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CBOT Dow Complex Reference Guide - Daniels Trading.pdf

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									CBOT® Dow Complex
Reference Guide



DJIASM Futures

DJIASM Options

mini-sized DowSM Futures

mini-sized DowSM Options

Dow JonesSM Total Market Index Futures




The information in this publication is taken from sources believed to be reliable, but
the CBOT does not guarantee its accuracy or completeness. This publication is
intended for your information and education only. Nothing herein should be
considered a trading recommendation by the CBOT. The CBOT’s Rules and
Regulations should be consulted as the authoritative source of all current contract
specifications and regulations.
TABLE OF CONTENTS
1. Introduction                  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3




2. Key Benefits
Electronic Access—from Virtually Anywhere, Any Time . . . . . . . . . . . . . . . . . . .3
Lower Margins, Greater Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4



3. Index and Contract Features                                              ....    ............

Dow Jones Industrial Average
The Composition of the Dow Jones Industrial AverageSM . . . . . . . . . . . . . . . . . .6
The Function of the DJIASM Divisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Contract Value and Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Dollar Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Dow Jones U.S. Total Market Index
Methodology Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Broad Market Benchmark Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Relative Charts . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20



4. Pricing and Fair Value
Determinants of Fair Value . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 22
Mispricing and Arbitrage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 23


5. Administrative Details
Settlement Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .26
Exchange for Physicals (EFPs) . . . . . . . . . . . . . . . . . . . . . . . .. . . .. . . . . . . . .27
Fungibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . .28
Price Limits and Trading Halts . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 28
Electronic Error Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 29


6. Appendixes
Salient Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Ticker Symbols . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
CBOT Dow Complex Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Contact Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36




                                                                                                                                        2
1. Introduction
The Chicago Board of Trade complex of futures and options based on the Dow
Jones Industrial Average, and futures based on the Dow Jones U.S. Total Market
Index allows active traders to choose how, where, and when they express their
market opinions.

In times of economic uncertainty and volatile markets, active traders can gain
flexibility from being able to trade CBOT mini-sized Dow futures (with a $5
multiplier), CBOT DJIA futures (with a $10 multiplier), or the respective options on
each of these products. In addition, these contracts give market users a choice of
open auction or electronic trading platforms. And the CBOT electronic trading
platform allows traders to respond to political and economic shifts almost around the
clock.

CBOT DJ TMI futures provide investment managers, professional and active traders
with an efficient trading instrument that covers the entire US stock market.



2. Key Benefits
Electronic Access—from Virtually Anywhere, Any Time

The CBOT electronic trading platform provides traders direct access—from order
entry to trade confirmation. You can gain direct access through your futures broker
or an order entry software vendor.

CBOT mini-sized Dow futures and options, as well as the CBOT DJ TMI futures are
fully electronic and trade almost around the clock. While CBOT DJIA futures and
options trade on the open auction platform during regular trading hours, they too
trade electronically overnight.

The CBOT’s Electronic Trading Platform
e-cbot® powered by LIFFE CONNECT®
As the world's premier exchange for futures trading, the Chicago Board of Trade has
entered into a licensing agreement to use the LIFFE CONNECT electronic trading
platform.

Functionally, the platform provides enhanced trading capabilities, better reporting,
flexible matching algorithms, and the ability to accommodate anticipated future
trading needs. The wide range of competitive advantages are crucial for the CBOT to
deliver on our promise of providing the highest levels of integrity, liquidity, and
flexibility to the global electronic trading community.

e-cbot powered by LIFFE CONNECT offers competitive advantages to help
trading be more effective and profitable by:
      Greater trading flexibility
      Enhanced reporting and historical information
      For many, LIFFE CONNECT is a familiar platform
      Front end compatibility


                                                                                      3
          Functionality: The new CBOT trading platform recognizes 7 futures and 32
          option spread strategies. Traders can enter orders to execute a specific option
          spread, for example a straddle (buying both, or selling both, a call and put
          with the same strike price and same expiration month). This spread trade can
          be executed just like a single trade, without the need to execute each leg of
          the spread separately.


Lower Margins, Greater Leverage
Exchange margins for the contracts of the CBOT Dow complex are low compared to
other index futures—both in terms of dollars and as a percentage of contract value.
Thus, CBOT Dow complex futures offer more leverage than other stock index futures.
More leverage provides greater exposure to price changes and allows you to take
larger positions in these contracts.

CBOT/CME Common Clearing Link
The CME/CBOT Common Clearing Link provides significant reductions in spread
margin requirements. Initial reviews show risk offsets for spread margins of at least
70 percent for equity index futures. For example:

The Mini “SPUD”
There are many traders who are active in the SPUD spread (the acronym stands for
SP Under Dow).

