Date:                                          August 25, 2006

Recipients:                                Members and Independent Software Vendors

Authorized by:                           Jeffrey S. Hersh

Title:                                          New e-cbot Message Use Policy

Action Date:                              September 1, 2006

Document Recommended for: All Departments

Related Bulletins:                     Bulletin #60/2006

Attachment:                               n/a

SUMMARY:

The CBOT^®’s Message Use Policy is constantly under review in order to assure integrity and efficiency of the Exchange’s markets and to utilize the e-cbot^® trading platform in the most efficient manner possible.  Earlier this year, the CBOT engaged an Advisory Group of users in order to update the current policy.  The Advisory Group was a valuable resource and an integral part of drafting the attached update to the Message Use Policy.  The Exchange implemented a Pilot Message Use Policy on July 1, 2006 based on the feedback and research conducted.  The Board of Directors has now approved the adoption of the Pilot program as the Exchange’s new Message Use Policy effective September 1, 2006, with the following Product Ratio changes based on feedback received from the e-cbot user community during the Pilot period:

• 10 Year U.S. Treasury Options on Futures from 20:1 to 50:1
• mini-sized Silver futures from 20:1 to 50:1

The complete revised Message Use Policy is detailed below.  As a reminder, the key changes to the Message Use Policy include:

• The updated Policy includes all CBOT products.
• Product Ratios are applicable for daytime trading hours (7:00 a.m. to 4:00 p.m. Chicago time).  The CBOT will continue to monitor evening and overnight hours’ activity and expand time parameters if necessary.
• Total Individual Trader Mnemonic ( ITM) order messages are calculated by summing all submit, pull and revise messages by product.
• Total ITM volumes are calculated by summing the number of buy and sell contracts executed by product.
• The ITM’s Product Ratio is the total number of order messages allowed to be submitted per executed contract
• Messaging across product complexes will no longer be used.

Exchange designated Market Makers will be subject to separate and specific messaging guidelines.

Quarterly Product Ratios will be published via the e-cbot Bulletin and posted on the CBOT website at www.cbot.com/messageusepolicy. Please refer to Exhibit I for the current Product Ratios.

If you have any questions about the CBOT’s Message Use Policy, please contact your Key Account Manager.

e-cbot Message Use Policy

Effective September 1, 2006

Executive Summary

The CBOT provides state-of-the-art technology to its users. The success of the e-cbot trading platform is due to the strong commitment from all trading Firms, Independent Software Vendors (ISVs) and Member Developers to manage their trading activity and dynamic pricing information. It is important that end users conform to existing order message guidelines to ensure maximum marketplace performance. 

Introduction

The CBOT is committed to providing the optimal trading experience for its users. In order to assure integrity and efficiency in the e-cbot marketplace, the CBOT implemented its current Message Use Policy in March 2004. The Message Use Policy of the CBOT plays an integral part to help the entire marketplace consistently benefit from the superior execution capacity and strategy capabilities of this dynamic system.

Message to Executed Volume Ratios

The proposed Message Use Policy will continue to evaluate messaging activity at the Individual Trader Mnemonic (ITM) level to isolate specific users who may negatively impact the market through inefficient messaging.

Order messages are defined as submits, pulls and revisions to the trading host. The Product Ratio is the number of order messages to the contract volume executed electronically. The CBOT will publish Product Ratios for all electronically traded products (see Exhibit I). Product Ratios will be distributed quarterly based on the previous quarter’s execution activity and message data.

The following parameters apply per ITM:

• Product Ratios are applicable for daytime trading hours only (7:00 a.m. to 4:00 p.m. Chicago time). However, the CBOT will continue to monitor evening and overnight activity and expand time parameters if necessary.
• Total ITM order messages are calculated by summing all submit, pull and revise messages by product.
• Total ITM volumes are calculated by summing the number of buy and sell contracts executed by product.
• The ITM’s Product Ratio is total number of order messages allowed to be submitted per executed contract
• ITMs submitting less than 1,000 messages per product daily are exempt.
• Messaging across product complexes will no longer be used.
• Daily charges under $1,000 will be waived.
• Product Ratio calculations and charges are calculated on a daily basis.

Exchange designated Market Makers will be subject to separate and specific messaging guidelines.

Quarterly Product Ratios will be published via the e-cbot Bulletin and posted on the CBOT website at www.cbot.com/messageusepolicy. Please refer to Exhibit I for the current Product Ratios.

Reporting Methodology

Reports are generated T+1 and analyzed by the CBOT for violations. Exception reports are reviewed daily by the CBOT Key Account Managers (KAMs) and violations are e-mailed to the Member Firm if the policy is violated. At the end of each month, the KAM e-mails a Monthly Threshold Exception Summary Report to the Member Firm that summarizes each violation for the month. When excessive messaging is noted real time, the Key Account Manager will contact the Firm or ITM Responsible Person.

Message Use Surcharges and Appeals

ITMs that exceed Product Ratio(s) will be given two exemptions per product, per calendar month. Each violation of the Message Use Policy after the exemptions will result in a charge equal to 10¢ per message exceeding the ITM Product Ratio (per product, per ITM) for each violation.  Daily surcharges under $1,000 will be waived.

Once a Member Firm receives the Monthly Threshold Exception Summary Report, the Member Firm may submit an appeal to the Message Use Committee if it believes the circumstances of the event(s) have been rectified. In this situation, details of the circumstances including preventative measures taken must be included. Requests for appeal of charges must be sent via e-mail to the CBOT KAM and received no later than 10 days after the Monthly Threshold Exception Summary Report has been received. Final charges will be billed through the Primary Clearing Member via the Exchange’s Dashboard system.

Exhibit I

3^rd Quarter 2006 ITM Product Ratios