Becoming a CBOT Member. Introduction of the Trading Member Firm. April 11, 2006

Transcription

1 Becoming a CBOT Member Introduction of the Trading Member Firm April 11, 2006

2 Contents 1. Background 2. Statement of Objectives 3. Creating Opportunities 4. Introduction of the Trading Member Firm category 5. Passive Investor Trading Member Firms 6. e-cbot Member Firms 7. Equity Member Firms 8. Branches and Affiliated Companies of Member Firms 9. Acquiring a CBOT Membership 10. Exchange Fee Schedule and Membership Requirements 11. Timing and Effective Dates 12. Summary 1

3 Background As part of the CBOT Holdings, Inc. restructuring in 2005, there was the creation of separate CBOT Holdings Class A common stock and five series of Class B memberships at the Chicago Board of Trade. The series of CBOT membership were defined as: Membership Number of Members A Shares Received Series B-1 (Full) 1,402 27,338 Series B-2 (Associate) ,000 Series B-3 (GIM) 109 5,000 Series B-4 (IDEM) 641 1,100 Series B-5 (COM) 643 2,500 There are transfer restrictions established for all holders of Class A common stock which restrict each stockholder from selling/transferring the respective series of Class A common stock for periods of 180, 360 and 540 days after the close of the IPO. The first restriction period for Series A-1 of the Class A common stock expires on April 22 nd, enabling current stockholders to transfer/sell the common stock separately from the trading right. Under the restructuring, it was anticipated that individual shareholders would be able to separate the Class A common stock from the Series B trading right after the transfer restrictions were lifted. Holders of the Series B trading right would retain all their trading rights and privileges. In anticipation of the expiration of the first restriction period, the CBOT desires to define more fully the alternatives available to the current holders of the bundled package and to illustrate the benefits of obtaining member status at our Exchange. 2

4 Statement of Objectives 1. To create a membership and exchange fee structure that will reward high volume liquidity providers by permitting them to obtain reduced fees through the continued ownership of both shares and memberships. 2. To provide compelling reasons for new market participants to acquire membership in the CBOT. Our objective is to bring new customers to the CBOT by illustrating the benefits of membership in the CBOT. 3. To recognize and reward liquidity providers. By creating additional categories for different profiles of market participants, the CBOT will recognize the value different customer segments bring to our market. We desire to lower the cost barriers to trading CBOT products by creating varying levels of membership tailored to the trading activity of our market participants. 4. To create choices for our customers. By restructuring the membership categories, an individual or firm can evaluate what type of membership is best suited to its trading profile and financial position. 5. To maintain the CBOT s competitive market position. The CBOT s competitive position is strong, and it is our objective to further enhance our standing globally. 3

5 CBOT: Creating Opportunities The CBOT is committed to delivering innovation, driving efficiencies, and creating opportunities through leveraging our business model and technology platform. We desire to bring new traders to our market to join a 158 year tradition of price discovery, transparency and integrity. The creation of the Series B trading right has enabled individuals to access CBOT products at a lower cost of entry. For trading firms, the CBOT recognizes that there is an evolution in a firm s trading maturity and financial position. By introducing a new category, the Trading Member Firm in addition to the existing Equity Member Firm, the CBOT will further segment the various users in our customer base and recognize their differing values, contributions, and benefits. Firms can easily calculate the cost-benefit of making an investment in CBOT Class A shares and/or Series B memberships. The overall pricing of CBOT products will continue to remain highly competitive to enable our Exchange to compete globally. We will reward providers of liquidity to our markets with fee reductions based on volume. The CBOT will apply its core principle of transparency to its pricing and incentive programs to ensure fairness and equality. 4

6 Introduction of the Trading Member Firm The basic philosophy of one membership, one individual will continue at the CBOT to recognize those individual traders who are committed to providing liquidity to our markets. After April 22, 2006, individual shareholders will be able to sell/transfer up to 1/3 of their common stock, and retain all the privileges and benefits of being a member. The CBOT is introducing a new category, Trading Member Firm, to recognize those firms who desire to have the ability to sell up to 1/3 of their common stock on and after April 22, 2006, and retain their trading rights for trading CBOT products. A firm can qualify as a Trading Member Firm by purchasing a Series B-1 (Full), Series B-2 (Associate), Series B-4 (Index, Debt, and Energy Market - IDEM), or a Series B-5 (Commodity Options Market - COM). Holding the appropriate trading right will qualify the firm for reduced fees in that designated product category. A B-4 trading right (IDEM) will qualify that firm for reduced fees in all products designated under Regulation , which currently includes equity indices and metals products. A B-5 trading right (COM) will qualify that firm for reduced fees on all option products as per Regulation An individual who has a trading right assigned to him/her or a delegate will qualify for a lower fee level. Trading Member Firms must either own the trading right (or have a self-owned trading right registered on their behalf) to qualify. Leasing a Series B-1 or B-2 trading right only qualifies that firm for reduced fees for trading on the e-cbot electronic trading platform. 5