An overnight spread trade composed of Long 1 CBOT mini-sized Dow futures and
Short 1 CME e-mini S&P futures would normally have a total initial margin
requirement of approximately $6200 ($2700 for CBOT mini-sized Dow and $3500 for
e-mini S&P). Under the new Common Clearing Link, the initial margin requirement
for an overnight position in this spread is approximately $1250, which represents a
reduction in spread margins of about 80 percent. Note that this is an estimate using
recent correlations between the Dow and the SP500 of approximately 95%.
                   D J IA v s S P 5 0 0 : 9 0 D a y C o rre la tio n o f P e rc e n ta g e P ric e C h a n g e s

  100%



   95%



   90%



   85%



   80%



   75%
      0

             0

                  11 00




                   3/ 1
                          1

                          1

                          1

                  11 01




                   3/ 2
                          2

                          2

                          2

                  11 02




                   3/ 3
                          3

                          3

                          3

                          3
                         00




                         01




                         02
    /0

           /0




                        /0

                        /0

                        /0

                        /0




                        /0

                        /0

                        /0

                        /0




                        /0

                        /0

                        /0

                        /0

                        /0
                        /




                        /




                        /
                       0/




                       0/




                       0/
    10

           10

                  10



                     10

                     10

                     10

                     10

                     10



                     10

                     10

                     10

                     10

                     10



                     10

                     10

                     10

                     10

                     10
                    /1




                    /1




                    /1
  5/

         7/

                9/



                   1/



                   5/

                   7/

                   9/



                   1/



                   5/

                   7/

                   9/



                   1/



                   5/

                   7/

                   9/




                                                                                                                   4
Viewing the chart, you can see that since May 2001, the 90-day rolling correlation of
percentage price changes in this spread has stayed above 95 percent. Yet as recently
as the summer of 2000, the correlation had been as low as 76 percent.

For intra-day spread trading, traders receive similar reductions in margin
requirements. For example, if the intra-day margin for the CBOT mini-sized Dow vs
e-mini SP spread is currently $3100, the new reduced level under the CCL is
approximately $625. Note: Intra-day margins are not set by the exchange but
rather by the FCM. This example assumes a day-trading rate of 50 percent of Initial
Margins, which is not uncommon.




                                                                                      5
3. Index and Contract Features

3.A Dow Jones Industrial Average

The Composition of the Dow Jones Industrial Average
The Dow Jones Industrial Average tracks a price-weighted portfolio of the stocks of
30 of the largest, best-known U.S. companies.

As Exhibit 1 illustrates, the DJIA is the U.S. blue-chip index. Its 30 stocks are
household names and among the largest U.S. companies, with market capitalization
ranging from $7 billion (Eastman Kodak) to $281 billion (General Electric). Twenty-
eight stocks trade on the NYSE and two (Intel and Microsoft) on Nasdaq. The 30
DJIA stocks provide a diversified exposure to the different sectors and styles of the
U.S. market.

The average book-to-market and price/earning ratios of the DJIA are comparable to
those of the S&P 500, but quite often its dividend yield is higher. The DJIA is
commonly viewed as the “blue chip” index.




                                                                                        6
Exhibit 1: The 30 Dow Stocks
The 30 Stocks in the DJIA
Name                  Ticker   Sector                  Close 12-31-03   Weight
Protor & Gamble       PG       Consumer Non-Cyclical       99.88        7.08%
United Technologies   UTX      Industrials                 94.77        6.72%
IBM                   IBM      Technology                  92.68        6.57%
3M                    MMM      Industrials                 85.03        6.02%
Caterpillar           CAT      Industrials                 83.02        5.88%
Altria                MO       Consumer Cyclical           54.42        3.86%
General Motors        GM       Consumer Cyclical           53.40        3.78%
WalMart               WMT      Consumer Non-Cyclical       53.05        3.76%
Johnson&Johnson       JNJ      Health Care                 51.66        3.66%
Coca-Cola             KO       Consumer Non-Cyclical       50.75        3.60%
Citigroup             C        Financials                  48.54        3.44%
Am Exp                AXP      Financials                  48.23        3.42%
Merck                 MRK      Health Care                 46.20        3.27%
DuPont                DD       Basic Materials             45.89        3.25%
International Paper   IP       Basic Materials             43.11        3.05%
Boeing                BA       Industrials                 42.14        2.99%
ExxonMobil            XOM      Energy                      41.00        2.91%
Alcoa                 AA       Basic Materials             38.00        2.69%
JPM Chase             JPM      Financials                  36.73        2.60%
HomeDepot             HD       Consumer Cyclical           35.49        2.51%
Honeywell             HON      Industrials                 33.43        2.37%
Intel                 INTC     Technology                  32.20        2.28%
General Electric      GE       Industrials                 30.98        2.20%
Microsoft             MSFT     Technology                  27.54        1.95%
SBC Communications    SBC      Telecom                     26.07        1.85%
Eastman Kodak         EK       Consumer Cyclical           25.67        1.82%
McDonalds             MCD      Consumer Cyclical           24.83        1.76%
Disney                DIS      Consumer Cyclical           23.33        1.65%
HewlettPackard        HPQ      Technology                  22.97        1.63%
AT&T                  T        Telecom                     20.30        1.44%




