation procedure, and Customer shall be bound by any such
allocation of exercise notices. In the event of any allocation to
Customer, unless Morgan Stanley has previously received instructions from
Customer, Morgan Stanley’s sole responsibility shall be to use its best
efforts to notify Customer of such allocation.
	 
	 	(iii)	 	If Customer fails to comply with any of the foregoing obligations in this
section 6(h), Morgan Stanley may, in its commercially reasonable discretion,
liquidate any open positions, make or receive delivery of any commodities or
instruments, or exercise or allow the expiration of any options, in such manner and
on such terms as Morgan Stanley, in its commercially reasonable discretion, deems
necessary or appropriate, and Customer shall indemnify and hold Morgan Stanley
harmless as a result of any action taken or not taken by Morgan Stanley in
connection therewith or pursuant to Customer’s instructions.

	 	(j)	 	Financial and Other Information. Customer shall provide to Morgan Stanley such
financial information regarding Customer as Morgan Stanley may from time to time reasonably
request.

Customer shall notify Morgan Stanley immediately (and no later than within one
business day) if the financial condition of Customer changes materially and
adversely from that shown in the most recent financial information theretofore
provided to Morgan Stanley. An investigation may be conducted pertaining to
Customer’s credit standing and business. If Customer engages in exchange of futures
for physical transactions, exchange of futures for swap transactions, or similar
transactions, Customer agrees to provide Morgan Stanley, upon request, with
documentation of the cash or swap transaction in commodities or securities
underlying contracts associated with the transaction.
	 
	 	(k)	 	Currency Exchange Risk. Customer shall bear all risk and cost in respect of the
conversion of currencies incident to transactions effected on behalf of Customer pursuant
hereto.
	 
	 	(l)	 	Inactive Accounts. Customer acknowledges that Morgan Stanley may deactivate accounts
with no trading activity and agrees to provide Morgan Stanley with any information and
documents reasonably requested by Morgan Stanley in connection with Customer’s request to
reactivate a closed account.
	 
	 	(m)	 	Cross-Trade Consent. The undersigned Customer hereby agrees that Morgan Stanley, its
managing directors, officers, employees, affiliates, agents and floor brokers where acting
on Morgan Stanley’s behalf, in any transaction for the undersigned Account may take the
other side of the transaction, subject to the transaction being executed at the prevailing
price and in accordance with the regulations of the applicable exchange and the rules and
regulations of the CFTC.
	 
	 	(n)	 	Authorization to Transfer Funds. The undersigned Customer hereby expressly agrees that
Morgan
Stanley may, until it receives a written notice of revocation with respect thereto,
in its sole and absolute discretion and without prior notice to Customer, transfer
any funds, securities, commodities, Contracts or other property from any Account
maintained by Customer to any other account of

- 9 -

 

	 	 	 	Customer maintained by Morgan Stanley or any of its affiliates. Such transfers may
include transfers to or from any securities account of Customer from or to any
commodity account of Customer (unless prohibited by Applicable Law). Morgan Stanley
will immediately (and no later than within one business day) confirm in writing
each transfer of funds, securities, commodities, Contracts or other property
pursuant hereto.
	 
	 	(o)	 	Give Up Transactions. Absent a separate written agreement with Customer with respect to
give-ups, Morgan Stanley, in its sole discretion, may, but shall not be obligated to,
accept from other brokers Contracts executed by such brokers and to be given up to Morgan
Stanley for clearance or carrying in any Account.

	7.	 	Termination. This Agreement may be terminated at any time by Customer or Morgan Stanley by
written notice to the other. In the event of such notice, Customer shall either close out open
positions in the Account or arrange for such open positions to be transferred to another
futures commission merchant. Upon satisfaction by Customer of all of Customer’s Liabilities,
Morgan Stanley shall transfer to another futures commission merchant all Contracts, if any,
then held for the Account, and shall transfer to Customer or to another futures commission
merchant, as Customer may instruct, all cash, securities and other property held in the
Account, whereupon this Agreement shall terminate. Termination of this Agreement shall not
release any party from any liability or obligation incurred or arising from activities prior
to such termination.

	8.	 	Acknowledgements re Securities Transfer Act. For purposes of the Securities Transfer Act as
implemented under the laws of an applicable Canadian province, the Personal Property Security
Act of an applicable province, Article 9 of the New York Uniform Commercial Code and any
similar legislation in any other applicable jurisdiction (a) the jurisdiction of Morgan
Stanley as securities intermediary or commodity intermediary with respect to the Account and
the Contracts is New York, (b) the Account is a “securities account,” a “futures account” and
a “commodity account” and (c) any property of any nature whatsoever credited to the Account is
a “financial asset” or “investment property”.

	9.	 	Eligible Financial Contract. This Agreement, including the security interest granted by this
Agreement, and any Contract, are “eligible financial contracts” within the meaning of the
Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada), the
Winding-up and Restructuring Act (Canada) and the Payment Clearing and Settlement Act
(Canada). The Customer represents that it is a “financial institution” for the purposes of the
Payment Clearing and Settlement Act (Canada).
	 
	10.	 	Miscellaneous.

	 	(a)	 	Severability. If any provision of this Agreement is, or at any time becomes,
inconsistent with any present or future law, rule or regulation of any exchange or other
market, sovereign government or regulatory or self-regulatory body thereof, and if any of
these authorities have jurisdiction over the subject matter of this Agreement, the
inconsistent provision shall be deemed superseded or modified to conform with such law,
rule or regulation but in all other respects, this Agreement shall continue and remain in
full force and effect.
	 
	 	(b)	 	Binding Effect. This Agreement shall be binding on and inure to the benefit of the
parties and their successors. In the event that Morgan Stanley (i) merges with another
entity, or (ii) ceases to be a
FCM or (iii) is required by Applicable Law to transfer its Customer accounts to
another FCM, Morgan Stanley shall have the right to transfer or assign this
Agreement (and thereby the Account) to any successor entity or to another properly
registered futures commission merchant in its sole and absolute discretion and
without obtaining the consent of Customer. Notwithstanding the foregoing, in the
event of items (ii) or (iii) immediately above, if permitted by Applicable Law and
in the event that Morgan Stanley’s position would not be jeopardized thereby,
Morgan Stanley will make reasonable efforts under the circumstances to consult
Customer for its preference of FCM before assigning this Agreement.

- 10 -

 

	 	(c)	 	Independent Investment Adviser. If Customer directs Morgan Stanley to accept trading
instructions from an independent investment adviser (“Advisor”), unless otherwise agreed in
writing, Customer hereby appoints such adviser as Customer’s agent for the purpose of
receiving all communications, notices and requests for instructions related to this
Agreement and the transactions effectuated pursuant to this Agreement, including, without
limitation, margin calls and any trading information or advice (subject to Section 6(b)
hereof). Advisor is authorized to access and use electronic services, facilities and
information provided electronically, including but not limited to electronic trading
systems, and on behalf of Customer, to agree to the terms and conditions regarding such use
and to enter into electronic trading agreements. Customer hereby agrees to indemnify and
hold Morgan Stanley harmless from and to pay Morgan Stanley promptly on demand any and all
losses arising from Morgan Stanley’s reliance on the appointment of the Advisor until
Morgan Stanley receives written notice of Customer’s revocation thereof; and termination
of the appointment of the Advisor shall not affect any liability in any way resulting from
transactions initiated prior to such termination. This indemnity is in addition to (and in
no way limits or restricts) any rights which Morgan Stanley may have under this Agreement
and any other agreement or agreements between Morgan Stanley and Customer. Nothing in this
Section 8(c) shall relieve Customer of any of its obligations under this Agreement.
	 
	 	(d)	 	Entire Agreement. This Agreement contains the entire agreement between the parties and
supersedes any prior agreements between the parties as to the subject matter hereof. No
provision of this Agreement shall in any respect be waived, altered, modified, or amended
unless such waiver, alteration, modification or amendment is signed by the party against
whom such waiver, alteration, modification or amendment is to be enforced.
	 
	 	(e)	 	Currency Denomination. Unless another currency is designated in the confirmations
reporting transactions entered into by Customer, all margin deposits in connection with
such transactions, and a debit or credit in the Account, shall be stated in United States
dollars. By placing an order in a Contract settled in a particular currency (the “Contract
Currency”), Customer agrees to convert to the Contract Currency funds sufficient to meet
the applicable margin requirement. Customer acknowledges its awareness that accruals from
trades in Contracts that are priced and settled in non-United States dollars will be held
in Customer’s account in such non-United States dollar Contract Currency and will not be
converted to United States dollars except upon Customer’s specific instructions to do so.
Any conversions of currency shall be at a rate of exchange determined by Morgan Stanley, in
its commercially reasonable discretion, on the basis of the then prevailing rates of
exchange for such currencies.
	 
	 	(f)	 	Instructions, Notices or Communications. Except as specifically otherwise provided in
this Agreement, all instructions, notices or other communications may be oral or
written. Customer hereby waives any defense that such instruction, notice, or
communication was not in writing. All oral instructions, unless custom and usage of
trade dictate otherwise, shall be promptly confirmed in writing. All written
instructions, notices or other communications shall be addressed as follows:

	 	(i)	 	if to Morgan Stanley:

Morgan Stanley & Co. Incorporated

One New York Plaza, 7th Floor

New York, New York 10004

Attention: Commodity Operations Manager
	 
	 	(ii)	 	if to Customer, at the address as indicated on the Commodity Account
Application.

	 	(g)	 	Rights and Remedies Cumulative. All rights and remedies arising under this Agreement as
amended and modified from time to time are cumulative and not exclusive of any rights or
remedies which may be available at law or otherwise.