7 Passive Investor Trading Member Firm In recognition of the growing importance of the asset manager (hedge fund, pool operator, and CTA) in our markets, a new category of Passive Investor Member Firm has been created for those investment firms who desire to acquire Series B trading rights to reduce their transaction costs. The purchase of two Series B-1 and one Series B-2, qualifies 3 organized funds under common ownership or trading control for reduced fees. An investment firm who seeks to qualify more than 3 organized funds for the reduced fees, can do so by acquiring one additional Series B-1 or Series B-2 trading right for each additional fund. There is no limit on the number of funds that may be qualified. The qualifications for Passive Investor Equity Member Firm, for those investment firms who have purchased, or those who desire to purchase, the four Full memberships and two Associate memberships with stock remain unchanged. These firms will continue to enjoy lower fee levels. The Passive Investor Trading Member Firm qualifies for Level 4 exchange fees. 6

8 e-cbot Member Firms The e-cbot Member Firm category is being maintained for those firms who desire to reduce their trading fees through being a member firm. To qualify, a firm only needs to lease either a Series B-1 or B-2 trading right. All proprietary trading accounts of that firm will qualify for the lower exchange transaction fee. Those firms who qualified as an e-cbot member firm previously through the purchase of an Associate Membership (AM) and who retain the Class A common stock will automatically move to the Equity Member Firm category. If the firm holds the Series B-2 trading right, and owns less than the 10,000 common stock requirement, they would qualify as a Trading Member Firm. Leasing or purchasing Series B-4 (IDEM) or Series B-5 (COM) trading rights do not qualify the firm for e-cbot Trading Member firm status. e-cbot member firms may qualify for lower fees on electronically traded agricultural products through the lease of a Series B-1membership. e-cbot member firms will qualify for Level 2 exchange fees, plus the e-cbot surcharge of $.20 per contract 7

9 Equity Member Firms The Equity Member Firm category is designated for those firms which own the combination of CBOT Holdings, Inc. common stock, and the corresponding Chicago Board of Trade Series B-1 or B-2 membership. Equity Member firms qualify for Level 2 exchange fees. The individual who holds the trading right qualifies for Level 1 exchange fees. To qualify for Level 2 exchange fees for all CBOT products, a firm must hold 27,338 shares of common stock and a Series B-1 membership. Firms that hold 10,000 shares of common stock and a Series B-2 membership qualify for all financial products, metals products, and agricultural options. If the firm holds the Series B-1 membership and owns less than the 27,338 common stock requirement, but more than 10,000 shares of common stock, it would qualify as a B-2 Equity Member Firm, for financial products, metals products, and would receive Trading Member firm exchange fees for agricultural futures. Purchasing Series B-4 (IDEM) or Series B-5 (COM) combination memberships (common stock and membership) does not qualify the firm for Equity Member firm status. 8

10 Branches and Affiliated Companies of Member Firms As firms are establishing branch offices or affiliated companies of the CBOT member firm, the qualification of the branch or affiliate will vary depending on the category of membership and the legal structure. Branches Considered one and the same as the member firm, provided the branch is not a legally organized, separate entity. Affiliated Companies (parents, sisters and subsidiary entities) under common ownership. A member firm affiliate means a non-fcm, non-clearing entity which is wholly-owned by one or more member firms, which wholly owns a member firm, or which is wholly owned by the same parent company (ies) as a member firm. It is difficult to identify each particular situation in this presentation. For questions regarding situations not identified on this slide, please contact Nancy Dye or Maria Fritz, at CBOT Member Services at

11 Acquiring a CBOT Membership The CBOT Member Services Department is dedicated to serving both our current and future members and member firms. The Exchange s website, provides 24 hour information regarding how to acquire a membership and the current prices for purchasing and leasing a trading right. Becoming an Equity Member Firm through the utilization of the Combination Market. Firms can acquire both Common Stock and a Trading Right through the Combination Market Individuals and Firms may desire to separate the purchase of the Trading Right or Common Stock Becoming a Trading Member Firm by acquiring a Trading Right. Member Services will maintain the auction market Trading Right prices are posted on the web-site Becoming an e-cbot Member Firm through leasing a Series B-1 or B-2 Trading Right. Member Services will provide assistance in securing a lease The average lease prices are posted on the web-site Application forms and detailed instructions are available to download and print from the website. 10

