4. Market Operations Authority to Halt Markets

Market Operations shall have the authority to halt markets in any contract during extraordinary circumstances where there has been a major market movement without any apparent economic or fundamental basis for movement to have occurred.

5.  Decisions of Market Operations

A.         Market Operations will review the circumstances surrounding an asserted error trade to determine whether it should be deemed an error trade and whether it should be busted or repriced. If the trade is repriced to a level that is below a sell limit price or above a buy limit price, the customer cannot reject the trade. Similarly, if the trade is repriced to a level that is higher/lower than the trigger price of the sell/buy stop order, the customer cannot reject the trade. The trade will be cleared at the repriced level and allocated to the customer’s account. Parties to these transactions are permitted to make cash adjustments to settle losses that occur as a result of an asserted error trade or an actual error trade. Should parties to a disputed transaction be unable to mutually resolve financial disputes arising from such transactions, arbitration facilities are available through the Exchange. The Arbitration Committee may hold the party who entered the order that resulted in an asserted error trade or an actual error trade financially responsible for losses that occur as a result of the busted or repriced trade(s).

            Trade certainty and the timely resolution of asserted error trades are critical objectives of this policy. Therefore, if parties to a disputed transaction do not agree to the terms of resolution, Market Operations reserves the final authority to determine the disposition of the questioned transaction.

           During side-by-side trading hours, Market Operations shall, unless impracticable, make its determination within 10 minutes of the broadcast message regarding the asserted error trade. During non side-by-side trading hours, Market Operations shall, unless impracticable, make its determination within 15 minutes of the broadcast message regarding the asserted error trade. The decisions of Market Operations shall be final, and Market Operations shall send a broadcast message and an alert to the quote vendor network indicating whether the trade was busted, re-priced or allowed to stand.

 

B.         In making its determination, Market Operations may consider relevant factors including, but not limited to: market conditions immediately before and after the transaction; the prices of related contracts; whether one or more parties to the trade believe the trade was executed at a valid price; the extent to which the transaction appeared to trigger contingency orders and other trades; information related to Market Operations by third parties.

6.  Procedures for Correcting Error Trades

In the event a trade is busted or repriced, the parties to the transaction must reverse the transaction through applicable clearing house procedures. Market Operations will notify OIA regarding any situation where a party fails to claim or misclear trades in a timely manner. Such failure may be deemed a violation of Rule 504.00, Acts Detrimental to the Welfare of the Exchange.

Under no circumstances shall the parties to an asserted error trade be permitted to reverse the error by entering into a prearranged transaction.

If the asserted error trade is determined not to be an actual error trade, the parties to the trade are permitted to mutually agree upon a cash adjustment or to arbitrate the matter.  Any cash adjustment must be reported to Market Operations.

7.  Spreads

Because of the autoleg feature of the e-cbot system, spreads may be executed such that one leg of the spread is determined to be an error trade and the other leg is deemed to have been executed at a good price. In such circumstances, the party who enters an outright order that causes an error trade on an autolegged spread will be deemed to be the counterparty to the good leg of the spread (see Appendix 9B-4). The parties to the transactions will reverse and claim the transactions as indicated through the applicable clearing house procedures.

8. Determination of Option Error Trades

If an option trade is asserted to be at a price that is in error, the trade shall not be considered for review by Market Operations unless the price of the asserted error trade conforms to the following guidelines:

Market Operations will identify potential error trades by one of two means:

1. Notification by market participants within five minutes of the execution time of the asserted error trade.

2. Determination that the price of an option or option strategy is greater than the designated number of ticks (as outlined in Table 1) from fair value. 

Table 1:

Products	ErrorAlert Range
U.S. Treasury	3 ticks
30 Day Fed Funds	6 ticks
CBOT Dow & mini-sized Dow	10 ticks
Commodity	6 ticks

Determining Average Bid and Offer

Market Operations will calculate a bid price or an offer price in order to determine whether the potential error trade should be considered an error. If the trade is determined to be an error trade, Market Operations will also use the bid or offer price to determine the price adjustment of the error trade.