- 11 -

 

	 	(h)	 	No Waiver. Neither party’s failure to exercise, delay in exercising, single exercise or partial
exercise of any contractual right under this or any other agreement, for Contracts or any other
product, on any occasion or series of occasions is or implies waiver of any contractual right under
any course of dealing theory or otherwise, and does not preclude any other future exercise, delayed
exercise or partial exercise of any contractual right hereunder.
	 
	 	(i)	 	Governing Law. THE INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT
AND THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CHOICE OF LAW.
	 
	 	(j)	 	Consent to Jurisdiction. ANY LITIGATION BETWEEN MORGAN STANLEY AND
CUSTOMER RELATING TO THIS AGREEMENT OR TRANSACTIONS HEREUNDER SHALL TAKE PLACE IN THE
COURTS OF THE STATE OF NEW YORK LOCATED IN THE BOROUGH OF MANHATTAN OR IN THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. CUSTOMER CONSENTS TO THE SERVICE OF
PROCESS BY THE MAILING TO CUSTOMER OF COPIES OF SUCH COURT FILING BY CERTIFIED MAIL TO THE
ADDRESS OF CUSTOMER AS IT APPEARS ON THE BOOKS AND RECORDS OF MORGAN STANLEY, SUCH SERVICE
TO BE EFFECTIVE TEN DAYS AFTER MAILING. CUSTOMER HEREBY WAIVES IRREVOCABLY ANY IMMUNITY TO
WHICH IT MIGHT OTHERWISE BE ENTITLED IN ANY ARBITRATION, ACTION AT LAW, SUIT IN EQUITY OR
ANY OTHER PROCEEDING ARISING OUT OF OR BASED ON THIS AGREEMENT OR ANY TRANSACTION IN
CONNECTION HEREWITH.
	 
	 	(k)	 	Waiver of Jury Trial. CUSTOMER AND MORGAN STANLEY EACH HEREBY WAIVES A
TRIAL BY JURY IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION
IN CONNECTION THEREWITH.
	 
	 	(l)	 	Equivalency Clause. For purposes of disclosure pursuant to the Interest Act (Canada), the
annual rate of interest which is equivalent to any rate of interest provided for in this Agreement
which is to be calculated on any basis other than a full calendar year may be determined by
multiplying such rate of interest (expressed as a percentage) by a fraction, the numerator of which
is the number of days in the calendar year and the denominator of which is the number of days
comprising such other basis.
	 
	 	(m)	 	Language of Documentation. The parties hereto have required that this Agreement, and all
documents and notices related thereto and/or resulting therefrom be drawn up in English. Les
parties aux présentes ont exigé que la présente convention ainsi que tous les documents et avis quis’y rattachent et/ou en découlent soient redigés en langue anglaise.
	 
	 	(n)	 	Consent to Delivery of Electronic Statements. The CFTC permits a customer to receive daily and
monthly statements for its commodity futures accounts by electronic mail in lieu of ordinary mail,
subject to obtaining customer consent. ClientLink, an Internet-based system which
has been developed by Morgan Stanley, will deliver these statements to you at no additional cost,
if you wish to receive them by electronic mail. Customer should be aware of the following: (i) your
consent, if given, will be effective upon receipt by Morgan Stanley; (ii) you may revoke your
consent at any time by written notice of revocation to Morgan Stanley which will be effective upon
receipt by Morgan Stanley; and (iii) any electronic mail statement will be accessible to you on
ClientLink for five business days following its initial posting, so please print out and retain the
statement in hard copy form for your use thereafter if you so wish. To indicate your consent to
receiving electronic statements in lieu of ordinary mail, please initial the appropriate boxes
below.

	 	o	 	Customer hereby consents to receiving daily statements with respect to its
Commodity Futures Accounts via ClientLink in lieu of ordinary mail.

- 12 -

 

	 	o	 	Customer hereby consents to receiving monthly statements with
respect to its Commodity Futures Accounts via ClientLink in lieu
of ordinary mail.

	 	(o)	 	Customer Acknowledgements. (please initial all applicable boxes)

	 	(i)	 	If Customer has indicated on the Commodity Futures Account Application that
orders placed for the Account represent bona fide hedging transactions, please
complete the following. You should note that CFTC Regulation §190.06 permits you to
specify whether, in the unlikely event of Morgan Stanley’s bankruptcy, you prefer
the bankruptcy trustee to liquidate all positions in the Account. Accordingly,
Customer hereby elects as follows: 

(please initial):

	 	 	 	 	 	 	 
	 

	 	o      Liquidate
	 	o      Not Liquidate
	 	 

	 	 	 	If neither alternative is initialed, Customer will be deemed to have
elected to have all positions liquidated. This election may be changed at
any time by written notice.
	 
	 	(ii)	 	Customer hereby represents and warrants that it is qualified under CFTC Rule 1.55(f) and
Morgan Stanley is not required to furnish the specified risk disclosure statement (please initial):

	 	 	 	 	 	 	 
	     

	 	o      No Risk Disclosure Statement Required
	 	 
	 	 

	 	(iii)	 	CUSTOMER HEREBY ACKNOWLEDGES THAT IT HAS RECEIVED AND UNDERSTANDS THE FOLLOWING
DISCLOSURE STATEMENT PRESCRIBED BY
THE CFTC AND FURNISHED HEREWITH.

	 	 	 	 	 	 	 	 	 
	     	 	o	 	Risk Disclosure Statement for Futures Options
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	(Appendix A to CFTC Rule 1.55(c) transcribed in full on
pages 2 - 4 of the Futures Industry Association Uniform
Futures and Options on Futures Risk Disclosures)

IN WITNESS WHEREOF, Customer has executed this Agreement on the date indicated below.

	 	 	 	 	 	 	 
	Customer:	 	GREENHAVEN CONTINUOUS COMMODITY INDEX MASTER FUND
	 
	 	 	 	 	 	 
	By:

	 	/s/ Ashmead Pringle
	 	3/24/2009	 	 
	 

	 	 

	 

	 

	 	 
	 

	 	 	 	(Date)	 	 
	 
	 	 	 	 	 	 
	 

	 	Ashmead Pringle, President	 	 	 	 
	 

	 	 

(Please Print Name and Title)
	 
	 
		 

- 13 -

 

Notice Regarding Physical Settlement of Emissions Contracts

This notice is to advise you of certain constraints that Morgan Stanley & Co. Incorporated and
Morgan Stanley & Co. International plc (collectively, “Morgan Stanley”) applies in connection
with trading with or through Morgan Stanley in contracts for future delivery (or options on such
futures) of NOX Allowances, SO2 Allowances, European Union Emissions Allowances and Certified
Emission Reductions (such contracts, “Emissions Contracts”) on any of the Bluenext, the Chicago
Climate Futures Exchange, the European Energy Exchange, ICE Futures Europe, the NYMEX Green
Exchange or any other foreign or domestic contract market, commercial market or board of trade
on which Emissions Contracts are traded. This notice is subject to the terms of business
(however entitled) applying between Morgan Stanley and you.

At the present time Morgan Stanley does not intend to facilitate physical settlement of any
Emissions Contract. Accordingly, prior to the expiration of open positions in any Emissions
Contract in your Account, Morgan Stanley will seek instructions from you regarding the transfer,
offset or close-out of such positions. If you fail to provide such instructions Morgan Stanley
reserves the right to take any actions as it may, in its commercially reasonable discretion,
determine necessary in order to limit, reduce or close out any open positions and to cover,
reduce or eliminate any potential losses or liabilities in respect of the relevant Emissions
Contract. Morgan Stanley may also exercise its right to decline additional orders from you to
establish open positions in Emissions Contract in the period leading up to the expiration of
such contracts.

                                         (“Customer”) acknowledges that it has received and understands the following:

(please initial)

	 	 	 
	 

	 	o      Notice Regarding Physical Settlement of Emissions Contracts

- 14 -

 

COMMODITY FUTURES ACCOUNT APPLICATION

INDIVIDUAL CUSTOMER APPLICATION ANNEX

	 	 	 	 	 
	Individual Customers please complete the information requested below:	 	 
	 
	 	 	 	 
	Customer Name:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Bank
Reference/Financial Statement	 	 
	 
	 	 	 	 
	Bank Name:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Bank Address:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Account Number:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Customer’s personal information (in accordance with National Futures Association requirements):
	 
	 	 	 	 
	Annual Income
	 	 	 	 
	 

	 	 

	 	 
	Net Worth
	 	 	 	 
	 

	 	 

	 	 
	Age
	 	 	 	 
	 

	 	 

	 	 
	Number of Years’ Experience Investing or Trading in:
	 
	 	 	 	 
	Futures
	 	 	 	 
	 

	 	 

	 	 
	Options on Futures
	 	 	 	 
	 

	 	 

	 	 
	Securities
	 	 	 	 
	 

	 	 

	 	 

- 15 -

 

**FOR CORPORATE ACCOUNTS ONLY**

CORPORATE RESOLUTION

I,                                         , the undersigned Secretary of
                                        , a corporation duly organized and existing under the laws of
                                        , having its principal office at
                                         DO HEREBY CERTIFY that a meeting of the Board of Directors of
said Corporation duly held on the                      day of                                         , 200___, the following
resolutions were duly adopted, have not been amended, rescinded or revoked and are in conformity
with the Charter and Bylaws of said Corporation:

“RESOLVED: That this Corporation open one or more accounts with Morgan Stanley & Co.
Incorporated (“Morgan Stanley”) for the purpose of trading in commodities and commodity futures
contracts, options thereon, and interests therein (including, without limitation, exchange for
physical transactions, exchange for swap transactions and block trades) (collectively
“Contracts”)

RESOLVED: That any officer of this Corporation or any employee or agent of this Corporation
designated by any such officer be and hereby is authorized to act for the Corporation in every
respect concerning the Corporation’s account(s) with Morgan Stanley, the authority hereby
granted including the power to do each of the following acts and
actions:

