January 21, 2005
Volume 33, Number 3
Exchange
Bulletin
The Constitution and Rules of the Chicago Options Exchange, Incorporated (“Exchange”), in certain specific instances, require
the Exchange to provide notice to the Exchange membership. To satisfy this requirement, a complimentary copy of the Exchange Bulletin, including the Regulatory Bulletin, is delivered to all effective members on a weekly basis.
CBOE members are encouraged to receive the Exchange and Regulatory Bulletin and Information Circulars via e-mail. E-mail
subscriptions may be obtained by submitting your name, firm, mailing address, e-mail address, and phone number, to
members@cboe.com, or, by contacting the Membership Department by phone, at 312-786-7449. There is no charge for e-mail
delivery of the Exchange and Regulatory Bulletin or for Information Circulars. If you do sign up for e-mail delivery, please
remember to inform the Membership Department of e-mail address changes.
Additional subscriptions for hard copy delivery may be obtained by submitting your name, firm, mailing address, e-mail address and telephone number to: Chicago Board Options Exchange, Accounting Department, 400 South LaSalle, Chicago, Illinois 60605, Attention: Bulletin Subscriptions. The cost of an annual subscription (July 1 through June 30) is $200.00 ($100.00
after January 1), payable in advance. The Exchange reserves the right to limit subscriptions by non-members.
For up-to-date Seat Market Quotes, refer to CBOE.com and click “Seat Market Information” under the “About CBOE” tab. For
access to the CBOE Member Web Site, please also notify the Membership Department using the contact information above.
Copyright © 2004 Chicago Board Options Exchange, Incorporated
SEAT MARKET QUOTES AS OF FRIDAY, JANUARY 21, 2005
CLASS
CBOE/FULL
CBOT/FULL
BID
$284,200.00
$1,100,000.00
OFFER
$300,000.00
$1,300,000.00
LAST SALE AMOUNT
$300,000.00
$1,250,000.00
LAST SALE DATE
January 11, 2005
January 10, 2005
Page 2
January 21, 2005
Volume 33, Number 3
Chicago Board Options Exchange
MEMBERSHIP INFORMATION FOR 1/13/05 THROUGH 1/19/05
MEMBERSHIPAPPLICATIONS RECEIVED FOR
WHICH A POSTING PERIOD IS REQUIRED
Individual Membership Applicants
Date Posted
Sestino Milito, Nominee
Everest Trading, LLC
1800 N. Fremont, #8
Chicago, IL 60614
1/13/05
Member Organization Applicants
Date Posted
Goliath Group, LLC, Lessor
1/13/05
411 S. Wells, Penthouse
Chicago, IL 60607
Mercury Truse II - Sole Member
Peter Najarian - Trustee of Mercury Trust
Peter Najarian - President/Treasurer
Mary Gallagher - Vice President/Secretary
Casey Trading LLC
1/19/05
Craig R. Luce, Nominee
11447 75th St.
Burr Ridge, IL 60527
Craig R. Luce Trust - Managing Member
Craig R. Luce – Trustee
KATL Group, LLC
Matthew Andrews, Nominee
440 S. LaSalle, Suite 1600
Chicago, IL 60605
Edward T. Tilly - Managing Member
Craig R. Luce - Managing Member
1/19/05
Termination Date
Dann C. Hansen (DXH)
TD Options, LLC
230 S. LaSalle St., Ste. 688
Chicago, IL 60604
1/18/05
James L. Waichulis (WAI)
TK Trading, LLC
2316 N. Clark Street, #2
Chicago, IL 60614
1/18/05
Gabriel M. Zelwin (GMZ)
Grace Trading LLC
440 S. LaSalle - Ste. 3100
Chicago, IL 60605
1/18/05
Joshua G. Ortego (ABC)
Susquehanna Investment Group
175 W. Jackson Blvd., Ste. 1700
Chicago, IL 60604
1/19/05
Member Organizations
Lessor(s):
Termination Date
Nassau Corporation
40 E. 84th Street, Apt. 9B
New York, NY 10028
1/13/05
EFFECTIVE MEMBERSHIPS
Individual Members
Nominee(s) / Inactive Nominee(s):
MEMBERSHIP LEASES
New Leases
Effective Date
Lessor: Richard P. Schneider
Lessee: Refco Securities LLC
Michael P. Marchese, NOMINEE
Rate:
0.875%
Term: Monthly
1/13/05
Lessor: Paul Kepes
Lessee: CTC LLC
Daniel Abramson, NOMINEE
Rate:
0.892%
Term: Monthly
1/18/05
Effective Date
Alec D. Pashkow (KAO)
1/13/05
Equitec-Feldman DPM Group, LLC
111 W. Jackson Boulevard, 20th Floor
Chicago, IL 60604
Type of Business to be Conducted: Market Maker/ Floor Broker
Brian J. Saldeen (BDS)
1/13/05
Susquehanna Investment Group
175 W. Jackson - Ste. 1700
Chicago, IL 60604
Type of Business to be Conducted: Market Maker/ Floor Broker
Michael P. Marchese (KZE)
1/13/05
Refco Securities LLC
550 W. Jackson
Chicago, IL 60661
Type of Business to be Conducted: Market Maker/ Floor Broker
MEMBERSHIP TERMINATIONS
Individual Members
CBT Registered For:
Termination Date
Tom Schoenbeck (ISU)
Citadel Derivatives Group LLC
131 S. Dearborn Street, 37th Floor
Chicago, IL 60603
1/18/05
Nominee(s) / Inactive Nominee(s):
Termination Date
Andrew F. Wolff (WLF)
Equitec-Feldman DPM Group, LLC
111 W. Jackson Blvd., 20th Flr.
Chicago, IL 60604
1/13/05
Kraig D. Koester (KUS)
TK Trading, LLC
440 S. LaSalle, 19th Floor
Chicago, IL 60605
1/14/05
Keith F. Ellett (ELT)
Grace Trading LLC
440 S. LaSalle, #3100
Chicago, IL 60605
1/14/05
Gabriel M. Zelwin (GMZ)
1/14/05
Grace Trading LLC
440 S. LaSalle - Ste. 3100
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
James L. Waichulis (WAI)
1/14/05
TK Trading, LLC
2316 N. Clark Street, #2
Chicago, IL 60614
Type of Business to be Conducted: Market Maker
Keith F. Ellett (ELT)
1/18/05
Grace Trading LLC
440 S. LaSalle, #3100
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Page 3
January 21, 2005
Volume 33, Number 3
Chicago Board Options Exchange
Terminated Participants Acronym
Termination Date
Kraig D. Koester (KUS)
1/18/05
TK Trading, LLC
440 S. LaSalle, 19th Floor
Chicago, IL 60605
Type of Business to be Conducted: Market Maker
Joshua G. Ortego
QSM
1/19/05
Joshua G. Ortego
QEX
1/19/05
Joshua G. Ortego
QIG
1/19/05
JOINT ACCOUNTS
Joshua G. Ortego
QIS
1/19/05
Effective Date
New Participants
Acronym
Effective Date
Joshua G. Ortego
QMP
1/19/05
Alec D. Pashkow
QJS
1/13/05
Joshua G. Ortego
QPN
1/19/05
Martin M. Israel
QZZ
1/14/05
Joshua G. Ortego
QYS
1/19/05
Gabriel M. Zelwin
QDW
1/14/05
Joshua G. Ortego
QZT
1/19/05
James L. Waichulis
QUS
1/14/05
Joshua G. Ortego
QEW
1/19/05
Keith F. Ellett
QDW
1/18/05
Joshua G. Ortego
QJY
1/19/05
Stacey Albrecht
QCT
1/18/05
Joshua G. Ortego
QMD
1/19/05
Terrence J. Andrews
QGT
1/18/05
Joshua G. Ortego
QNA
1/19/05
Max W. Sung
QZT
1/19/05
Joshua G. Ortego
QNY
1/19/05
New Accounts
Acronym
Effective Date
Joshua G. Ortego
QPO
1/19/05
Nicole R. Sanders
QCA
1/13/05
Joshua G. Ortego
QUT
1/19/05
Jonathan M. Costello
QCA
1/13/05
Joshua G. Ortego
QVA
1/19/05
David C. Adent
QCA
1/13/05
Joshua G. Ortego
QYH
1/19/05
Jayme A. Demes
QCA
1/13/05
Terminated Accounts
Acronym
Termination Date
Gavin M. Lowrey
QCA
1/13/05
James L. Waichulis
QUS
1/18/05
Jonathan S. Okman
QCA
1/13/05
CHANGES IN MEMBERSHIP STATUS
David Piotrowski
QCA
1/13/05
Individual Members
Vishal Savla
QCA
1/13/05
Neel Shah
QCA
1/13/05
John E. Smollen Jr.