                                                                                 7
Exhibit 2: DJIA Sector Weights


       Dow Sector Weights December 31, 2003




                           3.29%     9.00%
        12.43%
                                                       15.39%




                                                        14.43%

  26.17%                                      2.91%
                   6.93%           9.46%


      Basic Materials              Consumer Cyclical             Consumer Non-Cyclical
      Energy                       Financials                    Health Care
      Industrials                  Technology                    Telecom




The DJIA delivers exposure to a diversified cross section of the U.S economy. As
Exhibit 2 shows, the industrial sector is the most heavily represented. However, the
DJIA also provides significant exposure to stocks in the consumer non-cyclical,
consumer cyclical, technology, basic materials, health care, financial, telecom, and
energy sectors.



The Function of the DJIA Divisor
The DJIA is called an average because that is what it originally was—a simple
arithmetic average of the prices of the component stocks. With the passage of time,
this proved inadequate. Stocks were added to the portfolio. Stocks split. Companies
merged or divested business units. To keep these structural changes from
interrupting the focus on market fundamentals that a benchmark index must
maintain, Dow Jones introduced the use of a divisor to maintain index continuity.

The DJIA level, therefore, is the sum of the prices of the component stocks divided
by the DJIA divisor. For example, the September 30, 2003, settlement prices were
those in Exhibit 1. The divisor was 0.13500289, the sum of the stock prices was
$1,252.20, and the DJIA settled at 9,275.36.




                                                                                         8
       1,252.20 ÷ 0.13500289 = 9,275.36

When an event occurs that will motivate calculation of a new divisor, such as a stock
split, Dow Jones adjusts the closing price of the affected stock (or stocks if there is
more than one such event on the given day), sums the stock prices to include the
split price, and solves for a new divisor that will generate the same DJIA value that
the former divisor generated using the non-adjusted price.

To see how this might work in practice, suppose a hypothetical situation in which
Coca Cola, priced at $42.96 on September 30, has announced a 2-for-1 split for
October 1. The new stock price will be $21.48, and the adjusted sum of the stock
prices will be $1,230.72. That means the new divisor will be 0.132687033.

       1,230.72 ÷ new divisor = 9,275.36
       new divisor = 1,230.72 ÷ 9,275.36
       new divisor = 0.132687033

By changing the divisor in this way, Dow Jones preserves the continuity of the DJIA
as a tracking tool for fundamental stock market shifts.

The use of the divisor in constructing the DJIA has important implications for
arbitragers and active traders.

For one, this makes it easy to replicate the index with a basket of stocks. The level of
the DJIA is the market value of a portfolio composed of an equal number of shares of
the 30 DJIA stocks. To find this number, solve the reciprocal of the DJIA divisor. On
September 30, 2003, that would have shown that the 9,275.36 DJIA level
represented a basket of 7.41 shares of each of the 30 stocks (1 ÷ 0.13500289 =
7.40725).

For another, the use of the divisor makes the DJIA easy for active traders to track.
A dollar move in the price of any DJIA stock moves the DJIA by 1 ÷ DJIA divisor.
For example, given that the sum of the September 30, 2003, settlement prices is
1,252.20, suppose that one stock price rose $1 to make the new sum 1,253.20.
That would raise the level of the DJIA to 9,282.76, which is 7.40725 higher than the
actual settlement index value of that day.

       1,253.20 ÷ 0.13500289        =   9,282.76424
       1,252.20 ÷ 0.13500289        =   9,275.35699
                   difference       =   7.40725
              1 ÷ 0.13500289        =   7.40725

This difference between the actual and hypothetical index values shows that a $1
change in the price of one stock changes the index value by the same amount as one
divided by the DJIA divisor. You can see how this makes the index easy to track.

Calculating the Number of Shares vs. Futures
For traders involved in trading the spread between the basket of DJIA stocks and
futures, the calculations previously mentioned need to be adjusted by the multiplier
of the futures contract. The result will be the correct number of each of the Dow 30
stocks to hold against a futures contract.

              Futures multiplier *(1 ÷ Divisor) = Number of shares


                                                                                       9
For baskets against the CBOT DJIA futures:

              $10 * (1 ÷ .13500289) = 74

For baskets against the CBOT mini-sized Dow futures:

              $5 * (1 ÷ .13500289) = 37




Contract Value and Size
Stock index contract value defines your market exposure, and the CBOT Dow
complex gives you four choices—CBOT mini-sized Dow futures and options, and full-
sized CBOT DJIA futures and options.