12 CBOT Exchange Fee Schedule 1 Account Type (See Notes for Details) Individual's (member/delegate) account or Equity Member Firm's proprietary account. Trades executed by a member or delegate. Exchange Transaction Fee Schedule Soybean Platform U.S. Treasury Other Financial Products Agricultural Products Crush $25 BIG Dow Gold & Silver First 25k Over 25k First 25k Over 25k First 25k Over 25k Options Open Auction $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $ e-cbot $0.05 $0.05 $0.10 $0.05 $0.10 $ $0.25 $ Individual's (member/delegate) account or Equity Member Firm's proprietary account. Trades executed by a non-member. 3 Trading Member Firm's proprietary account. Trades executed by a member/delegate. First 100k Over 100k First 100k Over 100k First 100k Over 100k Open Auction e-cbot $0.12 $0.12 $0.30 $0.20 $0.30 $ $0.50 $0.60 Open Auction $0.20 $0.20 $0.25 $0.25 $0.20 $0.20 $ e-cbot $0.20 $0.20 $0.40 $0.40 $0.30 $ $0.70 $ Trading Member Firm's proprietary account. Trades executed by a non-member. Open Auction e-cbot $0.25 $0.25 $0.45 $0.45 $0.35 $ $0.75 $ Non-member's Account Futures Options Open Auction $0.30 $0.30 $0.30 $0.30 $0.60 $ e-cbot $0.45 $0.45 $0.90 $0.75 $1.50 $ $1.50 $1.00 Open Auction $0.50 $0.40 $0.50 $0.40 $0.60 $0.50 $ e-cbot $0.50 $0.50 $0.90 $0.75 $1.50 $ $1.00 Delegates Exchange Transaction Fee Surcharges Affiliates qualified using a leased membership (applied to Level 2) e-cbot only Member Firms (applied to Level 2) Exchanges for Physical/Swaps - U.S. Treasury Contracts Exchanges for Physical - Agricultural Contracts Wholesale Transactions for Swap Futures Exchanges for Physical/Swaps - Other Financial & Metals Contracts Exchanges for Risk - Agricultural Contracts Exchanges for Risk - U.S. Treasury, Swaps, Fed Funds, and DJ AIG Contracts Exchange Fees for mini-sized Contracts $0.15 Account Type (See Notes for Details) $0.15 Contract $0.20 Interest Rate $0.15 $0.30 $0.30 $0.45 $0.75 $0.50 Agricultural $ $ $0.40 $0.50 $5 Dow $0.05 $0.20 $0.20 $0.35 $0.85 $0.50 Gold & Silver $0.05 $0.20 $0.20 $0.35 $0.75 $1.00 $1.00 Note: Exchange transaction fees for mini-sized contracts. Fee surcharges also apply to these fees. $1.25 Note: Surcharges are levied on applicable transactions in addition to standard, mini-size, and non-trade exchange transaction fees. Exchange Fees for Non-Trade Transactions Clearing Division Fee Schedule Member Non-Member Contracts Cleared (including give-up executions and EFPs) $0.05 Non-Trades $0.05 $0.50 Wholesale Transactions for Swap Futures $0.05 Note: Non-trade fees are exchange transaction fees for Exercises, Expired Options $0.05 Deliveries, Assignments and Expirations. Fee surcharges also apply to Option Exercises and Assignments $0.05 these fees. Position Adjustments $0.05 Futures from Option Exercise or Assignment $0.05 Futures Delivered or Cash Settled $0.05 Transfers $0.05 ($2,500 maximum per month) General Notes Equity Member Firms - To qualify as an Equity Member Firm, a firm must maintain the minimum membership and share requirement as stated on the attached Membership & Share Requirement Chart. Clearing Member Firms will be charged the same fees as Equity Member Firms. Trading Member Firms - To qualify as a Trading Member Firm, a firm must maintain the minimum membership requirements as stated on the attached Membership & Share Requirement Chart. Individual Trading Members - Individual Trading Members are members that no longer maintain the minimum number of shares associated within his membership category. After the Exchange implements necessary system changes, any trades executed for an Individual Trading Member's account by another member/delegate or non-member will be charged fees equal to Trading Member Firms (Levels 3 & 4). Delegate Surcharge - The delegate surcharges do not apply to delegates executing trades per Reg C on behalf of the proprietary accounts of the member firms listed above. Volume Discounts - The discounted rate applies to all traded contracts in excess of 25,000 per month per executing member or delegate for Fee Level 1 and in excess of 100,000 per month per account for Fee Levels 2, 3, 4 and 5. Volumes are aggregated separately for open auction and e-cbot and within a product complex (U.S. Treasury, Other Financial, or Agricultural Products). Only full-sized contracts are eligible for the discount. MACE Permit Holders - Exchange transaction fee for rough rice and mini-sized agricultural contracts is $0.10. *For a complete fee schedule, please go to 11