QCA
1/13/05
Paul Kepes
1/13/05
From:
Nominee For CTC LLC; Market Maker/ Floor Broker
To:
Lessor/Nominee For CTC LLC; Market Maker/ Floor
Broker
Michael J. Smollen
QCA
1/13/05
Timothy M. Sommerfield
QCA
1/13/05
John H. Waterfield III
QCA
1/13/05
Terminated Participants Acronym
Termination Date
Andrew F. Wolff
QTZ
1/13/05
Andrew F. Wolff
QJS
1/13/05
Andrew F. Wolff
QTE
1/13/05
Keith F. Ellett
QDW
1/14/05
Kraig D. Koester
QUS
1/14/05
Gabriel M. Zelwin
QDW
1/18/05
Joshua G. Ortego
QFS
1/19/05
Joshua G. Ortego
QLO
1/19/05
Joshua G. Ortego
QPX
1/19/05
Effective Date
Martin M. Israel
1/14/05
From:
CBT Exerciser; Market Maker
To:
CBT Registered For DRO WST Trading LLC; Market
Maker
David G. MacKimm
1/18/05
From:
CBT Exerciser; Market Maker
To:
CBT Registered For Citadel Derivatives Group LLC;
Market Maker
MEMBER ADDRESS CHANGES
Individual Members
Effective Date
Peter W. Klebe
4 N 769 Westwood Ct.
St Charles, IL 60175
1/14/05
Peter Najarian
411 S. Wells, Penthouse
Chicago, IL 60607
1/18/05
Benjamin R. Scott
440 S. LaSalle, 9th Floor
Chicago, IL 60605
1/18/05
Page 4
January 21, 2005
Volume 33, Number 3
Member Organizations
Effective Date
Refco Securities LLC
200 Liberty Street, 1 World Fin. Ctr.
New York, NY 10281
1/14/05
Mercury Trading, Inc.
411 S. Wells, Penthouse
Chicago, IL 60607
1/18/05
Gloria And David Company
830 Eastwood Lane
Glenview, IL 60025
1/18/05
Chicago Board Options Exchange
Effective Date
MEB Options, Inc.
14444 Oak Trail
Homer Glen, IL 60491
1/19/05
MEMBER NAME CHANGES
Member Organizations
From:
To:
Effective Date
Spear, Leeds & Kellogg
1/14/05
Goldman Sachs Execution & Clearing, LP
RESEARCH CIRCULARS
The following Research Circulars were distributed between January 13 and January 18, 2005. If you wish to read the entire document, please
refer to the CBOE website at www.cboe.com and click on the “Trading Tools” Tab. New listings and series information is also available in the
Trading Tools section of the website. For questions regarding information discussed in a Research Circular, please call The Options Clearing
Corporation at 1-888-OPTIONS.
Research Circular #RS05-036
January 13, 2005
Ultimate Electronics, Inc. (ULTEE/QTQ)
Underlying Symbol Change to “ULTEQ”
Effective Date: January 14, 2005
Research Circular #RS05-037
January 14, 2005
Cendant Corporation (“CD/WLD/VUC”)
Distribution of Shares of
PHH Corporation (“PHH”)
Ex-Distribution Date: February 1, 2005
Research Circular #RS05-038
January 14, 2005
Goldcorp Inc. (“GG”)
Exchange Offer by Glamis Gold Ltd. (“GLG”)
Research Circular #RS05-039
January 14, 2005
Fox Entertainment Group, Inc. (“FOX”)
Exchange Offer by News Corporation
Research Circular #RS05-040
January 14, 2005
Ivanhoe Mines Ltd. (“HUGO/QZH”)
Stock and Option Symbol Change to “IVN”
Effective Date: January 18, 2005
Research Circular #RS05-042
January 18, 2005
FLIR Systems, Inc. (“FLIR/FFQ/YYZ/OIZ”)
2-for-1 Stock Split
Ex-Distribution Date: February 3, 2005
January 26, 2005
Volume RB16, Number 4
Regulatory
Bulletin
The Constitution and Rules of the Chicago Board Options Exchange, Incorporated
(“Exchange”), in certain specific instances, require the Exchange to provide notice to the membership. The weekly Regulatory Bulletin is delivered to all effective members to satisfy this
requirement.
Copyright © 2004 Chicago Board Options Exchange, Incorporated
Regulatory
Circulars
Regulatory Circular RG05-08
To:
CBOE Members, Member Firms and Member Organizations
From: Equity Option Procedures Committee
Options on Spiders Procedures Committee
Date:
January 13, 2005
Re:
In-Crowd Market-Makers May Auto-ex Once per 15-Seconds
Effective immediately in all equity option Hybrid classes and in the Spiders ETF option
class, in-crowd Market-Makers (“ICMs”) may submit orders for automatic execution in their
appointed classes, even while present in the crowd. Previously, ICMs were limited to
receiving executions on book trades via the N-Second Group process (QUOTE TRIGGER),
and were also subject to a 1-second QUOTE LOCK when trading with other Hybrid participants. Now, ICMs have two methods by which they may submit orders to buy an offer or
sell a bid: they may submit an order for automatic execution, or they may continue to submit
I-orders or quotes to trade via QUOTE TRIGGER and/or QUOTE LOCK. Orders submitted
for automatic execution are subject to the restriction in Rule 6.13(c) limiting all ICMs to one
automatic execution on the same side of the market per 15 seconds.
Orders submitted for automatic execution must contain an origin of “M” (Market-Maker). M
orders to buy the offer or sell the bid will immediately auto-ex (with no delay from the Hybrid
QUOTE TRIGGER or QUOTE LOCK), as long as CBOE is on the NBBO. If CBOE is not on
the NBBO, the order will route to the booth (BART). Members using third-party software that
has the ability to send M orders already have what they need to participate. Those using a
vendor that does not offer this feature should contact their vendor to discuss the functionality.
Vendors interested in testing this functionality with CBOE should contact Doug Hoffman at
(312) 786-7699. General questions regarding this matter may be directed to Anthony
Montesano at (312) 786-7365 or Greg Burkhardt at (312) 786-7531.
Regulatory Circulars
continued
Regulatory Circular RG05-09
To:
Members and Member Organizations
From: Legal Division
Date:
January 13, 2005
Re:
Amendment to CBOE Rule 6.74(d) – Equity Option Crossing Rule
The Securities and Exchange Commission recently approved an amendment to Exchange
Rule 6.74(d) relating to crossing orders in equity options. Under the approved rule change,
a Floor Broker holding an equity option order (of 50 contracts or greater) will now be
entitled to cross 40% of the order (after a request for bids/offers from the trading
crowd and after public customer orders have been satisfied) at or between the best
bid/offer given by the crowd in response to the Floor Broker’s initial request for a
market. Previously, the rule allowed for 20% if the order was traded at the crowd’s best bid/
offer and 40% in between the crowd’s best bid and offer. The Index option crossing provisions of Rule 6.74 have not been modified.
Questions regarding this Regulatory Circular may be directed to Steve Youhn, Legal Division, at (312) 786-7416 or Craig Johnson, Trading Floor Liaison, at (312) 786-7939.
Regulatory Circular RG05-10
Date:
January 13, 2005
To:
Members and Member Firms
From: Market Operations Department
Re:
Restrictions on Transactions in Certain
Fannie Mae (FNM) Options
Trading in a specific series of Fannie Mae (FNM) has been restricted. The FNM February
50, 55, 60, 65, 70, 75 & 80 option series has been restricted to closing orders only.
Accordingly, only closing transactions may be effected in the FNM February 50, 55, 60,
65, 70, 75 & 80 option series except for (i) opening transactions by Market-Makers executed to accommodate closing transactions of other market participants and (ii) opening
transactions by CBOE member organizations to facilitate the closing transactions of public customers executed as crosses pursuant to and in accordance with CBOE Rule 6.74(b)
or (d). The FNM February 50, 55, 60, 65, 70, 75 & 80 option series is not eligible for
automatic execution in the CBOE Hybrid Trading System under Rule 6.13. Other FNM
option series or FNM option symbols different than those listed above are not subject to
these restrictions.
The execution of opening transactions in the FNM February 50, 55, 60, 65, 70, 75 & 80
option series, except as permitted above, and/or the misrepresentation as to whether an
order is opening or closing, will constitute a violation of CBOE rules, and may result in
disciplinary action.
The Options Clearing Corporation (OCC) has confirmed to CBOE that the expiration of the
FNM February 50, 55, 60, 65, 70, 75 & 80 option series will remain subject to OCC’s
Exercise-by-Exception Procedures.
Any questions regarding this circular may be directed to Kerry Winters at (312) 786-7312 or
James Flynn at (312) 786-7070.
RB2
January 26, 2005, Volume RB16, Number 4
Regulatory Circulars
continued
Regulatory Circular RG05-11
Date:
January 20, 2005
To:
All Exchange Members
From: Regulatory Services Division
Re:
Index Option Classes Eligible for NASD Short Sale Rule Option Market-Maker
Exemption
The purpose of this circular is to inform Market-Makers of the current listing of certain index
option classes whose components may be eligible for the limited exemption from the NASD
Short Sale Rule, pursuant to Exchange Rule 15.10. It is recognized that the exemption is
necessary and appropriate for the hedging of certain index options, which have a significant
proportion of the underlying value comprised by NASDAQ stocks. Therefore, for index options for which at least 10% of the market capitalization of the underlying index is comprised
of NASDAQ stocks, the hedge exemption is available for the NASDAQ stocks in that index,
subject to certain restrictions. For a complete description, see Regulatory Circular RG9540, Options Market-Maker Limited Exemption from NASD Short Sale Rule.