Market Operations will determine the bid or the offer of an option or an option strategy by using as many as four procedures:

1. Market Operations will observe the bid and the offer prices prior to the potential error occurring.   

2. Market Operations will submit RFQs using delta neutral strategies with futures at the same level prior to the execution of the potential error.

3. Market Operations will attempt to contact at least three market makers that were not  involved in the potential error trade in order to determine their bids and offers prior to the potential error occurring.

4. During regular trading hours (which are defined as the hours of open auction), Market Operations may also obtain bid and offer prices from the open auction platform using delta neutral strategies with futures at the same level prior to the execution of the potential error.

Market Operations will determine the average bid or offer price based upon the size of the error trade and the market depth. The average price will be calculated by:

1. Determining the true average (weighted average) bid or offer price.

2. Rounding the true average to the nearest tick value, up for buy orders and down for sell orders.

If the depth of the market in response to the first RFQ is less than the size of the order, e-cbot Operations will submit a second RFQ for the size of the error trade. Market Operations will calculate the average bid or offer price based upon the size of the error trade. If the depth of the response to the second RFQ is less than the size of the trade, Market Operations will calculate an average bid or offer based upon the depth of the market.

Identifying an Option Error Trade

Market Operations will consider an option trade an error if it determines that:

1. The trade has been executed at a price at least two ticks below the determined bid price in the case of a sell error, or

2. The trade has been executed at a price at least two ticks above the determined offer price in the case of a buy error.

Determining an Adjustment for Option Error Trades

All option error trades will be resolved by price adjustment and may not be resolved by busting the disputed transactions. The adjusted price of an option error trade will be a price one tick less than the determined bid price in the case of a sell error or one tick greater than the determined offer price in the case of a buy error.

9. Determination of Error Trades in the Metals Futures Complex

Market Operations will identify potential error trades by one of two means:

1. Notification by market participants within five minutes of the execution time of the asserted error trade.

2. Determination that the price of the futures trade is greater than the designated number of ticks (“No Adjust Range” as outlined in Appendix 9B-3) from the reference price.

Determining Reference Prices in the Metals Futures Complex

For sell/buy errors in the Metals Complex, Market Operations will identify the low/high for the equivalent contract for the time period that the markets were disjointed and use that value as the reference price. If the trade is determined to be an error trade, Market Operations will also use the reference price to determine the price adjustment of the error trade.

Identifying an Error Trade in the Metals Futures Complex

Market Operations may determine that a metals futures trade is an error if the trade has been executed at a price more than $4 away from the relevant reference price for the Gold Complex and at more than 8¢ away from the relevant reference price for the Silver Complex.

Determining an Adjustment for Error Trades in the Metals Futures Complex 

All error trades in the Metals futures complex will be resolved by adjusting the price of the error trade in accordance with the following:

Gold: $4 less than the determined reference price in the case of a sell error or $4 greater than the determined reference price in the case of a buy error.

Silver: 8¢ less than the determined reference price in the case of a sell error or 8¢ greater than the determined reference price in the case of a buy error.

No trades shall be busted.

10.  Determination of Error Trades in the Agricultural Futures Complex

Market Operations will identify potential error trades in agricultural futures by one of two means:

1. Notification by market participants within five minutes of the execution time of the asserted error trade;
   
2. Determination that the price of the futures trade is greater than the designated number of ticks (‘No Adjust Range’ as outlined in Appendix 9B-3) from the reference price.

Determining Reference Prices in the Agricultural Futures Complex

During side-by-side hours, the reference price on a downside (upside) move will never be higher (lower) than the low (high) of the pit traded price for an equivalent contract during the time period that the prices of the contracts were disjointed.  If the trade is determined to be an error trade, Market Operations, will also use the reference price to determine the price adjustment of the error trade.

During non side-by-side hours, the reference price will be the last trade price preceding the entry of the asserted error trade or an alternatively determined fair value for the contract. Fair value for futures contracts may be determined by the last trade price, preceding settlement price, spread relationships and/or other variables deemed relevant by Market Operations.

Identifying an Error Trade in the Agricultural Futures Complex

Market Operations will identify error trades by determining that the price of the futures trade is greater than the designated number of ticks (‘No Adjust Range’ as outlined in Appendix 9B-3) from the relevant reference price.  