To determine the contract value of either futures contract, multiply the futures price
by the multiplier. For example, with CBOT mini-sized Dow futures trading at 10,000,
a one contract futures position gives you market exposure equivalent to $50,000
(10,000 x $5 = $50,000). At the same futures price, a one contract position in CBOT
DJIA futures gives you a $100,000 market exposure (10,000 x $10 = $100,000).

Options on mini-sized Dow futures are quoted in regular Dow index points. An option
with a premium of 317 points will cost 317 * $5 = $1,585.

Options on CBOT DJIA futures use a $100 multiplier, so an option with a 31.70
premium will actually cost $3,170. An alternative way to look at this is to notice that
the 31.70 option premium is equivalent to 317 index points, or $3,170 (317 x $10).




                                                                                     10
Liquidity
The contracts of the CBOT Dow complex provide active traders with a large and
rapidly growing liquidity pool. Liquidity is important to traders because it reduces the
most important transaction cost, the bid-ask spread. Liquid markets also allow
traders to enter and exit trades when they want to, not when the market dictates.

Exhibit 3 shows the average daily volumes of CBOT DJIA futures, DJIA options and
CBOT mini-sized Dow futures from January 2000 through November 2003.

You can see that volume growth in these contracts has been on a sharply upward
trend for the last year depicted. This is a strong indication that good liquidity is
consistently getting better.

Volume growth is a sign of growing liquidity. Greater liquidity lowers transaction
costs and increases trading opportunity.

Exhibit 3: CBOT Dow Complex — Average Daily Volume

                                                                                                                                                                                               mini Dow options
               Dow Complex Average Daily Volume                                                                                                                                                mini Dow futures
                                                                                                                                                                                               DJIA Options
                                                                                                                                                                                               DJIA Futures
 100,000

  90,000

  80,000

  70,000

  60,000

  50,000

  40,000

  30,000

  20,000

  10,000

   0,000
                                                                                                     Nov-02




                                                                                                                                                                                                                  Nov-03
                                                                 Jul-02




                                                                                                                                                                             Jul-03
           Jan-02




                                                        Jun-02




                                                                                                                       Jan-03




                                                                                                                                                                    Jun-03




                                                                                                                                                                                                                                    Jan-04
                                               May-02




                                                                                                                                                           May-03
                             Mar-02




                                                                                                                                         Mar-03




                                                                                                                                                                                                                                                      Mar-04
                                                                          Aug-02

                                                                                   Sep-02




                                                                                                                                                                                      Aug-03

                                                                                                                                                                                                Sep-03
                                                                                                              Dec-02




                                                                                                                                                                                                                           Dec-03
                                      Apr-02




                                                                                                                                                  Apr-03
                                                                                            Oct-02




                                                                                                                                                                                                         Oct-03
                    Feb-02




                                                                                                                                Feb-03




                                                                                                                                                                                                                                             Feb-04




                                                                                                                                                                                                                                                               11
Exhibit 4 shows the average daily dollar volume traded for CBOT mini-sized Dow
futures as a percentage of the average daily dollar volume traded for the DIAMOND
Exchange Traded Fund (ETF). CBOT mini-sized Dow futures routinely trade over 4
times the dollar volume of the Diamond ETF.

Advantages of the CBOT mini-sized Dow futures over the Diamond ETF:
         Margins – Initial margin requirements for CBOT Dow futures are
         approximately 4 to 7 percent of the underlying contract value, compared
         to a Reg T requirement of 50 percent for ETFs.
         Tax Benefits – CBOT Dow futures qualify for the 60/40 tax treatment for
         broad based index futures.
         No management fee
         Tighter bid – ask spreads.

Exhibit 4: CBOT mini-sized Dow vs. DIAMOND ETF

                 CBOT mini-sized Dow Futures v.s. Diamond ETF : $volume Traded
 600%



 500%



 400%



 300%



 200%



 100%



   0%
                 May-02




                                                                                                                             May-03
                                                                                                           Mar-03




                                                                                                                                                                                                                       Mar-04
                          Jun-02




                                                                                         Jan-03




                                                                                                                                      Jun-03




                                                                                                                                                                                                     Jan-04
                                                                       Nov-02




                                                                                                                                                                                   Nov-03
                                   Jul-02




                                                                                                                                               Jul-03
                                            Aug-02




                                                                                                                                                        Aug-03
                                                              Oct-02




                                                                                                                                                                          Oct-03
        Apr-02




                                                                                                                    Apr-03
                                                     Sep-02




                                                                                                  Feb-03




                                                                                                                                                                 Sep-03




                                                                                                                                                                                                              Feb-04
                                                                                Dec-02




                                                                                                                                                                                            Dec-03




                                                                                                                                                                                                                                12
Dollar Volatility
Volatility is a double-edged sword for futures traders. On the positive side, volatility
translates into trading opportunity. On the negative side, too much volatility creates
risk. It isn’t only that traders can suffer losses but that they can be stopped out of a
trade and then miss the next positive market move. Ideally, then, traders want a
futures contract that exhibits enough volatility but not so much as to be unduly
dangerous. Exhibit 8 plots the daily dollar volatility of the three major U.S. stock
indexes.