The list of index option classes, which are eligible for the exemption will generally be reviewed on a quarterly basis and published from time to time in the Regulatory Bulletin. Once
eligible, a class will become ineligible if at a quarterly review the market capitalization has
fallen below 8%. As of this date the index option classes that qualify include the following:
Stock Symbol
CX
DTX
ECM
GHA
GIN
GIP
GTC
GSM
GSO
GSV
INX
MML
MNX
MVB
MVR
NDX
NFT
OEX
RUJ
RUO
RUT
SML
SPL
SPX
TXX
XEO
Index
CBOE China Index Options
Dow Jones Transportation Average
Dow Jones Internet Commerce Index
GSTITM Hardware Index Options
GSTITM Internet Index Options
GSTITM Multimedia Networking Index Options
GSTITM Composite Index Options
GSTITM Semiconductor Index Options
GSTITM Software Index Options
GSTITM Services Index Options
CBOE Internet Index Options
CBOE Mini – NDX Long-Dated Options
MNXSM - CBOE Mini-NDX Index Options
Morgan Stanley Biotech Index Options
Morgan Stanley Retail Index Options
Nasdaq-100® Index Options
Morgan Stanley Multinational Company Index
S & P 100® Index Options - American
Russell 2000® Value Index
Russell 2000® Growth Index
Russell 2000® Index
S & P® SmallCap 600 Index Options
S & P Long-Dated Options
S & P 500® Index Options
CBOE Technology Index
European–style S & P 100® Index Options
Any questions in connection with this circular should be directed to Joanne Heenan at (312)
786-7786, Department of Market Regulation.
Replaces Regulatory Circular RG04-103
January 26, 2005, Volume RB16, Number 4
RB3
Rule Changes,
Interpretations
and Policies
APPROVED RULE CHANGES
The Securities and Exchange Commission (“SEC”) has approved the following change(s)
to Exchange Rules pursuant to Section 19(b) of the Securities Exchange Act of 1934, as
amended (“the Act”). Copies are available from the Legal Division.
The effective date of the rule change is the date of approval unless otherwise noted.
SR-CBOE-2004-88
Amended Fee Schedule
On January 5, 2005, the SEC approved Rule Change File No. SR-CBOE-2004-88, which
filing amends the CBOE Fee Schedule to make permanent the Customer Large Trade
Discount Program, and to lower the contract volume fee cap for Dow Jones index options.
Any questions regarding the rule change may be directed to Jaime Galvan, Legal Division,
at 312-786-7058. The text of the amended Fee Schedule is available from the Legal
Division, or can be accessed online at www.cboe.com, under the “About CBOE” link.
SR-CBOE-2004-81
Regulation SHO
On December 22, 2004, the SEC approved Rule Change File No. SR-CBOE-2004-81,
which filing amends CBOE Rule 30.20 to conform to the requirements of Regulation SHO.
(Securities Exchange Act Release No. 50920, 69 FR 78068 (December 29, 2004)). Any
questions regarding the rule change may be directed to Steve Youhn, Legal Division, at
312-786-7416. The text of the amended rules is set forth below. New language is italicized.
Rule 30.20
“Long” and “Short” Sales
(a) No member or member organization shall accept, represent or execute for his
or its own account or the account of any other person an order to sell a security
subject to the rules in this Chapter unless such order is marked “long,” “short,” or
“short exempt” in accordance with Exchange Act Rule 242.200(g).
(b) No member or member organization shall for his or its own account or the
account of any other person effect on the Exchange any short sale of a security
that is subject to the rules in this Chapter unless such sale is (1) at a price higher
than the price at which the last sale thereof, regular way, was effected on the
Exchange, or (2) at such latest price and such price is above the last different
price at which a sale in the unit of trading of such security, regular way, was
effected on the Exchange; provided, however, that transactions exempted from
paragraphs (a) or (b) of Exchange Act Rule 10a-1 by paragraph (e) thereof, or by
action of the Securities and Exchange Commission pursuant to paragraph (f)
thereof, any order pursuant to Exchange Act Rule 242.202T or otherwise, are also
exempted from the requirements of this paragraph (b).
(c) No member or member organization shall accept, represent or execute for his
or its own account or the account of any other person an order to sell a security
subject to the rules in this Chapter unless such member or member organization
complies with Exchange Act Rule 242.203.
... Interpretations and Policies:
.01 Pursuant to the equalization exemption of paragraph (e)(5) of Exchange Act
Rule 10a-1, a Market-Maker is permitted to sell short for his own account on the
Exchange any security for which he has an appointment at a price equal to the
last regular way sale reported by the consolidated last sale reporting system.
RB4
January 26, 2005, Volume RB16, Number 4
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2004-81 continued
The Exchange may disseminate an offer by a Market-Maker to sell at a price equal
to the last regular way sale reported by the consolidated last sale reporting system,
and a short sale may be effected by the Market-Maker responsible for such offering
without further regard to prices reported by such system.
The Exchange may, by rule, prohibit Market-Makers from availing themselves of
this exemption if it is determined that such action is necessary or appropriate in the
public interest or for the protection of investors.
.02 The terms “long,” “short,” “short exempt,” and “short sale” shall have the same
meaning as in Exchange Act Rule 242.200.
.03 Reserved
.04 Under Exchange Act Rule 242.203(a)(1), no member that knows or has reasonable grounds to believe that the sale of a security subject to the rules in this Chapter was or will be effected pursuant to an order marked “long” shall lend or arrange
for the loan of any security for delivery to the purchaser’s broker after the sale, or
fail to deliver a security on the date delivery is due. Exchange Act Rule 242.203(a)(2)
contains exceptions from this requirement, including an exception in subsection
(a)(2)(ii) for the situation in which the member knows, or has been reasonably informed by the seller, that the seller owns the security, and that the seller would
deliver the security to the member or dealer prior to the scheduled settlement of the
transaction, but the seller failed to do so. To demonstrate reasonableness under
Exchange Act Rule 242.203(a)(2)(ii), the member or person associated with a member
must keep documentation which includes the present location of the securities in
question, whether they are in good deliverable form and the customer’s ability to
deliver them to the member by the settlement date if the customer assures delivery.
Under Exchange Act Rule 242.203(b)(1), no member may accept a short sale order
in an equity security from another person, or effect a short sale in an equity security
for its own account, unless the member: (i) has borrowed the security or entered
into a bona-fide arrangement to borrow the security and has documented compliance; or (ii) has reasonable grounds to believe that the security can be borrowed so
that it can be delivered on the date delivery is due and has documented compliance. Exchange Act Rule 242.203(b)(2) contains exceptions from this requirement, including an exception from its provisions in subsection (b)(2)(iii) for short
sales by Market-Makers so long as such short sales are in connection with bonafide market making activities. In the event that a short sale occurs pursuant to this
Interpretation .04, the burden is on the Market-Maker to show that such sale was in
furtherance of his bona-fide market making activities.
To ensure compliance under Exchange Act Rule 242.203(b)(1), the member or
person associated with a member must provide documentation which includes: (1)
if a customer assures delivery, the present location of the securities in question,
whether they are in good deliverable form and the customer’s ability to deliver them
to the member by the settlement date; or (2) if the member or the person associated
with a member locates the stock, the identity of the individual and firm contacted
who offered assurance that the shares would be delivered or that were available for
borrowing by settlement date and the number of shares needed to cover the short
sale.
January 26, 2005, Volume RB16, Number 4
RB5
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2004-81 continued
The manner by which a member or person associated with a member annotates
compliance with the record-keeping requirements in this Interpretation (e.g., marking an order ticket, recording inquiries in a log, etc.) shall be determined by each
member. Members may rely on an “easy to borrow” list that securities will be
available for borrowing on settlement date to satisfy their requirements in Exchange Act Rule 242.203(b)(1)(ii) under this Interpretation, provided: (1) the information used to generate the “easy to borrow” list is not more than 24-hours old;
and (2) the member delivers the security on settlement date. Should a member
relying on an “easy to borrow” list fail to deliver the security on settlement date, the
Exchange shall deem such conduct inconsistent with the terms of this Interpretation, absent mitigating circumstances adequately documented by the member.
.05 Exchange Act Rule 242.203(b)(3) restricts the ability of a member, including a
Market-Maker, to accept or effect short sales for its account or the account of a
customer in certain “threshold securities.” “Threshold securities” generally are
defined as equity securities registered or subject to reporting requirements under
the Exchange Act: (1) for which there is an aggregate fail to deliver position for five
consecutive settlement days at a registered clearing agency of 10,000 shares or
more, and that is equal to at least 0.5% of the issue’s total shares outstanding;
and (2) are included on a list disseminated to its members by a self-regulatory
organization.
Exchange Act Rule 242.203(b)(3) prohibits a member, including a Market-Maker
covered by the bona-fide market making exemption in Exchange Act Rule
242.203(b)(2)(iii), from accepting or effecting short sales in a threshold security
that has a fail to deliver position with a registered clearing agency for thirteen
consecutive settlement days. However, a member of a registered clearing agency
that has the ability to trace a short sale in a threshold security for which there is a
failure to deliver to a particular account, and to age that failure to deliver, may limit
the application of this restriction to the account with the failure to deliver. This
prohibition would not apply if: (1) the member borrows the security or enters into a
bona-fide arrangement to borrow the security; or (2) the requirements in the rule
with respect to closing out these fail to deliver positions are met. The rule also has
a limited exemption in subsection (b)(3)(ii) for registered options Market-Makers.
Members are expected to monitor which threshold securities have a fail to deliver
position with the member’s clearing firm for thirteen consecutive settlement days.
Registered clearing agency members must close out a fail to deliver position that
remains for thirteen consecutive settlement days by purchasing securities of like
kind and quantity. If a Market-Maker is able to borrow or enter into a bona-fide
arrangement to borrow these securities, the Market-Maker must keep a written
record which includes the identity of the individual and firm contacted who offered
assurance that the shares would be delivered or that were available for borrowing
and the number of shares needed to cover the short sale.
