CBOT<sup><SMALL>®</SUP></SMALL> Comments On The Decision To Invoke Its Mistrade Policy In Reponse To The July 3 Market Activity In Its Mini-sized Dow<SUP><SMALL>SM</SUP></SMALL> Futures

The Chicago Board of Trade (CBOT) stated that on July 3, 2003, at approximately 9:38 a.m., CBOT mini-sized Dow futures experienced a sudden major market movement in the September and December contracts. Without any economic or fundamental basis for such movement to have occurred, the September 2003 mini-sized Dow futures fell from 9058 to 8474, or 584 points, which is approximately 2/3 of the 10% Circuit Breaker Limit for the U.S. equity futures and securities markets. There was also a 506 point disparity between the low price of the CBOT's $10 DowSM Futures contract during this time. The December 2003 mini-sized Dow futures fell from 9018 to 8442 (576 points) within 53 seconds (between 9:38:20 a.m. and 9:39:13 a.m.).

Prior to this time, the September market had been trading within a 31-point range, trading between levels of 9089 and 9058 from 9:30 a.m. to 9:38 a.m. Under standard procedures, after validating the price activity, the Exchange's Market Operations Division implemented the Exchange's Mistrade Policy and placed the marketplace on alert that trades executed after 9:38 a.m. were under review and being questioned.

Upon reviewing the market activity in both outright and spread trades in mini-sized Dow futures and in Chicago Mercantile Exchange® Standard and Poor's 500 Stock Price Index™ futures contracts prior to and during the timeframe of the incident, Market Operations determined, based on established protocol and price ranges within the policy, to disallow trades executed at levels below the 40 point range in both the September and December mini-sized Dow contracts. For the time between 9:38:00 a.m. to 9:40:04 a.m., trades below 9018 in the September contract and trades below 8986 in the December contract were deemed invalid.

As in most electronic trading platforms currently in existence, there may occur, from time to time, periods in which an overwhelming buy or sell bias in the market takes place, causing a cascading effect and exaggerating price movement to an extreme degree so that it becomes substantially misaligned to other related markets. The paramount requirement of a central marketplace is the maintenance of orderly markets, and in order to assure such a market, the extreme price movement experienced on July 3 caused the CBOT to invoke the mistrade policy and take responsive and immediate action to address this incident.