`IBG ET AL. v. TRADING TECH
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`Page 2 of 12
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`CHICAGO BOARD OF TRADE
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`AURORA”: THE MOST TECHNDLDGISALLV ADVANCED TRADING SYSTEM AUAELABLE TODAY
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`Constantly investigating how new tech-
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`nological developments can enrich its proven
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`auction market system, the Chicago Boaid
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`of Trade is committed in its efforts to always
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`meet the demands of the marketplace.
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`Because of its commitment to all global par-
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`ticipants, the CBOT is proud to present the
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`most technologically advanced electronic
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`trading system on the market and the only
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`one that incorporates the proven efficiency
`of an auction—AURORA"Z“
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`AURORA“ is an electronic auction market
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`system that gves global market participants
`immediate access to the world’s most
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`actively traded futures contracts when the
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`physical auction market is closed.
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`The power of AURORA” lies in its ability to
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`capture the proven efficiency of the auction
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`market system, while allowing market par-
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`ticipants to trade in a competitive electronic
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`trading pit from virtually anywhere in the
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`world. Here are just a few of the benefits
`AURORA“ offers:
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`Excellent market liquidity available
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`through CBOI‘ trader participation.
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`Sustained and improved member
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`firm/client relationships."
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`Significant cost and time savings.
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`Complete View of the trading activity
`enables traders to see who is in the market
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`and at What price and quantity.
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`Unparalleled market integrity through
`an electronic audit trail that works in con-
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`junction with the clearing process and set-
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`tlement procedures of the Board of Trade
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`Clearing Corporation.
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`eS0O21232
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`Page 3 of 12
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`AURORA” ENIIANCES MEMBERS’
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`-OPPORTUNITIES
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`Local traders are important to the viability
`of futures markets. Their role is invaluable
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`in maintaining liquidity in CBOT product
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`markets—providing narrow bid/ask spreads
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`and consistent trading activity so market
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`participants can execute their trades quickly
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`and efficiently.
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`Increasing efficiency of trading opera-
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`tions. AURORAT“ has been designed as a
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`component of a fully integrated electronic
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`trading support system for the futures
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`industry. In addition, three leading tech-
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`nological firms—Apple Computer, Texas
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`Instruments, and 'Ia.ndem—have been
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`involved in the development of this system.
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`This will not change with the addition of the
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`AURORA” system. In fact, this relationship
`will be enhanced because:
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`AURORA“ will increase local trader
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`opportunities because of expanded trading
`hours.
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`E08”: AN INTEGRAL PAIIT OF AURORA“
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`E03” is the Chicago Board of Trade’s state-
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`of-the-art order entry/order delivery system,
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`designed to receive and confirm orders with
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`improved efficiency and greater savings in
`cost and time.
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`Traders will adapt to the computer-based
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`system easily because trading on AURORA”
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`is user-friendly. It is easy to understand and
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`easy to use.
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`' Training time will be reduced because of
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`the similarities to the physical trading pit
`mechanics.
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`AURORA” EIIDVIDES EXEELLENT
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`MEMBER FIRM INCENTIVES
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`Member firms also will benefit from using
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`AURORA” by:
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`Retaining and enhancing current
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`brokerage firm/client relationships. With
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`AURORA?“ the brokerage firm sales force
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`‘continues to act as an important link between
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`Customers and the exchange. Firms will
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`retain the necessary credit controls over
`customer accounts.
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`Enhancing servicing capabilities for
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`clients. International customers will appre-
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`ciate the increased -trading opportunities.
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`Firms will be able to provide their clients
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`with 24-hour risk-management coverage in
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`the most actively traded interest rate
`futures contracts in the world.
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`The pathway to both the physical trading pit
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`at the CBOI‘ and AURORA?‘ EOS“ _is the
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`vehicle by which customers’ orders will
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`reach CBOT broker-members. As a compo-
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`nent of the CBOT fully integrated electronic
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`trading system, E03” can be used to transfer
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`orders from one type of trading session to
`another.