.06 Even if a security is excepted from any short sale price test under any Pilot
program (or any order issued pursuant to Exchange Act Rule 242.202T), members or member organizations must still comply with the marking and locate requirements in Exchange Act Rules 242.200 and 203.
RB6
January 26, 2005, Volume RB16, Number 4
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-01
In-Crowd Market-Maker Automatic Execution
On January 10, 2005, the SEC approved Rule Change File No. SR-CBOE-2005-01, which
filing allows in-crowd Market-Makers to submit orders for automatic execution (Securities
Exchange Act Release No. 51003, 70 FR 2682 (January 14, 2005)). Any questions regarding the rule change may be directed to Steve Youhn, Legal Division, at 312-786-7416. The
text of the amended rules is set forth below. New language is italicized.
Rule 6.13
CBOE Hybrid System’s Automatic Execution Feature
(a)
No change
(b)
Automatic Execution
(i) Eligibility: Orders eligible for automatic execution through the CBOE Hybrid
System may be automatically executed in accordance with the provisions of this
Rule. This section governs automatic executions and split-price automatic executions. The automatic execution and allocation of orders or quotes submitted by
market participants also is governed by Rules 6.45A(c) and (d).
(A) – (C)
No change
(ii) – (iv)
No change
(c) – (e)
No change
*******
Rule 6.45A
Priority and Allocation of Trades for CBOE Hybrid System
(a) –(b) No change
(c) Interaction of Market Participant’s Quotes and/or Orders with Orders in
Electronic Book
Market participants, as defined in Rule 6.45A, may submit quotes or orders electronically to trade with orders in the electronic book in accordance with the requirements of either Rule 6.13 or this paragraph.
With respect to orders or quotes submitted pursuant to this paragraph, a floor broker market participant may only represent as agent customer orders. When a market participant’s quote or order interacts with the order in the book, a trade occurs,
CBOE will disseminate a last sale report, and the size of the book order will be
decremented to reflect the execution. Allocation of the book order shall be as
follows:
(i) – (iii)
No change
(d) –(e)
No change
Interpretations and Policies….
No change
January 26, 2005, Volume RB16, Number 4
RB7
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2004-41
Linkage Plan
On October 19, 2004, the SEC approved Rule Change File No. SR-CBOE-2004-41, which
filing amends Exchange rules to conform to Linkage Plan Amdt. No. 13 (Securities Exchange Act Release No. 50562, 69 FR 62925 (October 28, 2004)). Any questions regarding the rule change may be directed to Angelo Evangelou, Legal Division, at 312-786-7464.
The text of the amended rules is set forth below. New language is italicized.
Rule 6.80 Definitions
(1)-(8)
No change
(9) “Firm Customer Quote Size” with respect to a P/A Order means the lesser of
(a) the number of option contracts that the Participant Exchange sending a P/A
Order guarantees it will automatically execute at its disseminated quotation in a
series of an Eligible Option Class for Customer orders entered directly for execution in that market; or (b) the number of option contracts that the Participant
Exchange receiving a P/A Order guarantees it will automatically execute at its
disseminated quotation in a series of an Eligible Option Class for Customer orders
entered directly for execution in that market. The Firm Customer Quote Size will
be at least 10 contracts for each series of an Eligible Option Class unless the
receiving Participant Exchange is disseminating a quotation of less than 10 contracts, in which case this number may equal such quotation size.
(10) “Firm Principal Quote Size” means the number of option contracts that a
Participant Exchange guarantees it will execute at its disseminated quotation for
incoming Principal Orders in an Eligible Option Class. This number shall be no
fewer than 10, however if the Participant Exchange is disseminating a quotation
size of less than 10 contracts, this number may equal such quotation size.
(11)-(21) No change
SR-CBOE-2004-90
Delay of Implementation of SR-CBOE-2004-64
On January 7, 2005, the SEC approved Rule Change File No. SR-CBOE-2004-90, which
filing delays the implementation of recently approved CBOE Rule filing 2004-64 until the
end of January 2005. SR-CBOE-2004-64 eliminated the DPM participation entitlement in
“N-second” group trades, as set forth in CBOE Rule 6.45A(c)(iii) (Securities Exchange Act
Release No. 50994, 70 FR 2435 (January 13, 2005)). Any questions regarding the rule
change may be directed to Steve Youhn, Legal Division, at 312-786-7416.
SR-CBOE-2005-03
Temporary Allocations of Securities
On January 10, 2005, the SEC approved Rule Change File No. SR-CBOE-2005-03, which
filing adopts an interpretation to Rule 8.95 relating to temporary allocations of securities
(Securities Exchange Act Release No. 51007, 70 FR 2910 (January 18, 2005)). Any
questions regarding the rule change may be directed to Steve Youhn, Legal Division, at
312-786-7416. The text of the amended rules is set forth below. New language is italicized.
Rule 8.95
Allocation of Securities and Location of Trading Crowds and
DPMs
(a) – (g) No change
Interpretations and Policies . . .
.01- .04 No change
RB8
January 26, 2005, Volume RB16, Number 4
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-03 continued
.05 The Special Product Assignment or Allocation Committee may make temporary allocations of securities either to a DPM or a non-DPM trading crowd by explicitly indicating to such DPM or non-DPM trading crowd at the time of allocation that
the allocation is temporary. The Committee that made the temporary allocation at
any time during the first twelve months following the granting of the temporary
allocation may determine it is in the best interest of the Exchange to reallocate the
security such that: (i) a security initially allocated to a DPM is reallocated to a nonDPM trading crowd; or (ii) a security initially allocated to a non-DPM trading crowd
is reallocated to a DPM.
PROPOSED RULE CHANGES
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, as amended (“the
Act”), and Rule 19b-4 thereunder, the Exchange has filed the following proposed rule changes
with the Securities and Exchange Commission (“SEC”). Copies of the rule change filings
are available from the Legal Division. Members may submit written comments to the Legal
Division.
The effective date of a proposed rule change will be the date of approval by the SEC, unless
otherwise noted.
SR-CBOE-2005-06
Increased Position and Exercise Limits for SPDR Options
On January 10, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-06, which
filing proposes to amend Rule 4.11 to increase position and exercise limits for options on
SPDRs. Any questions regarding the proposed rule change may be directed to Jaime
Galvan, Legal Division, at 312-786-7058. The text of the proposed rule amendments is set
forth below. Proposed new language is underlined. Proposed deleted language is [stricken
out]. A copy of the filing is available from the Legal Division.
Rule 4.11 Position Limits
****
…Interpretations and Policies:
.01 - .06 No change
.07 The position limits under Rule 4.11 applicable to options on shares or other
securities that represent interests in registered investment companies (or series
thereof) organized as open-end management investment companies, unit investment trusts or similar entities that satisfy the criteria set forth in Interpretation and
Policy .06 under Rule 5.3 shall be the same as the position limits applicable to
equity options under Rule 4.11 and Interpretations and Policies thereunder. The
position limits under Rule 4.11 applicable to options on the Nasdaq-100 Index Tracking
StockSM (“QQQ”), the Standard and Poor’s Depositary Receipts Trust (SPDR), and
the DIAMONDS Trust (DIA) shall be 300,000 option contracts.
January 26, 2005, Volume RB16, Number 4
RB9
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-08
Generic Listing Standards for Narrow-Based Indexes
On January 14, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-08, which
filing proposes to include modified capitalization weighted indexes in CBOE’s generic listing standards for narrow-based indexes. Any questions regarding the proposed rule change
may be directed to Jim Flynn, Legal Division, at 312-786-7070. The text of the proposed
rule amendments is set forth below. Proposed new language is underlined. Proposed
deleted language is [stricken out]. A copy of the filing is available from the Legal Division.
Rule 24.1.
No change
Rule 24.2.
Designation of the Index
Rule 24.2.(a)
No change
(b) Notwithstanding paragraph (a) above, the Exchange may trade options on a
narrow-based index pursuant to Rule 19b-4(e) of the Securities Exchange Act of
1934, if each of the following conditions is satisfied:
(1)
(2)
No change
The index is capitalization-weighted, price-weighted,[ or] equal dollarweighted, or modified capitalization-weighted, and consists of ten or more
component securities:
(3) – (4)
No change
(5) In a capitalization-weighted index or a modified capitalization-weighted index,
the lesser of the five highest weighted component securities in the index or the
highest weighted component securities in the index that in the aggregate represent at least 30% of the total number of component securities in the index each
have had an average monthly trading volume of at least 2,000,000 shares over
the past six months:
(6) – (12)
No change
(c)
The following maintenance listing standards shall apply to each class of
index options originally listed pursuant to paragraph (b) above:
(1) – (3) No change
(4) In a capitalization-weighted index or a modified capitalization-weighted index,
the lesser of the five highest weighted component securities in the index or the
highest weighted component securities in the index that in the aggregate represent at least 30% of the total number of stocks in the index each have had an
average monthly trading volume of at least 1,000,000 shares over the past six
months. In the event a class of index options listed on the Exchange fails to
satisfy the maintenance listing standards set forth herein, the Exchange shall not
open for trading any additional series of options of that class unless such failure is
determined by the Exchange not to be significant and the Commission concurs in
that determination, or unless the continued listing of that class of index options
has been approved by the Commission under Section 19(b)(2) of the Exchange
Act.