(a) To open one or more accounts in the name of the Corporation with Morgan Stanley for the
purpose of trading in commodities and Contracts and to execute in the name of the Corporation
and deliver to Morgan Stanley a Morgan Stanley Commodity Futures Customer Agreement,
Authorization to Transfer Funds, Consent to Arbitration, and any other documents or notices
necessary to the opening, maintenance and/or trading of such
account(s);

 (b) To buy, sell and
trade and agree to buy, sell and trade commodities Contracts, on margin or otherwise, which
power to sell includes the power to sell “short”;

 (c) To effect and receive payment and
delivery in performance of Contracts and commodities orders and any obligations undertaken in
connection therewith; 

(d) To deposit with and withdraw from Morgan Stanley any money,
commodities, Contracts, securities and other property; 

(e) To receive and promptly comply with
any request or demand for additional margin, any notice of intention to liquidate, and any
notice or demand of any other nature;

 (f) To receive and acquiesce in the correctness of
notices of transactions, statements of account and other records and documents relating to the
Corporation’s account(s) with Morgan Stanley; 

(g) To borrow funds from Morgan Stanley or its
affiliate to finance any transactions in Contracts or commodities effected through or with
Morgan Stanley, and the satisfaction of each and every obligation of the Corporation in
connection with the Account(s) and the transactions effected therein;
and

 (h) To take such
other actions as may be necessary or desirable to carry out the intent of the foregoing.

RESOLVED: That Morgan Stanley be directed to send written confirmations of all trades effected
by Morgan Stanley for this Corporation and all statements of account of the Corporation with
Morgan Stanley and other pertinent records and documents to                                          (Name
and Title of Officer or Agent) who is not authorized to trade in commodities with Morgan
Stanley but is hereby authorized to receive and acquiesce in the correctness of such
confirmations, statements, and other records and documents;

RESOLVED: That any and all past transactions of the kind provided for by these Resolutions
which have been previously made by Morgan Stanley on behalf of or with this Corporation be and
hereby are ratified, confirmed and approved in all respects; and

RESOLVED: That Morgan Stanley
and any interested third party are authorized to rely and act upon the authority of these
Resolutions until receipt by Morgan Stanley of a certificate showing rescission, amendment or
modification thereof and signed by the Secretary of this Corporation under its seal, and that
this Corporation will indemnify Morgan Stanley and hold Morgan Stanley harmless from and
against any liability, loss, cost or expense it incurs in continuing to act in reliance upon
these Resolutions prior to its actual receipt of any such certificate.”

IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of said Corporation
this                      day of                                         , 200___.

	 	 	 	 	 
	 

	 	 

Secretary
	 	 

(SEAL OF CORPORATION TO BE AFFIXED HERE)

FS

- 16 -

 

**FOR PARTNERSHIP ACCOUNTS ONLY**

PARTNERSHIP AUTHORIZATION

The undersigned hereby certify that we are general partners of  
                   
                   
                 
    , a
partnership organized and existing under the laws of            
                   
                   
            (the
“Partnership”), that each of us is of full legal age, and that the Partnership is authorized to
trade in commodities and commodity futures, option and forward
contracts.

The undersigned further certify that any one of us is authorized to open one or more accounts with
Morgan Stanley & Co. Incorporated (“Morgan Stanley”) for the purchase or sale of commodities and
commodity futures, option and forward contracts, for and in the name of the Partnership, and to
execute for and on behalf of the Partnership a Morgan Stanley Commodity Customer’s Agreement,
Authorization to Transfer Funds, and any other documents or notices necessary to the opening,
maintenance and/or trading of such account(s), and that any one of the following general partners,
acting alone, is authorized to act for the Partnership and its members in every respect concerning
said account(s) and to do all things necessary or incidental to the conduct and trading of said
account(s):

	 	 	 	 	 	 	 	 	 
	Name

	 	 	 	Name	 	 	 	 
	 

	 	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 
	Name

	 	 	 	Name	 	 	 	 
	 

	 	 

	 	 	 	 

	 	 

In consideration of your maintaining the account(s) of the Partnership the undersigned agree that:

	 	(1)	 	The undersigned are jointly and severally liable to you for any and all obligations arising
out of transactions in or relating to the account(s) of the Partnership with Morgan Stanley.

	 
	 	(2)	 	If there is any change in this authorization or if any of the partners withdraw from the
Partnership, die or are judicially declared incompetent, one of the undersigned will notify you
in writing immediately. Until you have actually received such written notice, you shall be
entitled to act in reliance on this authorization.
The Partnership will indemnify you and hold you harmless from and against any loss suffered
or liability incurred in continuing to act in reliance on this authorization prior to your
actual receipt of such written notice.
	 
	 	(3)	 	Upon notice of the withdrawal, death or judicially declared incompetence of any of the
partners, you are authorized in regard to the account(s) of the Partnership to take such
actions as are described in the Morgan Stanley Commodity Futures Customer Agreement executed in
the name of the Partnership for the purpose of terminating said account(s) and satisfying any
obligations the partnership may have to you. You may take such actions as though each of the
partners remained a partner, were alive and were competent without prior notice to any
partner’s heirs, executors, administrators, legatees, personal representatives or assigns.

	 
	 	(4)	 	This authorization shall be considered a part of the Morgan Stanley Commodity Customer’s
Agreement executed in the name of the Partnership and shall cover, individually and
collectively, all accounts of the Partnership at any time opened or reopened with Morgan
Stanley, irrespective of any change or changes at any time in the personnel of Morgan Stanley,
or its successors, assigns or affiliates, for any cause whatsoever, and shall inure to the
benefit of Morgan Stanley and any of its successors or assigns.

Any and all past transactions between the Partnership and Morgan Stanley of the kind provided for
by this authorization are hereby ratified, approved and confirmed in all respects.

Dated this
___ day of                                         , 200___.

General Partners:

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

(Signature)

	 	 	 	 

(Signature)
	 	 
	 
	 	 	 	 	 	 
	 

(Name – Please Print)

	 	 	 	 

(Name – Please Print)
	 	 
	 
	 	 	 	 	 	 
	 

(Signature)

	 	 	 	 

(Signature)
	 	 
	 
	 	 	 	 	 	 
	 

(Name – Please Print)

	 	 	 	 

(Name – Please Print)
	 	 

(Please enclose a copy of your Partnership Agreement)

FT

- 17 -

 

**FOR ERISA ACCOUNTS ONLY**

EMPLOYEE BENEFIT PLAN AUTHORIZATION

In consideration of the acceptance by Morgan Stanley & Co. Incorporated (“Morgan Stanley”) of one
or more accounts of the                                                              (the “Plan”), the undersigned being
all of the Trustees of the Plan, represent and warrant to Morgan Stanley that the documents under
which the Plan was established, as such documents may have been amended from time to time (the
“Plan Documents”), expressly permit any and/or all of the following acts and actions:

	 	a.	 	The opening of one of more accounts in the name of                                                             
as Trustee(s) of the Plan with Morgan Stanley for the purpose of trading in commodities and
commodity futures contracts and options thereon, (including, without limitation, exchange
for physical transactions, exchange for swap transactions and block trades) and the
execution and delivery to Morgan Stanley of the Morgan Stanley Commodity Futures Customer
Agreement, Authorization to Transfer Funds, and any other documents or notices necessary to
the opening, maintenance and/or trading of such account(s);
	 
	 	b.	 	The purchase, sale and trading of commodities and commodity futures, option and forward
contracts, for speculative or hedging purposes, on margin or otherwise, including the
authority to sell “short”;
	 
	 	c.	 	The appointment of individuals authorized to give Morgan Stanley instructions with
respect to the
Plan’s account, including the appointment of a third party as agent and
attorney-in-fact, to purchase, sell (including short sales) and trade in
commodities and commodity futures, option and forward contracts, for speculative or
hedging purposes, on margin or otherwise, for the Plan’s account and risk.

The undersigned further represent that, pursuant to the terms and conditions of the Plan Documents,
each of the following individuals is permitted to effect any or all of the acts and actions set
forth in Paragraphs a, b and c above:

 

 

Morgan Stanley may rely upon the foregoing representations and warranties until such time as Morgan
Stanley shall be notified otherwise in writing.