Exhibit 5: Intra-Day Dollar Volatility of Major U.S. Stock
Indexes


                                                  Monthly Average of Daily Dollar Range
 $3,500

                                                                              Dow                            SP500                         ND100
 $3,000


 $2,500


 $2,000


 $1,500


 $1,000


   $500


     $0
                   Nov-00




                                                                         Nov-01




                                                                                                                                Nov-02




                                                                                                                                                                                      Nov-03
                                                       Jul-01




                                                                                                              Jul-02




                                                                                                                                                                    Jul-03
                            Jan-01




                                                                                  Jan-02




                                                                                                                                         Jan-03




                                                                                                                                                                                               Jan-04
          Sep-00




                                                                Sep-01




                                                                                                                       Sep-02




                                                                                                                                                                             Sep-03
                                              May-01




                                                                                                    May-02




                                                                                                                                                           May-03
                                     Mar-01




                                                                                           Mar-02




                                                                                                                                                  Mar-03




Dollar volatility relates to market opportunity. Clearly, the DJIA generates ample
trading opportunity without creating undue risk.

Note: These values were calculated based upon cash indexes and multipliers of mini-
sized index futures.

The importance of this is that it demonstrates that, although they contain many
fewer stocks and use a simpler method of index construction, CBOT DJIA and
CBOT mini-sized Dow futures provide excellent means to achieve exposure to the
broad U.S. stock market.



                                                                                                                                                                                                        13
Exhibit 6: DJIA Historical Volatility
                                                  Dow Jones Industrial Average - 20 day Historical Volatility

 50.00%

 45.00%

 40.00%

 35.00%

 30.00%

 25.00%

 20.00%

 15.00%

 10.00%

  5.00%

  0.00%
                       3/27/1997
                                   6/27/1997
                                               9/27/1997


                                                                        3/27/1998
                                                                                    6/27/1998
                                                                                                9/27/1998


                                                                                                                         3/27/1999
                                                                                                                                     6/27/1999
                                                                                                                                                 9/27/1999


                                                                                                                                                                          3/27/2000
                                                                                                                                                                                      6/27/2000
                                                                                                                                                                                                  9/27/2000


                                                                                                                                                                                                                           3/27/2001
                                                                                                                                                                                                                                       6/27/2001
                                                                                                                                                                                                                                                   9/27/2001


                                                                                                                                                                                                                                                                            3/27/2002
                                                                                                                                                                                                                                                                                        6/27/2002
                                                                                                                                                                                                                                                                                                    9/27/2002


                                                                                                                                                                                                                                                                                                                             3/27/2003
                                                                                                                                                                                                                                                                                                                                         6/27/2003
                                                                                                                                                                                                                                                                                                                                                     9/27/2003
          12/27/1996




                                                           12/27/1997




                                                                                                            12/27/1998




                                                                                                                                                             12/27/1999




                                                                                                                                                                                                              12/27/2000




                                                                                                                                                                                                                                                               12/27/2001




                                                                                                                                                                                                                                                                                                                12/27/2002




                                                                                                                                                                                                                                                                                                                                                                 12/27/2003
The chart shows the 20-day historical volatility for the DJIA (historical volatility is the
annualized standard deviation of logarithmic prices changes, and is usually based on
the closing prices).

Since the mid 1990s, the 20-day H.V. has been ranging from about 10 percent on
the low side, to above 40 percent on the high side. This presents opportunities for
trading DJIA options and options on CBOT mini-sized Dow futures.

Advantages of DJIA options and mini-sized Dow options vs. DJX options and option
on DIAMONDS:
         Portfolio based margining
         Trading hours are longer, virtually 24 hours per day
         Contract sizes are 10 times (DJIA options) and 5 times (mini-sized Dow
         options) larger than either DJX or Diamond options, and are therefore
         more efficient in terms of commissions and fees.
         Futures style tax treatment (as section 1256 contracts).




                                                                                                                                                                                                                                                                                                                                                                        14
3B. Dow Jones U.S. Total Market Index
The Dow Jones U.S. Total Market Index (TMI) is the U.S. component of the Dow
Jones Global Index. The TMI is a free-float adjusted, market capitalization weighted
index that aims to cover 95 percent of the U.S. stock market universe. The TMI is a
broad market benchmark index. The TMI is composed of 3 size components: Large
Cap, Mid Cap and Small Cap. It can also be viewed as the sum of the economic
sectors as defined by Dow Jones. A daily data file is available from Dow Jones
Indexes regarding the constitution of the TMI.