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`EOSI” designed in conjunction with Bridge
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`Market Data, Inc, will benefit the brokerage
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`firm by speeding delivery of the customer’s
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`order to the pit and returning the confirma-
`tion to the customer.
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`For example, an outside customer calls his
`account executive with an order and that
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`order is electronically transmitted directly to
`an AURORA“ broker. The electronic trans-
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`mission of the order speeds the process and
`reduces the chance of error.
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`After the order has been executed, the trade
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`confirmation is transmitted electronically to
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`the brokerage firms account executive as
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`well as its back office for processing and to
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`the Board of Trade Clearing Corporation for
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`clearing.
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`eSOO21233
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`Page 4 of 12
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`A REPLICATION 0F PBOVEN
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`MARKET EFFICIENCY
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`AURORA” is an electronic trading system
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`that allows traders to view and participate
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`in a competitive market. Its trade execution
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`speed -is measured in nanoseconds, with a
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`reaction time closely approximating that
`associated with the auction market itself.
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`Trade execution is standard for all time
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`zones.
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`Information necessary for traders is
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`presented on the screen in the form of
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`objects, colors, and text. The re-creation of
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`the competitive pit provides an incentive for
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`locals to trade, maintaining the liquidity that
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`is critical to auction market trading.
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`The system also provides market trans-
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`parency. Participants can see who is in the
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`market and who is executing trades with
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`whom—an important component of a com-
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`petitive market.
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`Simply stated, the electronic auction market
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`provides the essential information that is
`now available on the floor. AURORA” also
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`provides the following additional features:
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`AUR0RA""identif1es the total quantity of
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`the bids and offers by contract month.
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`AURORA” keeps a rrmning tabulation of
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`the traders’ own positions.
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`AURORA?“ provides easy access for
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`trading indifferent contract months.
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`AURORA” provides calendar-spread
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`quote displays.
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`AURORA” fives members the flexibility
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`to set up their own screen to view whatever
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`trading arenas, price displays, and other con-
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`tracts they want to see.
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`AURORA” provides trade information
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`directly to the Clearing Corporation.
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`AURORA“ reduces the risk for all market
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`participants because there are no
`unmatched trades
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`“WHEN WE TOOK CUR STOIW T9 THE BIG SCH
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`MllLTIPl.E TRADING ABEIIAS The largest area
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`of the screen is composed of the trading
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`arena. There is one trading arena per con-
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`tract month. In this screen, the front month
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`is being viewed. If the back months are be-
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`ing viewed, up to four contract months can
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`be displayed.
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`MEMBER ECGNS The red circles represent
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`members who are offering to sell and the
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`blue squares represent members who are
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`bidding to buy. The red icon is referred to as
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`a member-o_1j“e_r7?ng icon and the blue icon is
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`referred to as a member-biddimg icon. Icons
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`list the member’s acronym and the quantity
`available. The bids and offers on the screen
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`are at the market or the icons would not
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`appear on the screen.
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`Note: Member icons appear in random loca-
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`tions in all trading arenas. For example, a
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`trader’s icon may appear in the center of
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`broker l’s trading arena and in the left cor-
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`ner of broker 2’s trading arena. Also, the
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`trader’s icon will appear in a different loca-
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`tion every time it appears on broker l’s
`screen.
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`PRICE DISPLAYS At the bottom of the screen
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`are the price displays of other contract
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`months not listed in the trading arenas
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`There is room on the screen to list up to 10
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`contract month price displays, allowing par-
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`ticipants to view current bids and offers and
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`quantities for each. Participants also can
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`join the current bid and offer.
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`Page 5 of 12
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`eS0O21234
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`Page 5 of 12
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`II, we LEFT IN All. THE noon PARTS”
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`PRIORITY BDX The geen box in the upper
`the
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`right—hand corner of a tradin
`g arena is
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`priority box. The bid (and/or offer) of the
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`member who makes the market is placed in
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`the priority box. A member whose bi
`titled
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`'ty box is en
`(and/or offer) is in the p
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`to be filled before any other member who is
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`bidding (and/or offering) at the same price.