	 	 	 	 	 
	 
	 	 	 	 
	 

	 	 

(Name of Customer – Please Print)
	 	 
	 
	 	 	 	 
	 

	 	 

(Signature)                    (Date)
	 	 
	 
	 	 	 	 
	 

	 	 

(Name & Title – Please Print)
	 	 
	 
	 

	 	 

(Please enclose a copy of the Trust Agreement)

	 	 

FU

- 18 -

 

**FOR LIMITED LIABILITY COMPANY ACCOUNTS ONLY**

LIMITED LIABILITY COMPANY RESOLUTION

We the undersigned, constituting all of the [Managing Members/Managers] of   
                   
                   
                    , a Limited Liability Company duly organized and existing under the
laws of                   
  , having its principal office at            
                  
                   
            , DO
HEREBY CERTIFY that a meeting of the [Managing Members/Managers] of said Company, duly held on the
___ day of                     , ___, the following resolutions were duly adopted, have not been amended, rescinded or
revoked and are in conformity with the articles of organization and operating agreement of said
Company:

“RESOLVED: That this Company open one or more accounts with Morgan Stanley & Co.
Incorporated (“Morgan Stanley”) for the purpose of trading in commodities, commodity
futures, option and forward contracts thereon and interests therein (including exchange for
physical transactions) (collectively “Contracts”);

RESOLVED: That any [Managing Member/Manager] of this Company or any employee or agent of
this Company designated by any such [Managing Member/Manager] be and hereby is authorized
to act for the Company in every respect concerning the Company’s account(s) with Morgan
Stanley (“Account(s)”), the authority hereby granted including the power to do each of the
following acts and actions:

	 	(a)	 	To open one or more accounts in the name of the Company with Morgan Stanley
(“Account(s)”) for the purpose of trading in Contracts and to execute in the name of the
Company and deliver to Morgan Stanley a Morgan Stanley Commodity Futures Customer
Agreement, Authorization to Transfer Funds and any and all other agreements, documents,
instruments or notices necessary or relating to the opening, maintenance and/or trading of
such Account(s);
	 
	 	(b)	 	To buy, sell and trade and agree to buy, sell and trade Contracts, on margin or
otherwise, which power to sell includes the power to sell “short”;
	 
	 	(c)	 	To effect and receive payment and delivery in the performance of Contracts and any
obligations undertaken in connection therewith;
	 
	 	(d)	 	To deposit with and withdraw from Morgan Stanley any money, securities, commodities,
Contracts and contracts for the purchase or sale of securities and other property;
	 
	 	(e)	 	To receive and promptly comply with any request or demand for additional margin, any
notice of intention to liquidate, and any notice or demand of any other nature;
	 
	 	(f)	 	To receive and acquiesce in the correctness of notices of transactions, statements of
account and other records and documents relating to the Company’s Account(s) with Morgan
Stanley;
	 
	 	(g)	 	To borrow funds from Morgan Stanley or its affiliates to finance any transactions in
Contracts effected through or with Morgan Stanley;
	 
	 	(h)	 	To take other such actions as may be necessary or desirable to carry out the intent of
the foregoing and the satisfaction of each and every obligation of the Company in
connection with the Account(s) and the transactions effected therein.

RESOLVED: That Morgan Stanley be directed to send written confirmations of all
transactions in Contracts effected by Morgan Stanley for the Company and all statements of
account of the Company with Morgan Stanley and other pertinent records and documents to
                                         (Name and Title of [Managing Member/Manager] or Agent), who is not
authorized to trade in contracts with Morgan Stanley but is hereby authorized to receive
and acquiesce in the correctness of such confirmations, statements, and other records and
documents;

RESOLVED: That any and all past transactions of the kind provided for by the these
Resolutions which have been previously made by Morgan Stanley on behalf of or with this
Company be and hereby are ratified, confirmed and approved in all respects; and

- 19 -

 

RESOLVED: That Morgan Stanley and any interested third party are authorized to rely and
act upon the authority of these Resolutions until receipt by Morgan Stanley of a
certificate showing recission, amendment or modifications thereof and signed by the
[Managing Member/Manager] of this Company, and that this Company will indemnify Morgan
Stanley and hold Morgan Stanley harmless from and against any liability, loss, cost or
expenses it incurs in continuing to act in reliance upon these Resolutions prior to its
actual receipt of any such certificate.”

IN
WITNESS WHEREOF, we have hereunto subscribed our names this ___ day of                                         , ___.

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	[Managing Members/Managers]:	 	 	 	 
	 
	 	 	 	 	 	 
	 

(Signature)

	 	 	 	 

(Signature)
	 	 
	 
	 	 	 	 	 	 
	 

(Name & Title – Please Print)

	 	 	 	 

(Name & Title – Please Print)
	 	 
	 
	 	 	 	 	 	 
	 

(Signature)

	 	 	 	 

(Signature)
	 	 
	 
	 	 	 	 	 	 
	 

(Name & Title – Please Print)

	 	 	 	 

(Name & Title – Please Print)
	 	 

- 20 -

 

INCUMBENCY CERTIFICATE

     I,
     
                   
                   
                 , the duly
elected                   
                   
    of 
                    
     
               
(the “Company”)
do hereby certify the following:

	 	(1)	 	                  
                   
    is the duly elected             
                   
          of the Company, and has the authority to
enter into and execute contracts and acknowledgments for and on behalf of the Company; and,
	 
	 	(2)	 	Specifically,                 
                   
      is authorized to execute the following
contracts and acknowledgments for and on behalf of the Company:

	 	•	 	Commodity Customer Agreement by and between Morgan Stanley & Co. Incorporated and the
Company
	 
	 	•	 	Commodity Futures Trading Commission Risk Disclosure Statement Acknowledgment

	 	(3)	 	The signature of                                                              is as it appears below:

 

     IN WITNESS WHEREOF, I do hereby certify that the foregoing is true and correct as of the date
hereof.

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 

Dated:                                                             , 200__

- 21 -

 

Futures Industry Association

Uniform Futures and Options on Futures

Risk Disclosures

Table of Contents

	 	 	 	 	 
	Risk
Disclosure Statement for Futures and Options
	 	Page 2
	 
	 	 	 	 
	Cross Trade Consent
	 	Page 5
	 
	 	 	 	 
	Electronic Trading and Order Routing Systems Disclosure Statement
	 	Page 6
	 
	 	 	 	 
	Notice Regarding Average Price System (“APS”)
	 	Page 7
	 
	 	 	 	 
	Direct Order Transmittal Client Disclosure Statement
	 	Page 8
	 
	 	 	 	 
	Foreign Trader Disclosure Statement
	 	Page 9
	 
	 	 	 	 
	Position
Limit and Large Open Position Reporting Requirements for Options and Futures Traded On Hong Kong Exchange)
	 	Page 10
	 
	 	 	 	 
	Uniform Notification Regarding Access to Market Data
	 	Page 12
	 
	 	 	 	 
	CME Disclosure Statement for Payment for Order Flow
	 	Page 14
	 
	 	 	 	 
	A
Guide to the Structure and Market Technology of The London Metal Exchange
	 	Page 15
	 
	 	 	 	 
	Disclosure Statement on Futures Exchange Ownership Interests and Incentive Programs
	 	Page 19

 

 

RISK DISCLOSURE STATEMENT

     This brief statement does not disclose all of the risks and other significant aspects of
trading in futures and options. In light of the risks, you should undertake such transactions only
if you understand the nature of the contracts (and contractual relationships) into which you are
entering and the extent of your exposure to risk. Trading in futures and options is not suitable
for many members of the public. You should carefully consider whether trading is appropriate for
you in light of your experience, objectives, financial resources and other relevant circumstances.

Futures

1. Effect of ‘Leverage’ or ‘Gearing’

     Transactions in futures carry a high degree of risk. The amount of initial margin is small
relative to the value of the futures contract so that transactions are ‘leveraged’ or ‘geared.’ A
relatively small market movement will have a proportionately larger impact on the funds you have
deposited or will have to deposit: this may work against you as well as for you. You may sustain a
total loss of initial margin funds and any additional funds deposited with the firm to maintain
your position. If the market moves against your position or margin levels are increased, you may be
called upon to pay substantial additional funds on short notice to maintain your position. If you
fail to comply with a request for additional funds within the time prescribed, your position may be
liquidated at a loss and you will be liable for any resulting deficit.

2. Risk-reducing orders or strategies

     The placing of certain orders (e.g., ‘stop-loss’ orders, where permitted under local law, or
‘stop-limit’ orders) which are intended to limit losses to certain amounts may not be effective
because market conditions may make it impossible to execute such orders. Strategies using
combinations of positions, such as ‘spread’ and ‘straddle’ positions, may be as risky as taking
simple ‘long’ or ‘short’ positions.

Options

3. Variable degree of risk

     Transactions in options carry a high degree of risk. Purchasers and sellers of options should
familiarize themselves with the type of option (i.e., put or call) which they contemplate trading
and the associated risks. You should calculate the extent to which the value of the options must
increase for your position to become profitable, taking into account the premium and all
transaction costs.

     The purchaser of options may offset or exercise the options or allow the options to expire.
The exercise of an option results either in a cash settlement or in the purchaser acquiring or
delivering the underlying interest. If the option is on a future, the purchaser will acquire a
futures position with associated liabilities for margin (see the section on Futures above). If the
purchased options expire worthless, you will suffer a total loss of your investment, which will
consist of the option premium plus transaction costs. If you are contemplating purchasing
deep-out-of-the-money options, you should be aware that the chance of such options becoming
profitable ordinarily is remote.

     Selling (‘writing’ or ‘granting’) an option generally entails considerably greater risk than
purchasing options. Although the premium received by the seller is fixed, the seller may sustain a
loss well in excess of that amount. The seller will be liable for additional margin to maintain the
position if the market moves unfavorably. The seller will also be exposed to the risk of the
purchaser exercising the option and the seller will be obligated to either settle the option in
cash or to acquire or deliver the underlying interest. If the option is on a future, the seller
will acquire a position in a future with associated liabilities for margin (see the section on
Futures above). If the position is ‘covered’ by the seller holding a corresponding position in the
underlying interest or a future or another option, the risk may be reduced. If the option is not
covered, the risk of loss can be unlimited.

2

 

     Certain exchanges in some jurisdictions permit deferred payment of the option premium,
exposing the purchaser to liability for margin payments not exceeding the amount of the premium.
The purchaser is still subject to the risk of losing the premium and transaction costs. When the
option is exercised or expires, the purchaser is responsible for any unpaid premium outstanding at
that time.

Additional risks common to futures and options

4. Terms and conditions of contracts

     You should ask the firm with which you deal about the terms and conditions of the specific
futures or options which you are trading and associated obligations (e.g., the circumstances under
which you may become obligated to make or take delivery of the underlying interest of a futures
contract and, in respect of options, expiration dates and restrictions on the time for exercise).
Under certain circumstances the specifications of outstanding contracts (including the exercise
price of an option) may be modified by the exchange or clearing house to reflect changes in the
underlying interest.