See www.djindexes.com for more information.

The Dow Jones Global Classification Standard is a four-tiered system consisting, from
its broadest to its most specific levels, of 10 Economic Sectors, 18 Market Sectors,
51 Industry Groups and 89 Subgroups. Every component of the Dow Jones World
Index, from which all of the other Dow Jones indexes are derived, has been assigned
to a subgroup that rolls up ultimately into one of the ten world index economic
sectors. These classifications are determined by the primary revenue source of each
company and are reviewed annually.

In the U.S., the ten economic sector indexes, as identified by the Dow Jones Global
Classification Standard, are subsets of the benchmark Dow Jones U.S. Total Market
Index and provide succinct summations of broad segments of the U.S. marketplace.
They are broad enough to be viable as the basis of investable products but specific
enough to capture the performance of distinct sections of the U.S. economy.




Dow Jones U.S. Size and Sector Indexes
METHODOLOGY OVERVIEW

INDEX UNIVERSE
The index universe is defined as all stocks traded on the major U.S. stock
exchanges, minus any non-common issues and illiquid stocks.

INITIAL STOCK SELECTION (Upon Index Development)
1. The index universe is sorted by free-float market capitalization.

2. Size category definitions are established as follows:
       • The sum of the free-float market capitalization of stocks above the 70th
percentile is established as the cut-off for large-caps.
       • The sum of the free-float market capitalization of stocks above the 90th
percentile is established as the cut-off for mid-caps.

3. Stocks in the top 95% of the index universe by free-float market capitalization are
selected as components of the U.S. Total Market Index, skipping stocks that fall
within the bottom 1% of the universe by free-float market capitalization and within
the bottom .01% of the universe by turnover.



                                                                                    15
4. Stocks are categorized into size classes as follows based on stocks’ float-adjusted
market values:
       • Stocks falling above the large-cap cut-off established in #2 are designated
       as large-caps.
       • Stocks falling below the large-cap cut-off but above the mid-cap cut-off
       established in #2 are designated as mid-caps.
       • Remaining stocks are designated as small-caps.
       • TopCaps are defined as large-caps plus mid-caps.
       • LowCaps are defined as mid-caps plus small-caps.

SECTOR CLASSIFICATION
Sector indexes are constructed by categorizing the component stocks of the Dow
Jones U.S. Total Market Index into the 10 Economic Sectors, 18 Market Sectors, 51
Industry Groups and 89 Subgroups defined by the Dow Jones Global Classification
Standard. A separate index is maintained for each group at each of the four levels.
Companies are classified into Subgroups, the most specific level of classification,
based on their primary source of revenue. The Subgroups are rolled up into Industry
Groups, which in turn are rolled up into Market Sectors and finally into Economic
Sectors, the broadest level of classification.

Exhibit 7: DJ TMI Summary
DJ TMI Index
         12/31/2003                Market Cap         Percentage
                                    $ Billions          Weight            #stocks
Size Indexes
Large Cap                            8,500.41            73.53%             247
Mid Cap                              2,153.83            18.63%             513
Small Cap                             906.16             7.84%              840

DJ US Total Market Index            11,560.40          100.00%             1600

Sector Indexes
Basic Materials                       317.00              2.74%              66
Consumer, Cyclical                   1654.27             14.31%             285
Consumer, Noncyclical                 984.74             8.52%               99
Energy                                699.03             6.05%               79
Financial                            2428.55             21.01%             294
Health Care                          1540.47             13.33%             177
Industrial                           1372.65             11.87%             253
Technology                           1861.26             16.10%             250
Telecom                               357.38              3.09%              21
Utilities                             345.00             2.98%               76

DJ US Total Market Index            11,560.34          100.00%             1600




                                                                                    16
                     DJ U.S. Total Market Index
        12/31/2003           Market Cap    Percentage
                              $ Billions     Weight     #stocks
Size Indexes
Large Cap                     8,500.41      73.53%       247
Mid Cap                       2,153.83      18.63%       513
Small Cap                      906.16        7.84%       840
DJ US Total Market Index     11,560.40      100.00%      1600

        11/30/2003           Market Cap    Percentage
                              $ Billions     Weight     #stocks
Size Indexes
Large Cap                     7,990.41      72.60%       240
Mid Cap                       2,092.89      19.02%       495
Small Cap                      922.61        8.38%       852

DJ US Total Market Index     11,005.90      100.00%      1587

        10/31/2003           Market Cap    Percentage
                              $ Billions     Weight     #stocks
Size Indexes
Large Cap                     7,943.30      73.04%       240
Mid Cap                       2,043.57      18.79%       498
Small Cap                      888.79        8.17%       854