(d) – (e) No change
Rule 24.3 – 24.21
RB10
No change
January 26, 2005, Volume RB16, Number 4
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-04
Systematizing Orders in the SPDR Option Class
On January 10, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-04, which
filing proposes to amend CBOE Rule 6.24 to provide that the requirement to systematize
orders in the SPDR option class will commence on March 28, 2005. Any questions regarding the proposed rule change may be directed to Pat Sexton, Legal Division, at 312-7867467. The text of the proposed rule amendments is set forth below. Proposed new language
is underlined. Proposed deleted language is [stricken out]. A copy of the filing is available
from the Legal Division.
Rule 6.24
(a)(1) – (2)
No change
(a)(3) Orders in Certain Index Option Classes and the Standard and Poor’s Depositary Receipts (“SPDR”) Option Class. The requirement to systematize orders
as set forth in this Rule shall commence on March 28, 2005, in the following option
classes: the S&P 500 index option class (SPX), the SPDR option class, the S&P
100 index option class (OEX), and the European-style S&P 100 index option class
(XEO).
(a)(4)
No change
(b) – (c) No change
. . . Interpretations and Policies:
.01 - .07 No change
SR-CBOE-2005-03
Temporary Allocations of Securities
On January 7, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-03, which
filing proposes to adopt an Interpretation to Rule 8.95 relating to temporary allocations of
securities. Any questions regarding the proposed rule change may be directed to Steve
Youhn, Legal Division, at 312-786-7416. The text of the proposed rule amendments is set
forth below. Proposed new language is underlined. Proposed deleted language is [stricken
out]. A copy of the filing is available from the Legal Division.
Rule 8.95
Allocation of Securities and Location of Trading Crowds and
DPMs
(a) – (g) No change
Interpretations and Policies . . .
.01- .04
No change
.05 The Special Product Assignment or Allocation Committee may make temporary allocations of securities either to a DPM or a non-DPM trading crowd by explicitly indicating to such DPM or non-DPM trading crowd at the time of allocation that
the allocation is temporary. The Committee that made the temporary allocation at
any time during the first twelve months following the granting of the temporary
allocation may determine it is in the best interest of the Exchange to reallocate the
security such that: (i) a security initially allocated to a DPM is reallocated to a nonDPM trading crowd; or (ii) a security initially allocated to a non-DPM trading crowd
is reallocated to a DPM.
January 26, 2005, Volume RB16, Number 4
RB11
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2005-05
Marketing Fee For SPDR Options
On January 10, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-05, which
filing proposes to amend its marketing fee to assess a fee on options on Standard & Poor’s
Depository Receipts (SPDRs) involving transactions of Market-Makers, DPMs and e-DPMs,
other than Market-Maker to Market-Maker transactions. The fee will be imposed at the rate
of $.22 per contract. Any questions regarding the proposed rule change may be directed to
Andy Spiwak, Legal Division, at 312-786-7483. The text of the amended Fee Schedule is
available from the Legal Division, or can be accessed online at www.cboe.com, under the
“About CBOE” link.
SR-CBOE-2005-07
Amended Fee Schedule - SPDR Options
On January 11, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-07, which
filing proposes to amend the CBOE Fee Schedule to establish fees for transactions in
options on SPDRs. Any questions regarding the proposed rule change may be directed to
Jaime Galvan, Legal Division, at 312-786-7058. The text of the amended Fee Schedule is
available from the Legal Division, or can be accessed online at www.cboe.com, under the
“About CBOE” link.
SR-CBOE-2005-09
Surplus Marketing Fee Refunds
On January 14, 2005, the Exchange filed Rule Change File No. SR-CBOE-2005-09, which
filing proposes to amend its marketing fee to provide for a monthly refund of any surplus.
Any questions regarding the proposed rule change may be directed to Andy Spiwak, Legal
Division, at 312-786-7483. The text of the amended Fee Schedule is available from the
Legal Division, or can be accessed online at www.cboe.com, under the “About CBOE” link.
SR-CBOE-2002-03
Margin Pilot Program
On January 14, 2002, the Exchange filed Rule Change File No. SR-CBOE-2002-03, which
filing proposes a pilot program to permit member organizations to margin broad-based
index options, index warrants and related ETFs for certain customer accounts according
to a portfolio margin methodology. Any questions regarding the proposed rule change may
be directed to Jaime Galvan, Legal Division, at 312-786-7058. The text of the proposed
rule amendments is set forth below. Proposed new language is underlined. Proposed
deleted language is [stricken out]. A copy of the filing is available from the Legal Division.
CHAPTER XII
Margins
[Covered Option Contracts]
Portfolio Margin and
Cross-Margin for Index Options
Rule 12.4. [Deleted January 15, 1975.] As an alternative to the transaction /
position specific margin requirements set forth in Rule 12.3 of this Chapter 12,
members may require margin for listed, broad-based U.S. index options, index
warrants and underlying instruments (as defined below) in accordance with the
portfolio margin requirements contained in this Rule 12.4.
RB12
January 26, 2005, Volume RB16, Number 4
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2002-03 continued
In addition, members, provided they are a Futures Commission Merchant (“FCM”)
and are either a clearing member of a futures clearing organization or have an
affiliate that is a clearing member of a futures clearing organization, are permitted
under this Rule 12.4 to combine a customer’s related instruments (as defined below) listed, broad-based U.S. index options, index warrants and underlying instruments and compute a margin requirement (“cross-margin”) on a portfolio margin
basis. Members must confine cross-margin positions to a portfolio margin account
dedicated exclusively to cross-margining.
Application of the portfolio margin and cross-margining provisions of this Rule 12.4
to IRA accounts is prohibited.
(a) Definitions.
(1) The term “listed option” shall mean any option traded on a registered national
securities exchange or automated facility of a registered national securities association.
(2) The term “unlisted option” means any option not included in the definition of
listed option.
(3) The term “options class” refers to all options contracts covering the same underlying instrument.
(4) The term “portfolio” means options of the same options class grouped with their
underlying instruments and related instruments.
(5) The term “option series” relates to listed options and means all option contracts
of the same type (either a call or a put) and exercise style, covering the same
underlying instrument with the same exercise price, expiration date, and number of
underlying units.
(6) The term “related instrument” within an option class or product group means
futures contracts and options on futures contracts covering the same underlying
instrument.
(7) The term “underlying instrument” means long and short positions in an exchange
traded fund or other fund product registered under the Investment Company Act of
1940 that holds the same securities, and in the same proportion, as contained in a
broad-based index on which options are listed. The term underlying instrument
shall not be deemed to include, futures contracts, options on futures contracts,
underlying stock baskets, or unlisted instruments.
(8) The term “product group” means two or more portfolios of the same type (see
subparagraph (a)(9) below) for which it has been determined by Rule 15c3-1a under
the Securities Exchange Act of 1934 that a percentage of offsetting profits may be
applied to losses at the same valuation point.
(9) The terms “theoretical gains and losses” means the gain and loss in the value of
individual option series and related instruments at 10 equidistant intervals (valuation points) ranging from an assumed movement (both up and down) in the current
market value of the underlying instrument. The magnitude of the valuation point
range shall be as follows:
January 26, 2005, Volume RB16, Number 4
RB13
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2002-03 continued
Portfolio Type
Up / Down Market Move
(High & Low Valuation Points)
non-high capitalization,
broad-based U.S.
+/- 10%
market index option1
high capitalization,
broad-based U.S.
+6% / -8%
market index option1
1
In accordance with sub-paragraph (b)(1)(i)(B) of Rule 15c3-1a under the Securities Exchange Act of 1934.
(b) Eligible Participants. The application of the portfolio margin provisions of this
Rule 12.4, including cross-margining, is limited to the following:
(1) any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934;
(2) any affiliate of a self-clearing member organization;
(3) any member of a national futures exchange to the extent that listed index
options hedge the member’s index futures; and
(4) any other person or entity not included in (b)1 through (b)3 above that has or
establishes, and maintains, equity of at least 5 million dollars. For purposes of
this equity requirement, all securities and futures accounts carried by the member
for the same customer may be combined provided ownership across the accounts is identical. A guarantee by any other account for purposes of the minimum equity requirement is not to be permitted.
(c) Opening of Accounts.
(1) Only customers that, pursuant to Rule 9.7, have been approved for options
transactions, and specifically approved to engage in uncovered short option contracts, are permitted to utilize a portfolio margin account.
(2) On or before the date of the initial transaction in a portfolio margin account, a
member shall:
A.
RB14
furnish the customer with a special written disclosure statement
describing the nature and risks of portfolio margining and crossmargining which includes an acknowledgement for all portfolio
margin account owners to sign, and an additional
acknowledgement for owners that also engage in cross-margining to sign, attesting that they have read and understood the
disclosure statement, and agree to the terms under which a portfolio margin account and the cross-margin account, respectively,
are provided, and
January 26, 2005, Volume RB16, Number 4
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2002-03 continued
B.
obtain a signed acknowledgement(s) from the customer, both of
which are required for cross-margining customers, and record the
date of receipt.
(d) Establishing Account and Eligible Positions.
(1)
Portfolio Margin Account. For purposes of applying the portfolio margin
requirements provided in this Rule 12.4, members are to establish and utilize a
dedicated securities margin account, or sub-account of a margin account, clearly
identified as a portfolio margin account that is separate from any other securities
account carried for a customer.
(2) Cross-Margin Account. For purposes of combining related instruments and
listed, broad-based U.S. index options, index warrants and underlying instruments
and applying the portfolio margin requirements provided in this Rule 12.4, members
are to establish and utilize a portfolio margin account, clearly identified as a crossmargin account, that is separate from any other securities account or portfolio
margin account carried for a customer.