5. Suspension or restriction of trading and pricing relationships

     Market conditions (e.g., illiquidity) and/or the operation of the rules of certain markets
(e.g., the suspension of trading in any contract or contract month because of price limits or
‘circuit breakers’) may increase the risk of loss by making it difficult or impossible to effect
transactions or liquidate/offset positions. If you have sold options, this may increase the risk of
loss.

     Further, normal pricing relationships between the underlying interest and the future, and the
underlying interest and the option may not exist. This can occur when, for example, the futures
contract underlying the option is subject to price limits while the option is not. The absence of
an underlying reference price may make it difficult to judge ‘fair’ value.

6. Deposited cash and property

     You should familiarize yourself with the protections accorded money or other property you
deposit for domestic and foreign transactions, particularly in the event of a firm insolvency or
bankruptcy. The extent to which you may recover your money or property may be governed by specified
legislation or local rules. In some jurisdictions, property which had been specifically
identifiable as your own will be pro-rated in the same manner as cash for purposes of distribution
in the event of a shortfall.

7. Commission and other charges

     Before you begin to trade, you should obtain a clear explanation of all commissions, fees and
other charges for which you will be liable. These charges will affect your net profit (if any) or
increase your loss.

8. Transactions in other jurisdictions

     Transactions on markets in other jurisdictions, including markets formally linked to a
domestic market, may expose you to additional risk. Such markets may be subject to regulation which
may offer different or diminished investor protection. Before you trade, you should inquire about
any rules relevant to your particular transactions. Your local regulatory authority will be unable
to compel the enforcement of the rules of regulatory authorities or markets in other jurisdictions
where your transactions have been effected. You should ask the firm with which you deal for details
about the types of redress available in both your home jurisdiction and other relevant
jurisdictions before you start to trade.

3

 

9. Currency risks

     The profit or loss in transactions in foreign currency-denominated contracts (whether they are
traded in your own or another jurisdiction) will be affected by fluctuations in currency rates
where there is a need to convert from the currency denomination of the contract to another
currency.

10. Trading facilities

     Most open-outcry and electronic trading facilities are supported by computer-based component
systems for the order-routing, execution, matching, registration or clearing of trades. As with all
facilities and systems, they are vulnerable to temporary disruption or failure. Your ability to
recover certain losses may be subject to limits on liability imposed by the system provider, the
market, the clearing house and/or member firms. Such limits may vary; you should ask the firm with
which you deal for details in this respect.

11. Electronic trading

     Trading on an electronic trading system may differ not only from trading in an open-outcry
market but also from trading on other electronic trading systems. If you undertake transactions on
an electronic trading system, you will be exposed to risk associated with the
system, including the failure of hardware and software. The result of any system failure may
be that your order is either not executed according to your instructions or is not executed at all.

12. Off-exchange transactions

     In some jurisdictions, and only then in restricted circumstances, firms are permitted to
effect off-exchange transactions. The firm with which you deal may be acting as your counterparty
to the transaction. It may be difficult or impossible to liquidate an existing position, to assess
the value, to determine a fair price or to assess the exposure to risk. For these reasons, these
transactions may involve increased risks. Off-exchange transactions may be less regulated or
subject to a separate regulatory regime. Before you undertake such transactions, you should
familiarize yourself with applicable rules and attendant risks.

4

 

CROSS TRADE CONSENT

[Name of Clearing Firm], its officers, directors employees or affiliates or other customers of
[Name of Clearing Firm] or of the servicing floor broker may be from time to time on the opposite
side of orders for physicals or for purchase or sale of futures contracts and option contracts
placed for your Account in conformity with regulations of the Commodity Futures Trading Commission
and the by-laws, rules and regulations of the applicable market (and its clearing organization, if
any) on which such order is executed.

5

 

ELECTRONIC TRADING AND ORDER ROUTING SYSTEMS DISCLOSURE STATEMENT*/

     Electronic trading and order routing systems differ from traditional open outcry pit trading
and manual order routing methods. Transactions using an electronic system are subject to the rules
and regulations of the exchange(s) offering the system and/or listing the contract. Before you
engage in transactions using an electronic system, you should carefully review the rules and
regulations of the exchange(s) offering the system and/or listing contracts you intend to trade.

DIFFERENCES AMONG ELECTRONIC TRADING SYSTEMS

     Trading or routing orders through electronic systems vary widely among the different
electronic systems. You should consult the rules and regulations of the exchange offering the
electronic system and/or listing the contract traded or order routed to understand, among other
things, in the case of trading systems, the system’s order matching procedure, opening and closing
procedures and prices, error trade policies, and trading limitations or requirements; and in the
case of all systems, qualifications for access and grounds for termination and limitations on the
types of orders that may be entered into the system. Each of these matters may present different
risk factors with respect to trading on or using a particular system. Each system may also present
risks related to system access, varying response times, and security. In the case of
internet-based systems, there may be additional types of risks related to system access,
varying response times and security, as well as risks related to service providers and the receipt
and monitoring of electronic mail.

RISK ASSOCIATED WITH SYSTEM FAILURE

     Trading through an electronic trading or order routing system exposes you to risks associated
with system or component failure. In the event of system or component failure, it is possible that,
for a certain time period, you may not be able to enter new orders, execute existing orders, or
modify or cancel orders that were previously entered. System or component failure may also result
in loss of orders or order priority.

SIMULTANEOUS OPEN OUTCRY PIT AND ELECTRONIC TRADING

     Some contracts offered on an electronic trading system may be traded electronically and
through open outcry during the same trading hours. You should review the rules and regulations of
the exchange offering the system and/or listing the contract to determine how orders that do not
designate a particular process will be executed.

LIMITATION OF LIABILITY

     Exchanges offering an electronic trading or order routing system and/or listing the contract
may have adopted rules to limit their liability, the liability of Futures Commission Merchants, and
software and communication system vendors and the amount of damages you may collect for system
failure and delays. These limitations of liability provisions vary among the exchanges. You should
consult the rules and regulations of the relevant exchanges(s) in order to understand these
liability limitations.

 

			
	*/	 	Each exchange’s relevant rules are available upon request from the industry professional with
whom you have an account. Some exchanges’ relevant rules also are available on the exchange’s
internet home page.

6

 

NOTICE REGARDING AVERAGE PRICE SYSTEM (“APS”)

You should be aware that certain US and non-US exchanges, including the CME and CBOT, may now or in
the future allow a futures commission merchant (“FCM”) such as [Name of Clearing Firm] to confirm
trades executed on such exchanges to some or all of their customers on an average price basis
regardless of whether the exchanges have average price systems of their own. Average prices that
are not calculated by an exchange system will be calculated by your FCM. In either case, trades
that are confirmed to you at average prices will be designated as such on your daily and monthly
statements.

APS enables a clearing firm to confirm to customers an average price when multiple execution prices
are received on an order or series of orders for the same accounts. For example, if an order
transmitted by an account manager on behalf of several customers is executed at more than one
price, those prices may be averaged and the average may be confirmed to each customer. Customers
may choose whether to use APS, and may request that APS be used for discretionary or
non-discretionary accounts.

An order subject to APS must be for the same commodity. An APS order may be used for futures,
options or combination transactions. An APS order for futures must be for the same commodity and
month, and for options, it must be for the same commodity, month, put/call and strike.

An APS indicator will appear on the confirmation and monthly statement for a customer whose
positions have been confirmed at an average price. This indicator will notify the customer that
the confirmed price represents an average price or rounded average price.

The average price is not the actual execution price. APS will calculate the same price for all
customers that participate in the order.

APS may be used when a series of orders are entered for a group of accounts. For example, a bunched
APS order (an order that represents more than one customer account) executed at 10:00 a.m. could be
averaged with a bunched APS order executed at 12:00 p.m. provided that each of the bunched orders
is for the same accounts. In addition, market orders and limit orders may be averaged, as may limit
orders at different prices, provided that each order is for the same accounts.

The following scenario exemplifies what occurs if an APS order is only partially executed. At 10:00
a.m. an APS order to buy 100 Dec S & P 500 futures contracts is transmitted at a limit price of
376.00; 50 are executed at 376.00, and the balance is not filled. At 12:00 p.m. an APS order to buy
100 Dec S & P 500 futures contracts is transmitted at a limit price of 375.00; 50 are executed at
375.00, and the balance is not filled. Both orders are part of a series for the same group of
accounts. In this example, the two prices will be averaged. If the order was placed for more than
one account, the account controller must rely on pre-existing allocation procedures to determine
the proportions in which each account will share in the partial fill.

Upon receipt of an execution at multiple prices for an order with an APS indicator, an average will
be computed by multiplying the execution prices by the quantities at those prices divided by the
total quantities. An average price for a series of orders will be computed based on the average
prices of each order in that series. The actual average price or the average price rounded to the
next price increment may be confirmed to customers. If a clearing member confirms the rounded
average price, the clearing member must round the average price up to the next price increment for
a sell order. The rounding process will create a cash residual of the difference between the actual
average price and the rounded average price that must be paid to the customer.

APS may produce prices that do not conform to whole cent increments. In such cases, any amounts
less than one cent may be retained by the clearing member. For example, if the total residual to
be paid to a customer on a rounded average price for 10 contracts is $83.333333, the clearing
member may pay $83.33 to the customer.

If you would like more information on APS orders, please contact [your Agent or the [Name of
Clearing Firm] Futures Operations Department].

7

 

DIRECT ORDER TRANSMITTAL CLIENT DISCLOSURE STATEMENT

     This statement applies to the ability of authorized customers of [Name of Clearing Firm]
(“Shortname of Clearing Firm”) to place orders for foreign futures and options transactions
directly with non-US entities (each, an “Executing Firm”) that execute transactions on behalf of
[Shortname of Clearing Firm]’s customer omnibus accounts.