DJ US Total Market Index     10,875.66      100.00%      1592




                                                                  17
Exhibit 8: TMI Sectors

                        DJ U.S. TMI Sector Weights
                            December 31, 2003




                        3.1%   3.0%    2.7%
                                                  14.3%
        16.1%

                                                                8.5%




11.9%                                                           6.0%


                13.3%                           21.0%



                 Basic Materials [ BSC ]                  Consumer Cyclical [ CYC ]
                 Consumer Noncyclical [ NCY ]             Energy [ ENE ]
                 Financial [ FIN ]                        Healthcare [ HCR ]
                 Industrial [ IDU ]                       Technology [ TEC ]
                 Telecommunications [ TLS ]               Utilities [ UTI ]




REVIEW PROCEDURE / BUFFER RULES
1. The universe is ranked by free-float market capitalization, and size categories are
established as described in Step #2 of the Selection Process.

2. New large-cap and mid-cap companies (IPOs) are assigned to the large-cap and
mid-cap indexes based on full market cap (above the 70th percentile large-cap,
above the 90th percentile mid-cap).

3. Current large-cap components that rank above the 75th percentile when sorted by
full market cap are retained in the large-cap index; current mid-cap components that
rank between the 67.5th and 92.5th percentiles when sorted by full market cap are
retained in the mid-cap index.

4. Current mid-cap or small-cap components that rank above the 67.5th percentile
when sorted by full market cap are reclassified into the large-cap index; current
small-cap that rank above 85th percentile when sorted by full market cap are
reclassified into the mid-cap index.

5. Remaining companies are re-sorted based on full market capitalization and
average quarterly turnover. Stocks are added to the small-cap index until 93% of the
total universe is represented.

6. Remaining components and non-components that fall within the bottom 1% of
stocks by free-float market capitalization or within the bottom .01% of stocks by
turnover are excluded from further selection.


                                                                                      18
7. Beginning with the components list, and continuing with the non-components list
if necessary, companies are added to the small-cap index until total universe
coverage reaches 95%.

REVIEW FREQUENCY
The composition of the U.S. Total Market Index and the U.S. Size and Sector indexes
is reviewed quarterly.

WEIGHTING
The U.S. Total Market Index and U.S. Size and Sector indexes are weighted by free-
float market capitalization.

Source: Dow Jones Indexes




Exhibit 9: Broad Market Benchmarks: Methodology
Comparisons


                        U.S. Broad Market Stock Indexes
                                                              Transparent,
                 Float   Reconstitution       Buffer Zone     Rules-based      Calculation for
                Adjusted  Frequency            for Sizes      Methodology       Cap breaks

                                                                                 Market Cap
DJ U.S. TMI       Yes          Quarterly           Yes             Yes            Percent

                                                                               Fixed Number of
Russell 3000      Yes           Annual             No              Yes             Stocks

                                                                               Fixed Number of
S&P 1500           No           Ad-hoc             Yes              No             Stocks
                                                                               Fixed Number of
Wilshire 5000      No          Monthly             Yes             Yes             Stocks

          DJ U.S. TMI : Quarterly Review of Index Composition
Quarterly Reviews are conducted in March, June, September and December.

Changes resulting from Quarterly Reviews are implemented after the close of trading on the third
Friday of the month of each of the above stated months.

Quarterly Reviews coincide with futures expirations.




                                                                                              19
Exhibit 10: TMI & Major Stock Index Correlations
The following chart shows the correlation of the between the TMI and major
benchmark indexes (R1, R3 = Russell 1000 and 3000; W5 = Wilshire 5000).
                                   50 day Rolling Correlations of Percent Price Changes
100.00%

 99.95%

 99.90%

 99.85%

 99.80%

 99.75%

 99.70%

 99.65%

 99.60%                                                  TMI / Russell 3000

 99.55%                                                  TMI / Wilshire 5000
                                                         Russell 3000 / Wilshire 5000
 99.50%
                                                         TMI / SP500
 99.45%                                                  TMI / Russell 1000

 99.40%
          04/01/03
                        04/11/03
                                       04/24/03
                                                      05/06/03
                                                                 05/16/03
                                                                             05/29/03
                                                                                        06/10/03
                                                                                                    06/20/03
                                                                                                               7/2/2003