A margin deficit in either the portfolio margin account or the cross-margin account
of a customer may not be considered as satisfied by excess equity in the other
account. Funds and/or securities must be transferred to the deficient account and
a written record created and maintained.
(3) Portfolio Margin Account – Eligible Positions
(i) A transaction in, or transfer of, a listed, broad-based U.S. index option or index
warrant may be effected in the portfolio margin account.
(ii) A transaction in, or transfer of, an underlying instrument may be effected in the
portfolio margin account provided a position in an offsetting listed, broad-based
U.S. index option or index warrant is in the account or is established in the account
on the same day.
(iii) If, in the portfolio margin account, the listed, broad-based U.S. index option or
index warrant position offsetting an underlying instrument position ceases to exist
and is not replaced within 10 business days, the underlying instrument position
must be transferred to a regular margin account, subject to Regulation T initial
margin and the margin required pursuant to the other provisions of this chapter.
Members will be expected to monitor portfolio margin accounts for possible abuse
of this provision.
(iv) In the event that fully paid for long options and/or index warrants are the only
positions contained within a portfolio margin account, such long positions must be
transferred to a securities account other than a portfolio margin account or crossmargin account within 10 business days, subject to the margin required pursuant to
the other provisions of this chapter, unless the status of the account changes such
that it is no longer composed solely of fully paid for long options and/or index
warrants.
(4) Cross-Margin Account – Eligible Positions
(i) A transaction in, or transfer of, a related instrument may be effected in the cross
margin account provided a position in an offsetting listed, U.S. broad-based index
option, index warrant or underlying instrument is in the account or is established in
the account on the same day.
January 26, 2005, Volume RB16, Number 4
RB15
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2002-03 continued
(ii) If the listed, U.S. broad-based index option, index warrant or underlying instrument position offsetting a related instrument ceases to exist and is not replaced
within 10 business days, the related instrument position must be transferred to a
futures account. Members will be expected to monitor cross-margin accounts for
possible abuse of this provision.
(iii) In the event that fully paid for long options and/or index warrants (securities)
are the only positions contained within a cross-margin account, such long positions must be transferred to a securities account other than a portfolio margin
account or cross-margin account within 10 business days, subject to the margin
required pursuant to the other provisions of this chapter, unless the status of the
account changes such that it is no longer composed solely of fully paid for long
options and/or index warrants.
(e) Initial and Maintenance Margin Required. The amount of margin required under this
Rule 12.4 for each portfolio shall be the greater of:
1) the amount for any of the 10 equidistant valuation points representing the largest theoretical loss as calculated pursuant to paragraph (f) below or
2) $.375 for each listed index option and related instrument multiplied by the contract or
instrument’s multiplier, not to exceed the market value in the case of long positions in
listed options and options on futures contracts.
(f) Method of Calculation.
(1) Long and short positions in listed options, underlying instruments and related instruments are to be grouped by option class; each option class group being a “portfolio”. Each
portfolio is categorized as one of the portfolio types specified in paragraph (a)(9) above.
(2) For each portfolio, theoretical gains and losses are calculated for each position as
specified in paragraph (a)(9) above. For purposes of determining the theoretical gains and
losses at each valuation point, members shall obtain and utilize the theoretical value of a
listed index option, underlying instrument or related instrument rendered by a theoretical
pricing model that, in accordance with paragraph (b)(1)(i)(B) of Rule 15c3-1a under the
Securities Exchange Act of 1934, qualifies for purposes of determining the amount to be
deducted in computing net capital under a portfolio based methodology.
(3) Offsets. Within each portfolio, theoretical gains and losses may be netted fully at each
valuation point.
Offsets between portfolios within the High Capitalization, Broad-Based Index Option product group and the Non-High Capitalization, Broad-Based Index Option product group may
then be applied as permitted by Rule 15c3-1a under the Securities Exchange Act of 1934.
(4) After applying paragraph (3) above, the sum of the greatest loss from each portfolio is
computed to arrive at the total margin required for the account (subject to the per contract
minimum).
(g) Equity Deficiency. If, at any time, equity declines below the 5 million dollar minimum
required under Paragraph (b)(4) of this Rule 12.4 and is not brought back up to at least 5
million dollars within three (3) business days (T+3) by a deposit of funds or securities, or
through favorable market action; members are prohibited from accepting opening orders
starting on T+4, except that opening orders entered for the purpose of hedging existing
positions may be accepted if the result would be to lower margin requirements. This
prohibition shall remain in effect until such time as an equity of 5 million dollars is established.
RB16
January 26, 2005, Volume RB16, Number 4
Rule Changes,
Interpretations and
Policies continued
SR-CBOE-2002-03 continued
(h) Determination of Value for Margin Purposes. For the purposes of this Rule 12.4, all listed
index options and related instrument positions shall be valued at current market prices.
Account equity for the purposes of this Rule 12.4 shall be calculated separately for each
portfolio margin account by adding the current market value of all long positions, subtracting
the current market value of all short positions, and adding the credit (or subtracting the debit)
balance in the account.
(i) Additional Margin.
(1) If at any time, the equity in any portfolio margin account, including a cross-margin
account, is less than the margin required, additional margin must be obtained within one
business day (T+1). In the event a customer fails to deposit additional margin within one
business day, the member must liquidate positions in an amount sufficient to, at a minimum,
lower the total margin required to an amount less than or equal to account equity. Exchange
Rule 12.9 – Meeting Margin Calls by Liquidation shall not apply to portfolio margin accounts.
However, members will be expected to monitor the risk of portfolio margin accounts pursuant to the risk monitoring procedures required by Rule 15.8A. Guarantees by any other
account for purposes of margin requirements is not to be permitted.
(2) The day trading requirements of Exchange Rule 12.3(j) shall not apply to portfolio margin
accounts, including cross-margin accounts.
(j) Cross-Margin Accounts – Requirement to Liquidate.
(1) A member is required immediately either to liquidate, or transfer to another broker-dealer
eligible to carry cross-margin accounts, all customer cross-margin accounts that contain
positions in futures and/or options on futures if the member is:
(i) insolvent as defined in section 101 of title 11 of the United States Code, or is
unable to meet its obligations as they mature;
(ii) the subject of a proceeding pending in any court or before any agency of the
United States or any State in which a receiver, trustee, or liquidator for such debtor
has been appointed;
(iii) not in compliance with applicable requirements under the Securities Exchange
Act of 1934 or rules of the Securities and Exchange Commission or any selfregulatory organization with respect to financial responsibility or hypothecation of
customers’ securities; or
(iv) unable to make such computations as may be necessary to establish compliance with such financial responsibility or hypothecation rules.
(2) Nothing in this paragraph (j) shall be construed as limiting or restricting in any way the
exercise of any right of a registered clearing agency to liquidate or cause the liquidation of
positions in accordance with its by-laws and rules.
January 26, 2005, Volume RB16, Number 4
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CHAPTER XIII
Net Capital
Customer Portfolio Margin Accounts
Rule 13.5. (a) No member organization that requires margin in any customer accounts
pursuant to Rule 12.4 – Portfolio Margin and Cross-Margin for Index Options, shall permit
gross customer portfolio margin requirements to exceed 1,000 percent of its net capital for
any period exceeding three business days. The member organization shall, beginning on
the fourth business day of any non-compliance, cease opening new portfolio margin accounts until compliance is achieved.
(b) If, at any time, a member organization’s gross customer portfolio margin requirements
exceed 1,000 percent of its net capital, the member organization shall immediately transmit telegraphic or facsimile notice of such deficiency to the Office of Market Supervision,
Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street
NW, Washington, DC, 20549; to the district or regional office of the Securities and Exchange Commission for the district or region in which the member organization maintains
its principal place of business; and to its Designated Examining Authority.
CHAPTER XV
Records, Reports and Audits
Risk Analysis of Portfolio Margin Accounts
Rule 15.8A. (a) Each member organization that maintains any portfolio margin accounts
for customers shall establish and maintain written procedures for assessing and monitoring the potential risk to the member organization’s capital over a specified range of possible market movements of positions maintained in such accounts. Current procedures
shall be filed and maintained with the Department of Financial and Sales Practice Compliance. The procedures shall specify the computations to be made, the frequency of computations, the records to be reviewed and maintained, and the position(s) within the organization responsible for the risk function.
(b) Upon direction by the Department of Financial and Sales Practice Compliance, each
affected member organization shall provide to the Department such information as the
Department may reasonably require with respect to the member organization’s risk analysis for any or all of the portfolio margin accounts it maintains for customers.
(c) In conducting the risk analysis of portfolio margin accounts required by this Rule 15.8A,
each affected member organization is required to follow the Interpretations and Policies set
forth under Rule 15.8 – Risk Analysis of Market-Maker Accounts. In addition, each affected member organization shall include in written procedures required pursuant to paragraph (a) above the following:
(1) Procedures and guidelines for the determination, review and approval of credit limits to
each customer, and across all customers, utilizing a portfolio margin account.
(2) Procedures and guidelines for monitoring credit risk exposure to the member organization, including intra-day credit risk, related to portfolio margin accounts.
(3) Procedures and guidelines for the use of stress testing of portfolio margin accounts in
order to monitor market risk exposure from individual accounts and in the aggregate.
RB18
(4) Procedures providing for the regular review and testing of these risk analysis procedures by an independent unit such as internal audit or other comparable group.