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`cunnanr an
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`the contrac
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`pie, March"
`shows the c
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`current off«
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`ask price is
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`' gare:
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`at 10 and In
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`+0
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`1 E
`(95) L
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`13
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`(20)
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`A w
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`15‘o4 T o
`A
`9
`2MSMHSU717
`(250) (20)
`(10)
`(5)"
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`1*o9
`(5) (10)
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`1 2
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`Page 6 of 12
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`eSOO21235
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`Page 6 of 12
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`CURRENT OONTRMII PRICE DISPLAY The contzactfs symbol and
`he contract month’s code are displayed here. In this exam-
`ple, March bonds are trading (USE). The price display also
`hows the current bid price in the b1ue—shaded area. and the
`ur-rent offer price in thered-shaded area. Below the bid and
`sk price is the total quantity being bid and offered in the
`rading arena. Currently, traders want to buy 785 contracts
`.t 10 and traders want to sell 1,380 contracts at 11.
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`> transaction request
`Sen, ,0 hos,
`> trade request
`HCCGPKEUI buy 25 lrom
`KMT
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`;g 233
`‘ KM
`so
`JW 25
`‘(M
`35
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`‘N3 -‘OH’
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`'
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`OUT: JWZ
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`+50 93-09 USH BJ.G
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`+25 “-09- U5“ GB
`+25 93'” US” Km
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`TRADE COUNTER The trade counter, located
`in the upper right-hand corner of the screen,
`counts how many contracts the member has
`traded and how manycontracts have been
`cleared. This feature allows members who
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`want to trade a larger 101: than any one icon
`is offering to quickly hit many icons while
`the system tallies the quantity of contracts.
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`MESSAGE PAIIE The message pane gives the
`user a message after each entry, for exam-
`ple, a trade confirmation. This screen is
`scrollable, allowing the trader to review per-
`sonal IneSSages_
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`PIT TRADE SUMMARY BOX This box portrays
`the most recent trades that have been made
`in the pit. For trades with brokers, the pit
`summary box will show the clearing firm of
`the broker’s customer. The pit trade sum-
`mary box is not scrollable.
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`IIIIOUT MARKET BOX The in/out market box
`lists acronyms of those members entering
`and leaving the pit. If a member's acronym
`is listed in the "in” box, this doesn't mean
`the member's icon will appear in the trading
`arena. This only happens when the member
`is on the bid or offered side of the market.
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`PERSONAL mam: summnmr Box The personal
`trade summary box summarizes all trades
`that the member has made. This box is
`scrollable. This means the trader can scroll
`the contents of the personal trade summary
`box to see previous trades that were made.
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`OTHER PIT PHEEE OEPEAVS The lower right-
`hand side of the trading screen contains
`three price displays for contracts outside the
`Treasury bond pit. Members can choose the
`contract and contract month they wish to
`view. The displays give bid and offer prices
`and total quantities available.
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`TRADING ON AURORA”: THE MEBHANICS
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`There is a lot of information available on the
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`AURORA” trading screen. This is because all
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`of the components that make up physical
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`trading are represented electronically on the
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`screen. Furthermore, a small mechanical
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`doviogs movement on a desk, other-wise
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`known as the mouse, allows traders to move
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`to different areas of the trading screen, just
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`as if they were Walking around the trading
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`flool-_
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`So, in essence, the trader will not lose the
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`hands-on approach to trading that is ava.iJ-
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`able in the auction market setting. One
`added benefit is that traders can view activ-
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`ity in other areas of the tradirig pit, not just
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`the contract month in which they are
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`positioned
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`In summary, AURORA” means “flexibility.”
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`Let’s run through an example of how a
`trader would use AURORA‘?
