Date:                           May 16, 2007

Recipients:                 Members and Independent Software Vendors

Authorized by:            Jeffrey S. Hersh

Title:                           FIFO/Pro-Rata Percentages for Two-Year U.S. Treasury Note

                                    Futures Algorithm

Action Date:               n/a

Recommended for:    Key Contacts, Traders, Developers

Related Bulletins:      Bulletin #33/2007

Attachment:                n/a

SUMMARY:

On May 7, 2007, the Exchange implemented a Split FIFO/Pro-Rata trading algorithm for the outright Two-Year U.S. Treasury Note futures.  The new algorithm was introduced based on feedback that a distribution algorithm which incorporates a significant blend of FIFO which is not strictly an allocation of residual tails from the initial Pro-Rata distribution would be a positive enhancement for the Two-Year U.S. Treasury Note contract.  The CBOT has set the initial allocation percentage at 40% FIFO and 60% Pro-Rata.  Market participants will be notified if these percentages are changed.

Split FIFO/Pro-Rata trading algorithm description

The modified Pro-Rata Algorithm integrates a percentage based allocation on both a FIFO and Pro-Rata basis.  The algorithm has been developed with the flexibility to calibrate the level of tradable quantity that is allocated on a FIFO and Pro-Rata basis (i.e. X% FIFO, Y% Pro-Rata for every tradable quantity).  Similar to the current e-cbot Pro-Rata algorithms, the Split FIFO/Pro-Rata algorithm includes the following attributes:

• assigns a priority flag to an order that betters the market and meets the minimum volume threshold
• establishes a volume cap which limits the quantity that a priority order can receive
• Market Maker Preferencing may be used in conjunction with this algorithm

For Two-Year U.S. Treasury Note futures, the minimum volume requirement will remain at one contract and the maximum volume cap will continue to be 1,500 contracts.

By introducing this new algorithm, the Exchange believes it is demonstrating its commitment to further enhancing the allocation methodology.  We encourage your active participation and continued feedback as we introduce this change and continue to refine our algorithms to accomplish our goal of increasing participation across a broad and diverse range of users while continuing to promote growth in our markets.

Simulation Environment

Two-Year U.S. Treasury Note futures with the current FIFO/Pro-Rata percentages are available for testing in the e-cbot Simulation Environment. 

The Simulation Environment is available during e-cbot production hours.  For specific information about connectivity and access, please see e-cbot Bulletin # 2 of 2006.

Product Algorithms

A complete list of algorithms for all CBOT products is available at http://www.cbot.com/cbot/pub/page/0,3181,2000,00.html.

If you have any questions about this Bulletin, please contact Market Operations (Market_Operations@cbot.com or 312-347-4600) or your Key Account Manager.