January 26, 2005, Volume RB16, Number 4
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CHAPTER 9
Doing Business with the Public
Delivery of Current Options Disclosure
Documents and Prospectus
Rule 9.15. (a) No change
(b)
No change
(c)
No change
(d) The special written disclosure statement describing the nature and risks of
portfolio margining and cross-margining, and acknowledgement for customer signature, required by Rule 12.4(c)(2) shall be in a format prescribed by the Exchange
or in a format developed by the member organization, provided it contains substantially similar information as the prescribed Exchange format and has received prior
written approval of the Exchange.
Sample Risk Description for Use by Firms to Satisfy Requirements of Exchange
Rule 9.15(d)
Portfolio Margining and Cross-Margining
Disclosure Statement and Acknowledgement
For a Description of the Special Risks Applicable to a Portfolio Margin
Account and its Cross-Margining Features, See the
Material Under Those Headings Below.
OVERVIEW OF PORTFOLIO MARGINING
1. Portfolio margining is a margin methodology that sets margin requirements for an account
based on the greatest projected net loss of all positions in a “product class” or “product
group” as determined by an options pricing model using multiple pricing scenarios. These
pricing scenarios are designed to measure the theoretical loss of the positions given changes
in both the underlying price and implied volatility inputs to the model. Portfolio margining is
currently limited to product classes and groups of index products relating to broad-based
market indexes.
2. The goal of portfolio margining is to set levels of margin that more precisely reflect actual
net risk. The customer benefits from portfolio margining in that margin requirements calculated on net risk are generally lower than alternative “position” or “strategy” based methodologies for determining margin requirements. Lower margin requirements allow the customer
more leverage in an account.
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CUSTOMERS ELIGIBLE FOR PORTFOLIO MARGINING
3. To be eligible for portfolio margining, customers (other than broker-dealers and certain
non-broker-dealer affiliates of the carrying broker-dealer) must meet the basic standards
for having an options account that is approved for uncovered writing and must have and
maintain at all times account net equity of not less than $5 million, aggregated across all
accounts under identical ownership at the clearing broker. The identical ownership requirement excludes accounts held by the same customer in different capacities (e.g., as a
trustee and as an individual) and accounts where ownership is overlapping but not identical
(e.g., individual accounts and joint accounts).
POSITIONS ELIGIBLE FOR A PORTFOLIO MARGIN ACCOUNT
4. All positions in broad-based U.S. market index options and index warrants listed on a
national securities exchange and exchange traded funds and other fund products registered under the Investment Company Act of 1940 that are managed to track the same
index that underlies permitted index options, are eligible for a portfolio margin account.
SPECIAL RULES FOR PORTFOLIO MARGIN ACCOUNTS
5. A portfolio margin account may be either a separate account or a subaccount of a
customer’s regular margin account. In the case of a subaccount, equity in the regular
account will be available to satisfy any margin requirement in the portfolio margin subaccount without transfer to the subaccount.
6. A portfolio margin account or subaccount will be subject to a minimum margin requirement of $.375 multiplied by the index multiplier for every options contract or index warrant
carried long or short in the account. No minimum margin is required in the case of eligible
exchange traded funds or other eligible fund products.
7. Margin calls in the portfolio margin account or subaccount, regardless of whether due to
new commitments or the effect of adverse market moves on existing positions, must be
met within one business day. Any shortfall in aggregate net equity across accounts must
be met within three business days. Failure to meet a margin call when due will result in
immediate liquidation of positions to the extent necessary to reduce the margin requirement. Failure to meet an equity call prior to the end of the third business day will result in
a prohibition on entering any opening orders, with the exception of opening orders that
hedge existing positions, beginning on the fourth business day and continuing until such
time as the minimum equity requirement is satisfied.
8. A position in an exchange traded index fund or other eligible fund product may not be
established in a portfolio margin account unless there exists, or there is established on the
same day, an offsetting position in securities options, or other eligible securities. Exchange traded index funds and/or other eligible funds will be transferred out of the portfolio
margin account and into a regular securities account subject to strategy based margin if,
for more than 10 business days and for any reason, the offsetting securities options, or
other eligible securities no longer remain in the account.
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January 26, 2005, Volume RB16, Number 4
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9. When a broker-dealer carries a regular cash account or margin account for a customer, the
broker-dealer is limited by rules of the Securities and Exchange Commission and of The
Options Clearing Corporation (“OCC”) in the extent to which the broker-dealer may permit
OCC to have a lien against long option positions in those accounts. In contrast, OCC will
have a lien against all long option positions that are carried by a broker-dealer in a portfolio
margin account, and this could, under certain circumstances, result in greater losses to a
customer having long option positions in such an account in the event of the insolvency of
the customer’s broker. Accordingly, to the extent that a customer does not borrow against
long option positions in a portfolio margin account or have margin requirements in the account against which the long option can be credited, there is no advantage to carrying the
long options in a portfolio margin account and the customer should consider carrying them
in an account other than a portfolio margin account.
SPECIAL RISKS OF PORTFOLIO MARGIN ACCOUNTS
10. Portfolio margining generally permits greater leverage in an account, and greater leverage creates greater losses in the event of adverse market movements.
11. Because the time limit for meeting margin calls is shorter than in a regular margin
account, there is increased risk that a customer’s portfolio margin account will be liquidated
involuntarily, possibly causing losses to the customer.
12. Because portfolio margin requirements are determined using sophisticated mathematical calculations and theoretical values that must be calculated from market data, it may be
more difficult for customers to predict the size of future margin calls in a portfolio margin
account. This is particularly true in the case of customers who do not have access to
specialized software necessary to make such calculations or who do not receive theoretical
values calculated and distributed periodically by OCC.
13. For the reasons noted above, a customer that carries long options positions in a portfolio
margin account could, under certain circumstances, be less likely to recover the full value
of those positions in the event of the insolvency of the carrying broker.
14. Trading of securities index products in a portfolio margin account is generally subject to
all the risks of trading those same products in a regular securities margin account. Customers should be thoroughly familiar with the risk disclosure materials applicable to those products, including the booklet entitled Characteristics and Risks of Standardized Options.
15. Customers should consult with their tax advisers to be certain that they are familiar with
the tax treatment of transactions in securities index products.
16. The descriptions in this disclosure statement relating to eligibility requirements for portfolio margin accounts, and minimum equity and margin requirements for those accounts,
are minimums imposed under exchange rules. Time frames within which margin and equity
calls must be met are maximums imposed under exchange rules. Broker-dealers may
impose their own more stringent requirements.
OVERVIEW OF CROSS-MARGINING
17. With cross-margining, index futures and options on index futures are combined with
offsetting positions in securities index options and underlying instruments, for the purpose
of computing a margin requirement based on the net risk. This generally produces lower
margin requirements than if the futures products and securities products are viewed separately, thus providing more leverage in the account.
January 26, 2005, Volume RB16, Number 4
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18. Cross-margining must be done in a portfolio margin account type. A separate portfolio
margin account must be established exclusively for cross-margining.
19. When index futures and options on futures are combined with offsetting positions in
index options and underlying instruments in a dedicated account, and a portfolio margining
methodology is applied to them, cross-margining is achieved.
CUSTOMERS ELIGIBLE FOR CROSS-MARGINING
20. The eligibility requirements for cross-margining are generally the same as for portfolio
margining, and any customer eligible for portfolio margining is eligible for cross-margining.
21. Members of futures exchanges on which cross-margining eligible index contracts are
traded are also permitted to carry positions in cross-margin accounts without regard to the
minimum aggregate account equity.
POSITIONS ELIGIBLE FOR CROSS-MARGINING
22. All securities products eligible for portfolio margining are also eligible for cross-margining.
23. All broad-based U.S. market index futures and options on index futures traded on a
designated contract market subject to the jurisdiction of the Commodity Futures Trading
Commission are eligible for cross-margining.
SPECIAL RULES FOR CROSS-MARGINING
24. Cross-margining must be conducted in a portfolio margin account type. A separate
portfolio margin account must be established exclusively for cross-margining. A crossmargin account is a securities account, and must be maintained separate from all other
securities accounts.
25. Cross-margining is automatically accomplished with the portfolio margining methodology. Cross-margin positions are subject to the same minimum margin requirement for
every contract, including futures contracts.
26. Margin calls arising in the cross-margin account, and any shortfall in aggregate net
equity across accounts, must be satisfied within the same time frames (10 business
days), and subject to the same consequences, as in a portfolio margin account.
27. A position in a futures product may not be established in a cross-margin account
unless there exists, or there is established on the same day, an offsetting position in
securities options and/or other eligible securities. Futures products will be transferred out
of the cross-margin account and into a futures account if, for more than 10 business days
and for any reason, the offsetting securities options and/or other eligible securities no
longer remain in the account. If the transfer of futures products to a futures account
causes the futures account to be undermargined, a margin call will be issued or positions
will be liquidated to the extent necessary to eliminate the deficit.
28. According to the rules of the exchanges, a broker-dealer is required to immediately
liquidate, or, if feasible, transfer to another broker-dealer eligible to carry cross-margin
accounts, all customer cross-margin accounts that contain positions in futures and/or
options on futures in the event that the carrying broker-dealer becomes insolvent.
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January 26, 2005, Volume RB16, Number 4
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29. Customers participating in cross-margining will be required to sign an agreement acknowledging that their positions and property in the cross-margin account will be subject to
the customer protection provisions of Rule 15c3-3 under the Securities Exchange Act of
1934 and the Securities Investor Protection Act, and will not be subject to the provisions of
the Commodity Exchange Act, including segregation of funds.