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`‘ 1. Here is CBOI‘ member Jim Dobbs (member
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`acronym JD). Jim Dobbs turns on his
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`member terminal. which connects him to
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`AURORA”-Via relecommurlicatlons link-
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`AURORA” 9~110W5 member Jim Debbs l’-0
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`View and Palficipoate ill the auction market
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`trading actilrity Of the CBUVS Treasury bond
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`futures market. Jim Dobbs decides to enter
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`the Treasury bcnd P“?-
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`Jim Dobbs is now viewing the trading activ-
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`ity in the CBOI‘ Treasury bond electronic
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`trading pit. Currently on his screen are the
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`trading arenas for March (USH), September
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`(USU), and December (U32) U-3- T‘b0I1d
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`futllree In each trading arena are 190m reP-
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`resenting the tI‘ddeIS- The current Price dis‘
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`Plays indicate the current bid Price in the
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`blue—shaded area and the current offer price
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`in the red—shaded area. The total quantities
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`30 E 31*
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`(200)
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`-25 93-05 USN GB
`5 93-09 Usn xm
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`33:3».
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`12
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`(10) (120)
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`22
`"En 25
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`23 [El
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`available on each side are within the paren-
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`theses. This means-that the total of the bid—
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`ding icons equals the quantity being shown
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`in the price display blue-shaded area, and
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`the total of offering icons equals the quan-
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`tity listed in the offer price display box. Cur—
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`rently, the market for March U.S. bonds
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`(USH) is l0'bid for 235 contracts and offered
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`at 11 for 235 contracts.
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`It is important to note that only member
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`icons will appear on the AURORA“ trading
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`screen. In addition, the only member icons
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`that appear on the screen are those for
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`members who are bidding on the bid side of
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`the market and those for members who are
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`offering on the offer side of the market. A
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`member may be logged into the pit, but
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`unless that member is in the market, his
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`icon will not appear in the trading arena.
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`3 ‘ By looking at the arena, Jim can see that
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`member JP is bidding 200 contracts, member
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`TEN is bidding 100, and member TJC is
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`offering 200 contracts
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`In order for member TJC to hit member
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`TEN'5 bid for 100 contracts, ‘I30 simply
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`points at TEN’s icon and clicks and the trade
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`is made. When the trade takes place, an
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`arrow will appear connecting the two
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`member icons as shown. Every Board of
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`Trade member who is logged into the
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`Treasury bond pit will see the arrow
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`indicating the trade.
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`,
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`3 With the click of the mouse, Jim Dobbs is
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`able to quickly move to another contract
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`trading arena just as if he were walking
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`from one pit into another:
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`The March Treasury note contract (TYH) is
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`now in the trading arena. In addition, the
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`price displays at the bottom of the pit are
`for other contract months within the
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`Treasury note pit.
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`9 usn I1»
`TCO :oo 9:
`ass 29 53-119 usn KNIT
`Ku so 51-as usn was
`JW :5 93-11: us): as
`K»
`as 93-»: usn KM"!
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`.,_
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`p _
`JD USH-I-100
`so 5:-osusv-1 we
`25 33-05 USN GB
`as 93-09 usn Km’
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`18'2s WI 27 0" 1
`(511).
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`(sun)
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`(so) (125)
`(45) *(7so_)
`A
`A.
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`y 22 [ill 25 :
`Ell?-fl 0717231533 2109 EEIIEI13 m
`02 (so)
`(251 121504 E53 0717
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`(so) ' 12 Em. 14
`(250) (20)
`(10)
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`‘TRADING EXPERTISE: STILL A NECESSITY
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`A broker appears in the trading arena just
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`like any other Board of Trade member who
`is on the bid or offered side of the market-
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`Highlighted on the screen is broker—member
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`TCO, who is bidding 10 for 25 contracts
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`After broker TCO fills 25 at 10, a brokerage
`firm delivers an outside customer order to
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`its broker—in this case, broker~member TCO
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`—via EOSE“ Broker TCO then uses his exper-
`tise to fill the order in the auction market.
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`As you can see, the market is currently 10
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`bid for 785 contracts, 1,380 offered at 11.