     Please be aware of the following should you be permitted to place the type of orders
specified above:

     •     The orders you place with an Executing Firm are for [Shortname of Clearing Firm]’s
customer omnibus account maintained with a foreign clearing firm. Consequently, [Shortname of
Clearing Firm] may limit or otherwise condition the orders you place with the Executing Firm.

     •     You should be aware of the relationship of the Executing Firm and [Shortname of
Clearing Firm]. [Shortname of Clearing Firm] may not be responsible for the acts, omissions, or
errors of the Executing Firm, or its representatives, with which you place your orders. In
addition, the Executing Firm may not be affiliated with [Shortname of Clearing Firm]. If you choose
to place orders directly with an Executing Firm, you may be doing so at your own risk.

     •     It is your responsibility to inquire about the applicable laws and regulations that
govern the foreign exchanges on which transactions will be executed on your behalf. Any orders
placed by you for execution on that exchange will be subject to such rules and regulations, its
customs and usages, as well as any local laws that may govern transactions on that exchange. These
laws, rules, regulations, customs and usages may offer different or diminished protection from
those that govern transactions on US exchanges. In particular, funds received from customers to
margin foreign futures transactions may not be provided the same protections as funds received to
margin futures transactions on domestic exchanges. Before you trade, you should familiarize
yourself with the foreign rules which will apply to your particular transaction. United States
regulatory authorities may be unable to compel the enforcement of the rules of regulatory
authorities or markets in non-US jurisdictions where transactions may be effected.

     •      It is your responsibility to determine whether the Executing Firm has consented to the
jurisdiction of the courts in the United States. In general, neither the Executing Firm nor any
individuals associated with the Executing Firm will be registered in any capacity with the
Commodity Futures Trading Commission. Similarly, your contacts with the Executing Firm may not be
sufficient to subject the Executing Firm to the jurisdiction of courts in the United States in the
absence of the Executing Firm’s consent. Accordingly, neither the courts of the United States nor
the Commission’s reparations program will be available as a forum for resolution of any
disagreements you may have with the Executing Firm, and your recourse may be limited to actions
outside the United States.

     Unless you object within five (5) days by giving notice as provided in your customer agreement
after receipt of this disclosure, [Shortname of Clearing Firm] will assume your consent to the
aforementioned conditions.

8

 

FOREIGN TRADER DISCLOSURE STATEMENT

     Dear Customer:

     In accordance with Rules 15.05 and 21.03 of the Commodity Futures Trading Commission (“CFTC”),
17 C.F.R. §§15.05 and 21.03, we are considered to be your agent for purposes of accepting delivery
and service of communications from or on behalf of the CFTC regarding any commodity futures
contracts or commodity option contracts which are or have been maintained in your account(s) with
us. In the event that you are acting as agent or broker for any other person(s), we are also
considered to be their agent, and the agent of any person(s) for whom they may be acting as agent
or broker, for purposes of accepting delivery and service of such communications. Service or
delivery to us of any communication issued by or on behalf of the CFTC (including any summons,
complaint, order, subpoena, special call, request for information, notice, correspondence or other
written document) will be considered valid and effective service or delivery upon you or any person
for whom you may be acting, directly or indirectly, as agent or broker.

     You should be aware that Rule 15.05 also provides that you may designate an agent other than
[Name of Clearing Firm]. Any such alternative designation of agency must be evidenced by a written
agency agreement which you must furnish to us and which we, in turn, must forward to the CFTC. If
you wish to designate an agent other than us, please contact us in writing. You should consult 17
C.FR. § 15.05 for a more complete explanation of the foregoing.

     Upon a determination by the CFTC that information concerning your account(s) with us may be
relevant in enabling the CFTC to determine whether the threat of a market manipulation, corner,
squeeze, or other market disorder exists, the CFTC may issue a call for specific information from
us or from you. In the event that the CFTC directs a call for information to us, we must provide
the information requested within the time specified by the CFTC. If the CFTC directs a call for
information to you through us as your agent, we must promptly transmit the call to you, and you
must provide the information requested within the time specified by the CFTC. If any call by the
CFTC for information regarding your account(s) with us is not met, the CFTC has authority to
restrict such account(s) to trading for liquidation only. You have the right to a hearing before
the CFTC to contest any call for information concerning your account(s) with us, but your request
for a hearing will not suspend the CFTC’s call for information unless the CFTC modifies or
withdraws the call. Please consult 17 C.F.R. §21.03 for a more complete description of the
foregoing (including the type of information you may be required to provide).

     Certain additional regulations may affect you. Part 17 of the CFTC Regulations, 17 C.F.R. Part
17, requires each futures commission merchant and foreign broker to submit a report to the CFTC
with respect to each account carried by such futures commission merchant or foreign broker which
contains a reportable futures position. (Specific reportable position levels for all futures
contracts traded on U.S. exchanges are established in Rule 15.03.) In addition, Part 18 of
the CFTC Regulations, 17 C.F.R. Part 18, requires all traders (including foreign traders) who
own or control a reportable futures or options position and who have received a special call from
the CFTC to file a Large Trader Reporting Form (Form 103) with the CFTC within one day after the
special call upon such trader by the CFTC. Please consult 17 C.F.R. Parts 17 and 18 for more
complete information with respect to the foregoing.

Very truly yours,

[Name of Clearing Firm]

9

 

NOTICE TO CLIENTS 

POSITION LIMIT AND LARGE OPEN POSITION REPORTING REQUIREMENTS FOR OPTIONS 

AND FUTURES TRADED ON THE HONG KONG EXCHANGES 

The Hong Kong regulatory regime imposes position limit and reportable position requirements for
stock options and futures contracts traded on the Stock Exchange of Hong Kong and on the Hong Kong
Futures Exchange.

These requirements are set out in the Hong Kong Securities and Futures (Contracts Limits and
Reportable Positions) Rules (as amended, the “Rules”) made by the Securities and Futures Commission
(“SFC”) under the Securities and Futures Ordinance. The Rules impose monitoring and reporting
obligations with regard to large open positions. Where you are holding a reportable position for
your client, you must disclose the identity of the client. For the purposes of the Rules, a client
is the person who is ultimately responsible for originating instructions you receive for
transactions — i.e., the transaction originator.

Further guidance on the Rules and what they require is set out in the SFC’s Guidance Note on
Position Limits and Large Open Position Reporting Requirements. Copies of the Rules and Guidance
Note can be downloaded from the SFC’s website (www.sfc.hk).

Purpose of the Rules

The purpose of the Rules is to avoid potentially destabilizing market conditions arising from an
over-concentration of futures/options positions accumulated by a single person or group of persons
acting in concert, and to increase market transparency.

Some of the major requirements of the Rules and Guidance Note are summarised below. However, you
should review the Rules and Guidance Note in their entirety, and consult with your legal counsel in
order to ensure that you have a full understanding of your obligations in connection with trading
in Hong Kong.

Please note that the Rules make you responsible for ensuring that you comply with the Rules.
Section 8 of the Rules makes it a criminal offence not to comply (subject to a maximum fine of
HK$100,000 and imprisonment for up to 2 years).

In 2004, the SFC investigated 6 breaches of the Rules, including a breach by a non-Hong Kong fund
manager which was referred to the fund manager’s overseas regulator. It should be noted that the
SFC has expressly stated that it is not sympathetic to claims by overseas persons that they are not
aware of the Hong Kong restrictions, and that a failure to trade within the limits or make reports
reflects badly on a firm’s internal control measures (which might itself lead to disciplinary
action).

Position Limits

The Rules say that you may not hold or control futures contracts or stock options contracts in
excess of the prescribed limit, unless you have obtained the prior authorisation of the Hong Kong
regulators. For example, the prescribed limit for Hang Seng Index futures and options contracts and
Mini-Hang Seng Index futures and options contracts is 10,000 long or short position delta limit for
all contract months combined, provided the position delta for the Mini-Hang Seng Index
futures contracts or Mini-Hang Seng Index options contracts shall not at any time exceed 2,000 long
or short for all contract months combined. For many futures contracts and stock options contracts,
the position limit is set at 5,000 contracts for any one contract/expiry month.

The prescribed limit for each contract traded on the Hong Kong exchanges is set out in the Rules.

10

 

Reportable Positions

If you hold or control an open position in futures contracts or stock options contracts in excess
of the specified level, the Rules require you to report that position in writing to the relevant
Hong Kong exchange (i) within one day (ignoring Hong Kong public holidays and Saturdays) of first
holding or controlling that position, and (ii) on each succeeding day on which you continue to hold
or control that position.

The specified reporting level for each contract traded on the Hong Kong exchanges is set out in the
Rules. The report must state:

	(a)	 	the number of contracts held or controlled in respect of the position in each relevant contract
month; and
	 
	(b)	 	if the position is held or controlled for a client, the identity of the client, and the number
of contracts held or controlled for such person in respect of the reportable position in each
relevant contract month.