Determining an Adjustment for Agricultural Futures Complex Error Trades

All error trades in the agricultural futures complex will be resolved by adjusting the price of the error trade based on the reference price and the “No Adjust” Range in Appendix 9B-3.   

No trades shall be busted.

11.  Arbitration Procedures

For CBOT arbitrations involving actual error trades or asserted error trades, a notice of intention to arbitrate must be filed within ten business days after the date of the error trade. The party who caused the error may be held responsible for realized losses incurred by parties as a result of the error.

12. Error Trade Fees

The party responsible for the error must pay a $1,000 fee for each of the first two error trades, $3,000 for the 3^rd error trade, and $5,000 for each subsequent error trade within a calendar year. 

APPENDIX 9B-3

Tick Breakdown Per CBOT Product

 

Product	Symbol	Minimum Tick Increment	“No Bust Range”	Tick Increment of “No Bust Range”	Dynamic Price Limits	Daily Price Limit
U.S. T-Bond	ZB	1/32	3 points	96 ticks	30/32nds	N/A
U.S. T-Bond Options	OZB	1/64	N/A	N/A	20/64ths	N/A
10 Yr. T-Note	ZN	(½)/32	3 points	192 ticks	15/32nds	N/A
10 Yr. T-Note Options	OZN	1/64	N/A	N/A	20/64ths	N/A
5 Yr. T-Note	ZF	(½)/32	3 points	192 ticks	15/32nds	N/A
5 Yr. T-Note Options	OZF	1/64	N/A	N/A	20/64ths	N/A
2 Yr. T-Note	ZT	(¼)/32	3 points	384 ticks	7.5/32nds	N/A
2 Yr. T-Note Options	OZT	(½)/64	N/A	N/A	10/64ths	N/A
30-Day Fed Funds	ZQ	½ Basis Point	10 Points	20 ticks	10 points	N/A
30-Day Fed Funds Options	OZQ	¼ Basis Point	N/A	N/A	5 points	N/A
30 Yr. Interest Rate Swaps	QS	(½)/32	10/32nds	20 ticks	10/32nds	N/A
10 Yr. Interest Rate Swaps	SR	(½)/32	10/32nds	20 ticks	10/32nds	N/A
10 Yr. Interest Rate Swaps Options	OSR	1/64	N/A	N/A	20/64ths	N/A
5 Yr. Interest Rate Swaps	SA	(½)/32	10/32nds	20 ticks	10/32nds	N/A
5 Yr. Interest Rate Swaps Options	OSA	1/64	N/A	N/A	20/64ths	N/A
CDR Liquid 50TM North America Investment Grade Index	CX	0.01 Points	1 Point	100 ticks	1 Point	N/A
Binary Options on the Target Fed Funds Rate	BUSC-Calls, BUSP-Puts	1 Basis Point	N/A	N/A	N/A	N/A
Dow AIGER Commodity Index	ER	0.1 Points	4 Points	40 ticks	4 points	N/A
BIG Dow ($25)	DD	1 Point	250 Points	250 Points	40 points	10%, 20% and 30% Circuit Breakers
DJIA ($10)	ZD	1 Point	250 Points	250 Points	40 points	10%, 20% and 30% Circuit Breakers
DJIA Options	OZD	½ Point	N/A	N/A	20 points	10%, 20% and 30% Circuit Breakers
mini-sized Dow ($5)	YM	1 Point	250 Points	250 Points	40 points	10%, 20% and 30% Circuit Breakers
mini-sized Dow Options	OYM	1 Point	N/A	N/A	40 points	10%, 20% and 30% Circuit Breakers
Dow US Real Estate Index	RE	0.1 Points	4 Points	40 ticks	4 points	10%, 20% and 30% Circuit Breakers
100 oz. Gold Options	OZG	10 cents	N/A	N/A	$2.00	N/A
5,000 oz. Silver Options	OZI	1/10 cent	N/A	N/A	4 cents	N/A
mini-sized Eurodollar	YE	½ Basis Point	5 Points	10 ticks	5 points	N/A

 

