Release: #4828-03
For Release: August 4, 2003

CFTC Releases Rule Enforcement Review
of the Chicago Mercantile Exchange

WASHINGTON, D.C. – The Commodity Futures Trading Commission (Commission) has notified the Chicago Mercantile Exchange (CME or Exchange) of the results of a rule enforcement review of CME’s market surveillance program. The review, which was recently completed by the Commission’s Division of Market Oversight (Division), covered the target period of September 1, 2001 to September 1, 2002.

The Division found that CME maintains an adequate market surveillance program. CME staff uses information gathered from daily review of cash and futures prices, spread differentials, volume, open interest, large trader and clearing member positions, supply and demand fundamentals, and market news in connection with routine surveillance of market activity and contract expirations.

The Division also found that CME has adequate procedures for reviewing hedge exemption applications and for monitoring for possible speculative limit violations and traders who exceed position accountability levels. The Exchange’s speculative position limit investigations and position accountability inquiries were thorough and well documented, and speculative limit investigations were completed in a timely manner. However, the Division found that several of the Exchange’s position accountability inquiries closed during the target period were open for lengthy periods of time. Most of the delays in closing the inquiries were due to firms and individuals failing to timely respond to Exchange requests for information. Accordingly, the Division recommended that the Exchange promptly follow-up on information requests and, if a response is not immediately forthcoming, take appropriate action.

The Division also reviewed CME’s oversight of exchange of futures for physicals (EFP) transactions and found that EFP investigations completed during the target period were thorough, well documented, and completed in a timely manner. However, the Division found that of the 16 EFP investigations that were initiated during the target period, only four involved currency EFPs and none involved interest rate EFPs. Given that 85 percent of the Exchange’s EFP volume and 98 percent of its EFP transactions were in currencies, and that the Exchange has experienced significant growth in the use of interest rate EFPs, the Division recommended that the Exchange implement modifications to its EFP program that ensure that an adequate number of currency and interest rate EFPs are examined for compliance with Exchange rules.

The Exchange will have 60 days to respond in writing to the Division’s recommendations. Copies of the report are available from the Commission’s Office of External Affairs, Three Lafayette Centre, 1155 21st Street N.W., Washington, D.C. 20581, (202) 418-5080, or by accessing the Commission’s website at