Scope of the Rules

You should note:

	•	 	The prescribed limits and reportable position requirements apply to all positions held or
controlled by any person, including positions in any account(s) that such person controls,
whether directly or indirectly. The SFC takes the view that a person is regarded as having
control of positions if, for example, the person is allowed to exercise discretion to trade or
dispose of the positions independently without the day-to-day direction of the owner of the
positions. (Section 4 of the Rules and Para. 2.6 of the Guidance Note)
	 
	•	 	If a person holds or controls positions in accounts at more than one intermediary, the
Rules require him to aggregate the positions for the purposes of applying the prescribed
limits and reportable position requirements. (Para. 6.1 of the Guidance Note)
	 
	•	 	The person holding or controlling a reportable position in accounts at more than one
intermediary has the sole responsibility to notify the relevant exchange of the reportable
position. The person may request its intermediary to submit the notice of the reportable
position. If a firm agrees to submit the notice on his behalf, the person should provide to
the firm its total positions held at other intermediaries so that the firm can submit the
notice of the reportable position. Alternatively, the person should ask all of his
intermediaries to report the positions in each of the accounts separately to the exchange,
even if the positions in the individual accounts do not reach the reportable level. (Paras.
4.6 and 6.2 of the Guidance Note)
	 
	•	 	Where you are holding a reportable position for your client, the Rules say that you must
disclose the identity of the client. The SFC’s view is that, for the purposes of the Rules, a
client is the person who is ultimately responsible for originating the transaction

instructions — i.e., the transaction originator. (Para. 6.4 of the Guidance Note)
	 
	•	 	The Rules apply separately to the positions held by each of the underlying clients of an
omnibus account, except where the omnibus account operator has discretion over the
positions in which case the account operator must also aggregate these positions with his own
positions. Positions held by different underlying clients should not be netted off for
purposes of calculating and reporting reportable positions or determining compliance with the
prescribed limits. (Para. 6.8 of the Guidance Note)

11

 

UNIFORM NOTIFICATION REGARDING ACCESS TO MARKET DATA 

As a market user you may obtain access to Market Data available through an electronic trading
system, software or device that is provided or made available to you by a broker or an affiliate of
such. Market Data may include, with respect to products of an exchange (“Exchange”) or the products
of third party participating exchanges that are traded on or through the Exchange’s electronic
trading platform (“Participating Exchange”), but is not limited to, “real time” or delayed market
prices, opening and closing prices and ranges, high-low prices, settlement prices, estimated and
actual volume information, bids or offers and the applicable sizes and numbers of such bids or
offers.

You are hereby notified that Market Data constitutes valuable confidential information that is the
exclusive proprietary property of the applicable exchange, and is not within the public domain.
Such Market Data may only be used for your firm’s internal use. You may not, without the written
authorization of the applicable exchange, redistribute, sell, license, retransmit or otherwise
provide Market Data, internally or externally and in any format by electronic or other means,
including, but not limited to the Internet. Further, you may not, without the written authorization
of the applicable exchange, use Exchange Market Data for purposes of determining any price,
including any settlement price, for any futures product, options on futures product, or other
derivatives instrument traded on any exchange other than an Exchange or a Participating Exchange;
or in constructing or calculating the value of any index or indexed product. Additionally, you
agree you will not, and will not permit any other individual or entity to, (i) use Exchange Market
Data in any way so as to compete with an Exchange or to assist or allow a third party to compete
with an Exchange; or (ii) use that portion of Exchange Market Data which relates to any product of
a Participating Exchange in any way so as to compete with that Participating Exchange or to assist
or allow a third party to compete with such Participating Exchange.

You must provide upon request of the broker through which your firm has obtained access to Market
Data, or the applicable exchange, information demonstrating your firm’s use of the Market Data in
accordance with this Notification. Each applicable exchange reserves the right to terminate a
market user’s access to Market Data for any reason. You also agree that you will cooperate with an
exchange and permit an exchange reasonable access to your premises should an exchange wish to
conduct an audit or review connected to the distribution of Market Data.

NEITHER AN EXCHANGE, NOR ANY PARTICIPATING EXCHANGE, NOR THE BROKER, NOR THEIR RESPECTIVE MEMBERS,
SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, GUARANTEE THE TIMELINESS, SEQUENCE,
ACCURACY OR COMPLETENESS OF THE DESIGNATED MARKET DATA, MARKET INFORMATION OR OTHER INFORMATION
FURNISHED NOR THAT THE MARKET DATA HAVE BEEN VERIFIED. YOU AGREE THAT THE MARKET DATA AND OTHER
INFORMATION PROVIDED IS FOR INFORMATION PURPOSES ONLY AND IS NOT INTENDED AS AN OFFER OR
SOLICITATION WITH RESPECT TO THE PURCHASE OR SALE OF ANY SECURITY OR COMMODITY.

NEITHER AN EXCHANGE, NOR ANY PARTICIPATING EXCHANGE, NOR THE BROKER NOR THEIR RESPECTIVE MEMBERS,
SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, SHALL BE LIABLE TO YOU OR TO ANY OTHER
PERSON, FIRM OR CORPORATION WHATSOEVER FOR ANY LOSSES, DAMAGES, CLAIMS, PENALTIES, COSTS OR
EXPENSES (INCLUDING LOST PROFITS) ARISING
OUT OF OR RELATING TO THE MARKET DATA IN ANY WAY, INCLUDING BUT NOT LIMITED TO ANY DELAY,
INACCURACIES, ERRORS OR OMISSIONS IN THE MARKET DATA OR IN THE TRANSMISSION THEREOF OR FOR
NONPERFORMANCE, DISCONTINUANCE, TERMINATION OR INTERRUPTION OF SERVICE OR FOR ANY DAMAGES ARISING
THEREFROM OR OCCASIONED THEREBY, DUE TO ANY CAUSE WHATSOEVER, WHETHER OR NOT RESULTING FROM
NEGLIGENCE ON THEIR PART. IF THE FOREGOING DISCLAIMER AND WAIVER OF LIABILITY SHOULD BE DEEMED
INVALID OR INEFFECTIVE, NEITHER AN EXCHANGE, NOR ANY PARTICIPATING EXCHANGE, NOR THE BROKER, NOR
THEIR RESPECTIVE SHAREHOLDERS, MEMBERS, DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS SHALL BE LIABLE IN
ANY EVENT,

12

 

INCLUDING THEIR OWN NEGLIGENCE, BEYOND THE ACTUAL AMOUNT OF LOSS OR DAMAGE, OR THE AMOUNT OF THE
MONTHLY FEE PAID BY YOU TO BROKER, WHICHEVER IS LESS. YOU AGREE THAT NEITHER AN EXCHANGE, NOR ANY
PARTICIPATING EXCHANGE, NOR THE BROKER NOR THEIR RESPECTIVE SHAREHOLDERS, MEMBERS, DIRECTORS,
OFFICERS, EMPLOYEES OR AGENTS, SHALL BE LIABLE TO YOU OR TO ANY OTHER PERSON, FIRM OR CORPORATION
WHATSOEVER FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION, LOST
PROFITS, COSTS OF DELAY, OR COSTS OF LOST OR DAMAGED DATA.

13

 

CME DISCLOSURE ON PAYMENT FOR ORDER FLOW 

When firms provide execution services to customers, either in conjunction with clearing services or
in an execution only capacity, they may, in some circumstances, direct orders to unaffiliated
market makers, other executing firms, individual floor brokers or floor brokerage groups for
execution. When such unaffiliated parties are used, they may, where permitted, agree to price
concessions, volume discounts or refunds, rebates or similar payments in return for receiving such
business. Likewise, on occasion, in connection with exchanges that permit pre-execution discussions
and “off-floor” transactions such as block trading, exchanges of physicals, swaps or options for
futures or equivalent transactions, a counterparty solicited to trade opposite customers of an
executing firm may make payments described above and/or pay a commission to the executing firm in
connection with that transaction. This could be viewed as an apparent conflict of interest. In
order to determine whether transactions executed for your account are subject to the above
circumstances, please contact your executing firm account representative.

14

 

A GUIDE TO THE STRUCTURE AND MARKET TERMINOLOGY OF THE LONDON METAL

EXCHANGE

INTRODUCTION AND PURPOSE

This document is designed to provide customers of the London Metal Exchange (LME) with an overview
of the structure of the LME, market terminology, and order execution. It is not a comprehensive
trading guide, nor a complete guide to market terminology. Customers should always ensure that
their requirements are explained in detail to the member responsible for order execution.

THE LME

Principal Nature

There are two types of contracts traded on the LME — Exchange Contracts and Client Contracts.
Exchange Contracts are contracts between clearing members of the LME. Client Contracts are
contracts between customers and ring dealing members (RDMs), or associate broker clearing members
(ABCMs), or associate broker members (ABMs). Only RDMs, ABCMs and ABMs may issue Client Contracts.
Open Position Statements issued to clients must state clearly “THIS IS AN LME REGISTERED CLIENT
CONTRACT”. Contract criteria relating to LME contracts, including metal/plastic specifications,
acceptable currencies, prompt dates, option strike prices for metals etc. are detailed in the LME
rulebook and appropriate notices.

Exchange Contracts are traded between members, matched in the LME matching and clearing system
(LMEMS) and margined by LCH.Clearnet (LCH). Client Contracts are registered at the LCH but
margining arrangements are left to members to agree with their customers (subject to LME rules).

All LME contracts are between parties acting as principals. This prevents any party entering into
an LME Contract as agent for someone else but does not prevent an agent effecting a contract
between two parties if the resulting LME contract is between disclosed parties, each acting as a
principal. It is an essential requirement of an LME Client Contract that one party must be an RDM,
ABCM or ABM. A list of members is available from the LME, and on the LME website: www.lme.com. A
principal relationship does not mean that members do not take on quasi-fiduciary responsibilities
when they effect trades for customers. In particular, if a member undertakes to deliver a
particular service, for example deal a specific number of lots ‘in the Ring’ (see below), then it
should take care to ensure that it complies with all the terms of such a transaction.

In respect of Exchange Contracts, an LME broker buying metal or plastic under an Exchange Contract
from another LME broker cannot do so as agent for his customer. Where an LME broker buys metal or
plastic under an Exchange Contract with a view to selling that metal or plastic to his customer,
this is achieved by entering into a back-to-back Client Contract with the customer. Brokers and
customers can agree the conditions that apply to their Client Contracts. For example, a customer
may make it a condition of his Client Contract that the broker must enter into a back-to-back
Exchange Contract for the metal or plastic being bought or sold. This does not make the customer a
party to the Exchange Contract but does create additional duties and obligations owed by the broker
under the Client Contract.

