To All Members and Staff:
Last Friday, we announced a series of short-term fee increases to be implemented until December 31, 2000. The response of our individual members and clearing firms to the Board’ s announcement demonstrated that we had not clearly explained the temporary nature of the surcharges, the reasons for the Board’ s decision, and the principles that governed our decision. We also determined that we had applied a calculation that would have resulted in both inequitable treatment of floor brokers and a higher “give-up” fee for clearing firms than was intended.
We want to take this opportunity to explain the modifications that the Board made to our transitional pricing plan at its meeting yesterday. The Board’ s intent was to create a temporary, simple, equitable plan to address the Exchange’ s revenue needs during its transition from a not-for-profit institution to the new demutualized CME. The Exchange has financed all of our transitional activities and enormous investments in technology out of cash flow and our existing capital resources.
We have consistently lowered and waived fees to benefit our membership. Now, as we continue our demutualization process, it is appropriate that we begin to demonstrate in this transition period strong fiscal responsibility by reducing expenses and increasing revenues for the fourth quarter of 2000. These changes will improve our financial position this year and signal to potential strategic and capital partners our commitment to manage our business effectively while transitioning to a shareholder value company. These relationships will be important to us as we seek to expand our business opportunities.
The Board yesterday unanimously decided to modify its revenue plan as follows: To defer the effective dates of implementation from September until Monday, October 2, for all aspects of the temporary fee surcharges. They will continue to remain in effect through December 31, 2000, after which the long-term, comprehensive pricing policy will be implemented; To institute a new give-up fee of 5¢ per side for executing firms only. Accepting clearing firms will not incur a give-up fee.; To assess a new monthly brokerage fee equal to the lesser of 5¢ per contract executed or 5% of an imputed fee based on the average commission for the quadrant where the contract was executed. This fee will apply to equity, lessee and salaried brokers and is in addition to the current 10¢ lessee brokerage fee. This fee will not apply to personnel trading with discretion for proprietary trading groups or clearing member proprietary accounts. A more detailed explanation of this program will be forwarded to members and clearing firms by our Clearing House in the near future.
Since the proposal to increase annual dues was not to take effect until January 1, 2001, it will be withdrawn pending implementation of a new comprehensive pricing strategy that will encompass all of the CME’ s products and services. This comprehensive pricing strategy, effective in January, will be based upon recommendations of management, deliberations of the Strategic Planning Committee and member input prior to consideration and approval by the Board. The other changes are summarized below and will be effective for the period beginning Monday, October 2, and ending December 31, 2000: To increase clearing fees for non-licensed products and for licensed E-mini products for members and non-members by 4¢ per side; To increase clearing fees for all other licensed products for members and non-members by 8¢ per side; To increase clearing fees for non-licensed E-mini products for members and non-members by 2¢ per side.
We are pursuing major strategic initiatives in three areas we have recently identified as future growth opportunities for the Exchange: retail, institutional and the business-to-business marketplace. The future success of these initiatives requires investments, and we expect that it will take some time before we see the rewards of these investments. It is important that we begin taking the responsible financial steps detailed today and last week in order to accomplish our objectives that we believe position the Exchange for growth.
The CME stands out among exchanges in consistently demonstrating a unity of purpose among its members. We greatly appreciate the support that the membership has shown in making these changes. We look forward to meeting with you in the next several weeks to update you on some of the progress that we have been making in executing our strategic plan. We will notify you shortly of the dates on which we will hold open members’ meetings. In the meantime, if you have any questions about these measures, please contact David Gomach, Managing Director and Chief Financial Officer at +1 312 930-8290.