30. In signing the agreement referred to in paragraph 29 above, a customer also acknowledges that a cross-margin account that contains positions in futures and/or options on
futures will be immediately liquidated, or, if feasible, transferred to another broker-dealer
eligible to carry cross-margin accounts, in the event that the carrying broker-dealer becomes insolvent.
SPECIAL RISKS OF CROSS-MARGINING
31. Cross-margining must be conducted in a portfolio margin account type. Generally,
cross-margining and the portfolio margining methodology both contribute to provide greater
leverage than a regular margin account, and greater leverage creates greater losses in the
event of adverse market movements.
32. As cross-margining must be conducted in a portfolio margin account type, the time
required for meeting margin calls is shorter than in a regular securities margin account and
may be shorter than the time ordinarily required by a futures commission merchant for
meeting margin calls in a futures account. As a result, there is increased risk that a customer’s
cross-margin positions will be liquidated involuntarily, causing possible loss to the customer.
33. As noted above, cross-margin accounts are securities accounts and are subject to the
customer protections set-forth in Rule 15c3-3 under the Securities Exchange Act of 1934
and the Securities Investor Protection Act. Cross-margin positions are not subject to the
customer protection rules under the segregation provisions of the Commodity Exchange
Act and the rules of the Commodity Futures Trading Commission (“CFTC”) adopted pursuant
to the Commodity Exchange Act.
34. Trading of index options and futures contracts in a cross-margin account is generally
subject to all the risks of trading those same products in a futures account or a regular
securities margin account, as the case may be. Customers should be thoroughly familiar
with the risk disclosure materials applicable to those products, including the booklet entitled
Characteristics and Risks of Standardized Options and the risk disclosure document required by the CFTC to be delivered to futures customers. Because this disclosure statement does not disclose the risks and other significant aspects of trading in futures and
options, customers should review those materials carefully before trading in a cross-margin
account.
35. Customers should bear in mind that the discrepancies in the cash flow characteristics of
futures and certain options are still present even when those products are carried together in
a cross-margin account. Both futures and options contracts are generally marked to the
market at least once each business day, but the marks may take place with different frequency and at different times within the day. When a futures contract is marked to the
market, the gain or loss is immediately credited to or debited from, respectively, the customer’s
account in cash. While an increase in value of a long option contract may increase the equity
in the account, the gain is not realized until the option is sold or exercised. Accordingly, a
customer may be required to deposit cash in the account in order to meet a variation payment on a futures contract even though the customer is in a hedged position and has
experienced a corresponding (but as yet unrealized) gain on a long option. On the other
hand, a customer who is in a hedged position and would otherwise be entitled to receive a
variation payment on a futures contract may find that the cash is required to be held in the
account as margin collateral on an offsetting option position.
January 26, 2005, Volume RB16, Number 4
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36. Customers should consult with their tax advisers to be certain that they are familiar
with the tax treatment of transactions in index products, including tax consequences of
trading strategies involving both futures and option contracts.
37. The descriptions in this disclosure statement relating to eligibility requirements for
cross-margining, and minimum equity and margin requirements for cross-margin accounts,
are minimums imposed under exchange rules. Time frames within which margin and
equity calls must be met are maximums imposed under exchange rules. The broker-dealer
carrying a customer’s portfolio margin account, including any cross-margin account, may
impose its own more stringent requirements.
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ACKNOWLEDGEMENT FOR CUSTOMERS UTILIZING
A PORTFOLIO MARGIN ACCOUNT
— CROSS-MARGINING AND NON-CROSS-MARGINING —
Rule 15c3-3 under the Securities Exchange Act of 1934 requires that a broker or
dealer promptly obtain and maintain physical possession or control of all fully-paid securities
and excess margin securities of a customer. Fully-paid securities are securities carried in a
cash account and margin equity securities carried in a margin or special account (other than
a cash account) that have been fully paid for. Excess margin securities are a customer’s
margin securities having a market value in excess of 140% of the total of the debit balances
in the customer’s non-cash accounts. For the purposes of Rule 15c3-3, securities held
subject to a lien to secure obligations of the broker-dealer are not within the broker-dealer’s
physical possession or control. The Securities and Exchange Commission has taken the
position that all long option positions in a customer’s portfolio-margining account (including
any cross-margining account) may be subject to such a lien by OCC and will not be deemed
fully-paid or excess margin securities under Rule 15c3-3.
The hypothecation rules under the Securities Exchange Act of 1934 (Rules 8c-1
and 15c2-1), prohibit broker-dealers from permitting the hypothecation of customer securities in a manner that allows those securities to be subject to any lien or liens in an amount
that exceeds the customer’s aggregate indebtedness. However, all long option positions in
a portfolio-margining account (including any cross-margining account) will be subject to
OCC’s lien, including any positions that exceed the customer’s aggregate indebtedness.
The Securities and Exchange Commission has granted an exemption from the hypothecation rules to allow customers to carry positions in portfolio-margining accounts (including
any cross-margining account), even when those positions exceed the customer’s aggregate
indebtedness. Accordingly, within a portfolio margin account or cross-margin account, to
the extent that you have long option positions that do not operate to offset your aggregate
indebtedness and thereby reduce your margin requirement, you receive no benefit from
carrying those positions in your portfolio margin account or cross-margin account and incur
the additional risk of OCC’s lien on your long option position(s).
BY SIGNING BELOW, THE CUSTOMER AFFIRMS THAT THE CUSTOMER HAS READ
AND UNDERSTOOD THE FOREGOING DISCLOSURE STATEMENT AND ACKNOWLEDGES AND AGREES THAT LONG OPTION POSITIONS IN PORTFOLIO-MARGINING
ACCOUNTS, AND CROSS-MARGINING ACCOUNTS WILL BE EXEMPTED FROM CERTAIN CUSTOMER PROTECTION RULES OF THE SECURITIES AND EXCHANGE COMMISSION AS DESCRIBED ABOVE AND WILL BE SUBJECT TO A LIEN BY THE OPTIONS CLEARING CORPORATION WITHOUT REGARD TO SUCH RULES.
CUSTOMER NAME: __________________________________
BY: ____________________________________
(signature / title)
January 26, 2005, Volume RB16, Number 4
DATE: _________________
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ACKNOWLEDGEMENT FOR CUSTOMERS
ENGAGED IN CROSS-MARGINING
As disclosed above, futures contracts and other property carried in customer accounts
with Futures Commission Merchants (“FCM”) are normally subject to special protection
afforded under the customer segregation provisions of the Commodity Exchange Act (“CEA”)
and the rules of the CFTC adopted pursuant to the CEA. These rules require that customer
funds be segregated from the accounts of financial intermediaries and be separately accounted for, however, they do not provide for, and regular futures account accounts do not
enjoy the benefit of, insurance protecting customer accounts against loss in the event of
the insolvency of the intermediary carrying the accounts.
As also has been discussed above, cross-margining must be conducted in a portfolio
margin account dedicated exclusively to cross-margining, and cross-margin accounts are
not treated as a futures account with an FCM. Instead, cross-margin accounts are treated
as securities accounts carried with broker-dealers. As such, cross-margin accounts are
covered by Rule 15c3-3 under the Securities Exchange Act of 1934, which protects customer accounts. Rule 15c3-3, among other things, requires a broker-dealer to maintain
physical possession or control of all fully-paid and excess margin securities and maintain
a special reserve account for the benefit of their customers. However, in respect of crossmargin accounts, there is an exception to the possession or control requirement of Rule
15c3-3 that permits The Options Clearing Corporation to have a lien on long positions. This
aspect is outlined in a separate acknowledgement form that must be signed prior to or
concurrent with this form. Additionally, the Securities Investor Protection Corporation (“SIPC”)
insures customer accounts against the financial insolvency of a broker-dealer in the amount
of up to $500,000 to protect against the loss of registered securities and cash maintained
in the account for purchasing securities or as proceeds from selling securities (although
the limit on cash claims is $100,000). According to the rules of the exchanges, a brokerdealer is required to immediately liquidate, or, if feasible, transfer to another broker-dealer
eligible to carry cross-margin accounts, all customer cross-margin accounts that contain
positions in futures and/or options on futures in the event that the carrying broker-dealer
becomes insolvent.
BY SIGNING BELOW, THE CUSTOMER AFFIRMS THAT THE CUSTOMER HAS READ
AND UNDERSTOOD THE FOREGOING DISCLOSURE STATEMENT AND ACKNOWLEDGES AND AGREES THAT: 1) POSITIONS AND PROPERTY IN CROSS-MARGINING ACCOUNTS, WILL NOT BE SUBJECT TO THE CUSTOMER PROTECTION RULES
UNDER THE CUSTOMER SEGREGATION PROVISIONS OF THE COMMODITY EXCHANGE ACT (“CEA”) AND THE RULES OF THE COMMODITY FUTURES TRADING
COMMISSION ADOPTED PURSUANT TO THE CEA, AND 2) CROSS-MARGINING
ACCOUNTS THAT CONTAIN POSITIONS IN FUTURES AND/OR OPTIONS ON FUTURES WILL BE IMMEDIATELY LIQUIDATED, OR, IF FEASIBLE, TRANSFERED TO
ANOTHER BROKER-DEALER ELIGIBLE TO CARRY CROSS-MARGIN ACCOUNTS IN
THE EVENT THAT THE CARRYING BROKER-DEALER BECOMES INSOLVENT.
CUSTOMER NAME: __________________________________
BY: ________________________________
(signature / title)
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DATE: _________________
January 26, 2005, Volume RB16, Number 4