Customers should be clear about conditions that apply to their Client Contracts and about the
obligations and duties that the broker owes as a result of those conditions.

Brokers should be clear about the duties and obligations they owe as a result of conditions
attaching to their Client Contracts. They should also be clear about the duties they owe to their
customers under the FSA’s Conduct of Business Rules (COB).

15

 

Dual Capacity 

LME members may act both in the capacity of market maker and broker. They may act in a particular
manner depending on a number of circumstances, including the size of the order, the liquidity of
the market at the time the order was placed, and, not least, the customer’s instructions. Customer
orders may be filled directly from a member’s ‘book’ or following the purchase/sale of metal or
plastic in the LME market. Furthermore, customer orders may be offset, amalgamated, broken-up or
netted for execution. These methodologies apply equally to orders whether any resulting Exchange
Contract is effected in the ring, in the inter-office market, or on LME Select.

Customers with specific order requirements must make these known to the member at the time the
order is placed. Customers wishing to know how their order was executed should request such
information from the member.

Trading on the LME 

Trading takes place on the LME by open outcry in the rings and kerbs, between members in the
inter-office, and over the Exchange’s electronic trading system LME Select.

Open Outcry 

Historically, during ring and kerb sessions, the majority of customer business reflects prices
traded in the open outcry sessions. Customers can follow the market activity by monitoring quoted
and traded prices disseminated via the LME market data system (MDS), or by listening to the
simultaneous floor commentary provided by member(s). The MDS publishes prices traded during ring
and kerb times on price vendor information services such as Reuters. Members can continue to ‘make
a market’ when requested by a customer during the ring and kerb sessions, although this is entirely
at the member’s discretion. Alternatively, the customer can decide whether to place an order using
the ‘order styles’ mentioned below.

Inter-office 

Inter-office trading is conducted between members by telephone or by electronic means. On
contacting an LME member for a quote, customers will usually be provided with the member’s current
bid and offer. The customer may trade on this quote, call another member in an attempt to improve
the quote, leave a resting order with a member, or wait and monitor prices on the LME market data
system. If an order cannot be filled from the member’s book, it may be executed via a back-to-back
Exchange Contract agreed via a telephone deal with another member or executed via an electronic
trading system.

LME Select 

LME Select allows members to trade LME futures contracts in metals and plastics, traded options and
TAPOs, and an Index future and option. Some brokers offer their customers an order-routing facility
via an API where they can view Select prices, execute trades, and place resting orders. All trading
on LME Select is in US dollars.

LME Select replaces neither inter-office trading nor trading in the ring. Depending on the time of
day, it is possible for members to deal by telephone or electronically in the inter-office, by LME
Select, or in the rings. Customers should specify which mechanism their broker should use to effect
an order, where they have a preference.

Firm prices of the best bid and offer available on LME Select, the total volumes available at these
prices, and the price and volume of each trade transacted are distributed to and displayed in real
time by information vendors. Only LME Select prices are displayed, not those of other third party
electronic trading systems providing LME prices. Only RDMs and ABCMs are eligible to become LME
Select Participants and to have direct access to the system. Customers may effect back-to-back
Client Contracts with RDMs and ABCMs based upon prices available on LME Select, whether on the
telephone or via electronic order-routing systems.

16

 

ORDER STYLES

Ring 

Customer orders are not traded in the rings or kerbs, so an order using the term ‘in/on/during the
ring/kerb’ will be executed on the basis of the prices traded/quoted during the particular session.
If a customer requires their order to be ‘shown’ or traded across the ring/kerb then they should
make this requirement known to their executor, who may or may not accept this as a term of the
order. The equivalent Exchange Contract for a customer order may not replicate its terms. As the
customer is not a party to any Exchange Contracts i.e. those traded in open outcry between members
in the ring/kerb sessions, in specifying ring/kerb, the customer is merely identifying a pricing
mechanism. A member which undertakes to match a price traded in the ring/kerb is not necessarily
undertaking that it will trade during that ring/kerb, only that it may do so. However, a customer
may place an order with the specific request that the member trades an Exchange Contract
replicating its order in the ring. In such circumstance the RDM can only trade this order by open
outcry in the ring.

If a customer trades at the prevailing market quote proffered in the ring/kerb, their executor is
not necessarily obliged to effect an Exchange Contract at the same price. This can lead to
situations where the customer has traded at the prevailing market quote, without that same price
trading in open outcry across the floor of the Exchange. However, if the instructions from the
customer are to achieve a specific price i.e. close of ring 2, then this is the price that should
be given, if that specific order is accepted.

Market 

In normal circumstances a market order is one executed on a timely basis at the prevailing market
price. As mentioned above, at certain times of the business day, trading is taking place
simultaneously in the ring or kerb, on LME Select, and in the inter-office market. Traditionally,
when open outcry trading is in session, the market is defined by activity within the ring/kerb. At
other times, the market is split between inter-office trading and trading on LME Select. During
inter-office sessions, indicative quotes are available on the MDS; firm prices are available on LME
Select and the LME Select page on information vendors’ systems. The indicative prices might not be
available to all parties.

Best 

Order styles on the LME using the word ‘best’ confer some discretion upon the members when
executing the order, requiring them to use their ‘best endeavours’ on the customer’s behalf. The
extent of the discretion is fixed by the terms of the order. This type of order is distinct from
‘best execution’ as defined by the FSA.

Best orders may be executed both in rings/kerbs, inter-office and on LME Select. Inter-office
trades rely upon the members’ skill in determining the level of the market at any particular time.
Best orders received during ring/kerb times may not result in the customer receiving the ‘best’
price achieved during the session if the price improves after the member has booked the metal or
plastic intended to fill the order. At any given time, the best price on LME Select will be
displayed on the system and by the information vendors. Customers should be aware that depending on
market conditions, the best price may move during the period from when the order was placed and
when it was executed.

Close 

Most orders placed ‘on the close’ are for either the close of the second ring (official LME prices)
or the final kerb (closing prices). Both these prices are demonstrable because of the publication
of official and closing prices. Closing prices for other sessions are harder to determine, although
the LME does publish unofficial prices which are established at the close of the fourth ring. In
all circumstances, customers and members need to agree the style of execution i.e. bid/offer, mean
or traded price. Members may not always be able to guarantee execution (price or volume) due to
prevailing market conditions. A closing price on LME Select is the last price traded before the
system closes.

17

 

Open 

Customers placing orders to trade on the opening of a market session must provide clear
instructions to the LME member which indicate how this order should be activated i.e. basis the
opening bid/offer or basis the first trade in the session. Customers will also need to inform their
executor of their requirements if the executor is unable to fill the order basis the ‘opening’
price in its entirety, due to market constraints such as insufficient liquidity. Customers may
place orders with members for LME Select that can be placed into the system for activation when the
market opens.

Resting Orders 

When placing resting orders such as ‘good ‘til cancelled’ (‘GTC’, or any derivations thereof) or
stop loss orders, customers should ensure that they are in agreement with their executor’s
definition of the ‘trigger’ point of the order. Usually, this is interpreted as being the point
when the order price is seen to be trading in the market, but it is possible to request the order
be activated when the order level is either bid or offered as appropriate, via the prevailing
market quote. Stop loss orders become market orders when a trade, or a bid or an offer triggers the
stop, with members then executing the order at the current market price.

It is possible for a customer not to receive a ‘fill’ on a resting order despite the ‘trigger’
point being ‘touched’. This could be due to a number of circumstances such as order priority,
illiquidity, prevailing market conditions etc. Whatever the reason, the executor should be able to
provide the customer with a full explanation of why it was unable to fill the order.

Customers should be aware that resting orders might be activated during periods of illiquidity in
the market. As previously mentioned, this could result in the trade not being filled, or for ‘stop’
orders, a worse fill than anticipated (‘slippage’). Customers should ensure the executor is fully
aware of their requirements regarding the execution of an order, and adheres to any limitations,
especially if the customer is not in contact with the market/member when the trigger point is
reached.

It is possible for customers to ask members to place resting orders in LME Select. Where the broker
has an order routing system into Select, customers will be able to place orders more directly. The
system accepts GTC and Good for Day (DAY) orders. DAY orders are automatically deleted from the
system at close of trading.

Conclusion 

The above order styles do not represent all possible methods of order execution on the LME. Members
and customers should ensure that orders are communicated in meaningful terms that deliver the
required execution in accordance with LME rules.

For the purposes of this document these categories of members will be referred to as LME members,
members or by the appropriate abbreviation

 

2 TAPO traded average price option

3 API Application Protocol Interface

18

 

DISCLOSURE STATEMENT ON FUTURES EXCHANGE

OWNERSHIP INTERESTS AND INCENTIVE PROGRAMS

You should be aware that your Futures Commission Merchant (“FCM”) or one or more of its affiliates
may own stock of, or has some other form of ownership interest in, one or more U.S. or foreign
exchanges and clearing houses that you may trade on or that may clear your trades. As a result,
you should be aware that your FCM or its affiliate might receive financial benefits related to its
ownership interest when trades are executed on such an exchange or cleared at such a clearing
house.

In addition, futures exchanges from time to time have in place other arrangements that may provide
members with volume or market making discounts or credits, may call for participating members to
prepay fees based on volume thresholds or may provide other incentive or arrangements that are
intended to encourage market participants to trade on or direct trades to that exchange. Your FCM,
or one or more of its affiliates, may participate in and obtain financial benefits from such an
incentive program.

You should contact your FCM directly if you would like to know whether it has an ownership interest
in a particular exchange or clearing house, or whether it participates in any incentive program on
a particular exchange or clearing house. You may also contact any particular futures exchange
directly to ask if it has any such incentive program for member firms.

19

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