Product	Symbol	Minimum Tick Increment	“No Adjust Range”	Tick Increment of “No Adjust Range”	Price Adjustment Level	Dynamic Price Limits (Overnight and 830AM-9:45AM)	Dynamic Price Limits (Post 9:45AM)	Dynamic Price Limits (spreads)	Daily Price Limit
100 oz. Gold	ZG	10 cents	$4.00	40 ticks	Reference price plus/minus 40 ticks	$4.00	N/A	$4.00	N/A
mini-sized Gold	YG	10 cents	$4.00	40 ticks	Reference price plus/minus 40 ticks	$4.00	N/A	$4.00	N/A
5,000 oz. Silver	ZI	1/10 cent	8 cents	80 ticks	Reference price plus/minus 80 ticks	8 cents	N/A	8 cents	N/A
mini-sized Silver	YI	1/10 cent	8 cents	80 ticks	Reference price plus/minus 80 ticks	8 cents	N/A	8 cents	N/A
Ethanol	ZE	1/10 cent	8 cents	80 ticks	Reference price plus/minus 40 ticks	16 cents	12 cents	6 cents	30 cents
Corn	ZC	¼ cent	10 cents	40 ticks	Reference price plus/minus 20 ticks	10 cents	5 cents	2 ½ cents	20 cents
Corn Options	OZC	1/8 cent	N/A	N/A	1 tick below bid/1 tick above offer	2½ cents	2 ½ cents	2 ½ cents	20 cents
mini-sized Corn*	XC	1/8 cent	10 cents	80 ticks	Reference price plus/minus 80 ticks	10 cents	N/A	2 ½ cents	20 cents
Wheat	ZW	¼ cent	10 cents	40 ticks	Reference price plus/minus 20 ticks	10 cents	5 cents	2 ½ cents	30 cents
Wheat Options	OZW	1/8 cent	N/A	N/A	1 tick below bid/1 tick above offer	2½ cents	2 ½ cents	2 ½ cents	30 cents
mini-sized Wheat*	XW	1/8 cent	10 cents	80 ticks	Reference price plus/minus 80 ticks	10 cents	N/A	2 ½ cents	30 cents
Oat	ZO	¼ cent	10 cents	40 ticks	Reference price plus/minus 40 ticks	10 cents	10 cents	10 cents	20 cents
Oat Options	OZO	1/8 cent	N/A	N/A	1 tick below bid/1 tick above offer	2½ cents	2 ½ cents	2 ½ cents	20 cents
Rough Rice	ZR	½ cent	20 cents	40 ticks	Reference price plus/minus 40 ticks	20 cents	20 cents	20 cents	50 cents
Rough Rice Options	OZR	¼ cent	N/A	N/A	1 tick below bid/1 tick above offer	5 cents	5 cents	5 cents	50 cents
South American Soybeans	ZK	¼ cent	20 cents	80 ticks	Reference price plus/minus 40 ticks	20 cents	10 cents	5 cents	50 cents
Soybeans	ZS	¼ cent	10 cents	40 ticks	Reference price plus/minus 20 ticks	20 cents	10 cents	5 cents	50 cents
Soybean Options	OZS	1/8 cent	N/A	N/A	1 tick below bid/1 tick above offer	5 cents	5 cents	5 cents	50 cents
mini-sized Soybeans*	XB	1/8 cent	10 cents	80 ticks	Reference price plus/minus 80 ticks	10 cents	N/A	5 cents	50 cents
Soybean Meal	ZM	10 cents	$8.00	80 ticks	Reference price plus/minus 40 ticks	$8.00	$4.00	$2.00	$20
Soybean Meal Options	OZM	5 cents	N/A	N/A	1 tick below bid/1 tick above offer	$2.00	$2.00	$2.00	$20
Soybean Oil	ZL	1/100 cents	.80 cents	80 ticks	Reference price plus/minus 40 ticks	.80 cents	.40 cents	.20 cents	2 cents
Soybean Oil Options	OZL	5/1000 cents	N/A	.N/A	1 tick below bid/1 tick above offer	.20 cents	.20 cents	.20 cents	2 cents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Operations reserves the right to modify the dynamic price limits during periods of high
volatility.  Market Operations will send a system message whenever dynamic price limits are modified.

*mini-sized Corn, Wheat, and Soybeans begin trading May 14, 2007.