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`Suppose broker TCO has just received a
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`market order to buy 2,000 contracts. With
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`AURORA?“ broker TCO has the same number
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`of choices for filling the order as TCO has in
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`the physical trading pit today. TCO can buy
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`the 1,380 offers at 11 and bid 11 for the re-
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`mainder; TCO can join the current bid of 10
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`for any portion of his order; or TCO can
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`selectively take some of the 11 offers and .
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`wait. Obviously, broker 'ICO’s trading exper-
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`tise is still very valuable to customers when
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`using AURORA?‘
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`I Ira-suulon uuloeal
`lb ION!
`fll ltlllell
`nccapllllx any as Inn
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`.5» aa.o9'm-i an
`25 91-03110: ca
`:5 91-99 rm xu-r
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`9 23-05 vs»
`za sa-on vsn Km '
`5:: 33-99 usu we ,;
`:s 3:-as us»! ca
`7'!
`as 93-09 usu xwr
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`'50 93-09 IJSH BJG
`-25 33-09 USN GB
`-75 53-09 USN KHT
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`(125)
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`D1
`(95)
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`(45)
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`L
`(750)
`:22 El
`02 F60)
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`(so)
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`(25)
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`(250)
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`ii
`o2’15
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`o7*17
`(10)
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`A...
`am
`7.
`‘1.7..¥'.
`1353 W "2709"
`no) (120)
`(so)
`(125;
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`21*o9 13%“ F331 Dayan,
`(5) (10)
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`....e._.......
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`THE CHICAGO BOARD OF TRADE:
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`MEETING THE CHALLENGE
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`AROUND THE CLOCK
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`For more than 142 years, the Chicago Board
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`of Trade has had a history of demonstrated
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`effectiveness in responding to the economic
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`needs of the marketplace.
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`For example, in fulfilling its goal of provid-
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`ing a forum for price risk management, the
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`CBOT first expanded its trading day by 3%
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`hours to better serve market participants in
`other international time zones.
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`Even with this move to expand its trading
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`day, however, the CBCTI‘ could not make its
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`Iisk—ma.nagement capabilities available to all
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`business managers i.n all time zones. Global
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`market participants were limited by the fact
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`that the hours of physical open outcry
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`trading did not coincide with their regular
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`business hours in many instances.
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`Electronic trading seemed the sound, logical
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`answer, but no one system existed that
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`offered the liquidity, cost—effectiveness, and
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`integrity of the open outcry auction market.
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`'Ib meet these particular needs in today’s
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`highly competitive worldwide market, the
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`Chicago Board of Trade developed AURORA”
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`——the only global electronic trading system
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`that replicates the actual physical market-
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`place. A link to every time zone in the world
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`—there is no question that AURORA?“ will
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`meet the growing demands of the
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`worldwide marketplace.
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`......-.....-.-.s.nu£_
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`@
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`Chicago Board ofTrade
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`141 WEST JACKSON BOULEVARD
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`CHICAGO, «muons 60604
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`1455 PENNSYLVANIA AVENUE, N.W., SUITE 1225
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`WASHINGTON, DC. 20004
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`52-54 GRACECHURCH STREET
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`LONDON EC3V OEH, ENGLAND
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`IMPERIAL TOWER 6—A-12, 1-1-1 UCHISAIWAICHO
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`CHlYODA—KU, TOKYO 100, JAPAN
`A
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`©Boaxd of Trade of the City of Chicago 1990. All rlghls reserved.
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`3.90.7500
`l1M45~4
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`The information in this publiution is taken from sources believed to be
`reliable, but is not guaranteed by the Chlcaso Board of Trade as to accuracy,
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`completeness, nor any trading result. and is intended only for purpose of
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`infomralion and education. Nothing herein should be comldered am a uading
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`recommendation of Lhe Chicago Board at Trade. ‘me Rules and Regulations of
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`the Exchange should be consulted as the authoritative source on all current.
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`contract spedflmflons and regulation. lt. might. be advisable to consult an
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`attorney regarding the legal msuictions in your stale applicable to your
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`particular busines that might preclude or llmlt use of futures markem
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`Page 12 of 12
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