13 CBOT Membership and Share Requirements MEMBERSHIP AND SHARE REQUIREMENTS Membership Type Trading Rights Class A Shares INDIVIDUAL M EMBERS 1 Series B-1 (Full) None 1 Series B-2 (Associate) None Individual Member 1 Series B-3 (GIM) None 1 Series B-4 (IDEM) None 1 Series B-5 (COM) None 1 Series B-1 (Full) 27,338 1 Series B-2 (Associate) 10,000 Individual Member with Shares 1 Series B-3 (GIM) 5,000 1 Series B-4 (IDEM) 1,100 1 Series B-5 (COM) 2,500 1 Series B-1 (Full) None 1 Series B-2 (Associate) None Delegates 1 Series B-3 (GIM) None 1 Series B-4 (IDEM) None 1 Series B-5 (COM) None CLEARING MEM BER FIRM S Registered FCM 2 Series B-1 (Full) 54,676 Proprietary Trading Firm (See Note 1) 1 Series B-1 (Full) 27,338 Sole Proprietor 1 Series B-1 (Full) 27,338 EQUITY MEM BER FIRMS Registered FCM 1 Series B-1 (Full) 27,338 Proprietary Trading Firm (See Note 1) 1 Series B-1 (Full); or 27,338 1 Series B-2 (Associate) 10,000 Pools Hedge Funds or Other Collective Investment Vehicles (See Note 2) 4 Series B-1 (Full) & 2 Series B-2 (Associate) 129,352 TRADING M EMBER FIRM S Registered FCM 1 Series B-1 (Full) None 1 Series B-1 (Full); or None Proprietary Trading Firm (See Note 1) 1 Series B-2 (Associate); or None 1 Series B-4 (IDEM); or None 1 Series B-5 (COM) None Pools, Hedge Funds or Other Collective Investment Vehicles (See Note 3) 2 Series B-1 (Full) & 1 Series B-2 (Associate) None e-cbot MEMBER FIRMS e-cbot Member Firm 1 Series B-1 (Full) - Leased; or None 1 Series B-2 (Associate) - Leased None Note 1) Proprietary Trading Firms must be wholly-owned by members or members and employees of the firm; or must have a business purpose deemed appropriate by the Exchange, including cash grain firms, financial institutions, market makers designated by the Exchange, proprietary trading firms (that do not otherwise meet the definition of a Pool, Hedge Fund or Other Collective Investment Vehicle) or other forms of business approved by the Exchange. Note 2) This category qualifies the Equity Member Firm, and up to five additional such entities where the firm exercises trading control over, is under common trading control with, or wholly owns such entities. Note 3) This category qualifies the Trading Member Firm, and up to two additional such entities where the firm exercises trading control over, is under common trading control with, or wholly owns such entities. Each additional Series B-1 or Series B-2 membership qualifies one additional such entity that meets the foregoing requirements. *For a complete fee schedule, please go to 12

14 Timing and Effective Dates The announcement of the new Member Firm categories was made on April 11, 2006 to communicate in advance of the April 22 nd expiration of the first restriction period to enable current members and member firms to determine which type of membership best suits their trading objectives. The new membership structures will become effective on May 1, 2006 to allow individuals and member firms to buy or sell equity shares and/or Series B memberships to qualify for the new category fee levels. Equity member firms that wish to sell their Class A shares and qualify as a Trading Member Firm will not be able to do so until May 1 st without losing member firm status. If a current individual shareholder/member who executes trades for his/her own account sells any common stock and retains the Series B membership, there will be no change in his/her exchange fee status. If a shareholder/member who has someone else execute trades for his/her account sells any common stock and falls below the required minimum, after the Exchange implements necessary system charges, he/she will be charged the same fees as a Trading Member Firm. 13

15 Summary The CBOT remains solidly committed to its core principles of integrity, transparency and price discovery. Becoming a member or member firm carries with it a responsibility to uphold these core principles. The CBOT welcomes the opportunity to work with market participants who are interested in qualifying for membership at the CBOT. As a result of the recent restructuring, the CBOT is now positioned to expand the opportunities for becoming a member or member firm to provide 22-hour trading access across our benchmark products in U.S. Treasury instruments, and robust agricultural products. The creation of the Trading Member Firm category reduces the cost barriers for trading in our expanding product base of Metals, Energy, and Equity products. Please contact the following CBOT staff members should you have further questions or visit our website at Nancy Dye or Maria Fritz in CBOT Member Services at

16 Disclaimer The information contained in this presentation is intended for purposes of information and education only and is not guaranteed by the CBOT as to completeness, nor any trading result, and does not constitute trading advice or constitute a solicitation of the purchase or sale of any futures, options, or securities. Board of Trade of the City of Chicago, Inc., 2006 ALL RIGHTS RESERVED. 15