                                                                                                                                           07/25/03
                                                                                                                                                          08/06/03
                                                                                                                                                                        08/18/03
                                                                                                                                                                                      08/28/03
                                                                                                                                                                                                   09/10/03
                                                                                                                                                                                                                09/22/03
                                                                                                                                                                                                                            10/02/03
                                                                                                                                                                                                                                       10/14/03
                                                                                                                                                                                                                                                  10/24/03
                                                                                                                                                                                                                                                             11/05/03
                                                                                                                                                                                                                                                                        11/17/03
                                                                                                                                                                                                                                                                                    11/28/03
                                                                                                                                                                                                                                                                                                 12/10/03
                                                                                                                                                                                                                                                                                                              12/22/03
                                                                                                                                                                                                                                                                                                                            01/05/04
                                                                                                                                                                                                                                                                                                                                           01/15/04
                                                                                                                                                                                                                                                                                                                                                          01/27/04
                                                                                                                                                                                                                                                                                                                                                                     02/06/04
                                                                                                                                                                                                                                                                                                                                                                                 02/18/04
                                                                                                                           7/15/2003




Exhibit 11: Broad Market Correlations
                                                                   50 Day Rolling Correlations of Percent Price Changes
 100.000%

  99.975%

  99.950%

  99.925%

  99.900%

  99.875%

  99.850%

  99.825%
                                                             TMI / Russell 3000
  99.800%                                                    TMI / Russell 1000
                                                             TMI / SP 1500
  99.775%                                                    TMI / Wilshire 5000
  99.750%

  99.725%

  99.700%
                     12/31/02
                                   01/15/03
                                                  01/30/03
                                                             02/13/03
                                                                        02/28/03
                                                                                   03/14/03
                                                                                              03/28/03
                                                                                                         04/11/03
                                                                                                                    04/28/03
                                                                                                                                05/12/03
                                                                                                                                               05/27/03
                                                                                                                                                             06/10/03
                                                                                                                                                                           06/24/03
                                                                                                                                                                                        7/9/2003
                                                                                                                                                                                                     07/23/03
                                                                                                                                                                                                                 08/06/03
                                                                                                                                                                                                                            08/20/03
                                                                                                                                                                                                                                       09/04/03
                                                                                                                                                                                                                                                  09/18/03
                                                                                                                                                                                                                                                             10/02/03
                                                                                                                                                                                                                                                                        10/16/03
                                                                                                                                                                                                                                                                                   10/30/03
                                                                                                                                                                                                                                                                                               11/13/03
                                                                                                                                                                                                                                                                                                            11/28/03
                                                                                                                                                                                                                                                                                                                         12/12/03
                                                                                                                                                                                                                                                                                                                                       12/29/03
                                                                                                                                                                                                                                                                                                                                                      01/13/04
                                                                                                                                                                                                                                                                                                                                                                 01/27/04
                                                                                                                                                                                                                                                                                                                                                                            02/10/04
                                                                                                                                                                                                                                                                                                                                                                                       02/24/04




                                                                                                                                                                                                                                                                                                                                                                                       20
                                                                                                     0.00%
                                                                                                             5.00%
                                                                                                                     10.00%
                                                                                                                              15.00%
                                                                                                                                       20.00%
                                                                                                                                                25.00%
                                                                                                                                                         30.00%
                                                                                                                                                                  35.00%
                                                                                                                                                                           40.00%
                                                                                                                                                                                    45.00%
                                                                                                                                                                                                                                                0.00%
                                                                                                                                                                                                                                                        5.00%
                                                                                                                                                                                                                                                                10.00%
                                                                                                                                                                                                                                                                         15.00%
                                                                                                                                                                                                                                                                                  20.00%
                                                                                                                                                                                                                                                                                           25.00%
                                                                                                                                                                                                                                                                                                    30.00%
                                                                                                                                                                                                                                                                                                             35.00%
                                                                                                                                                                                                                                                                                                                      40.00%
                                                                                                                                                                                                                                                                                                                                     45.00%
                                                                                                                                                                                                                                                                                                                                                 50.00%

                                                                                          1/6/2002                                                                                                                                  3/11/2001
                                                                                          2/6/2002
                                                                                                                                                                                                                                    5/11/2001
                                                                                          3/6/2002
                                                                                          4/6/2002                                                                                                                                  7/11/2001
                                                                                          5/6/2002
                                                                                                                                                                                                                                    9/11/2001
                                                                                          6/6/2002
                                                                                          7/6/2002                                                                                                                                 11/11/2001
                                                                                          8/6/2002
                                                                                                                                                                                                                                    1/11/2002
                                                                                          9/6/2002
                                                                                         10/6/2002                                                                                                                                  3/11/2002




                                                                                                                                                                                             Historical Volatilities - 20 day HV
                                                                                         11/6/2002
                                                                                                                                                                                                                                    5/11/2002
                                                                                         12/6/2002
                                                                                          1/6/2003                                                                                                                                  7/11/2002
                                                                                                                                                                                                                                                                                                                                                                                    Exhibit 12: TMI Volatility Graphs




                                                                                          2/6/2003
                                                                                                                                                                                                                                    9/11/2002
                                                                                          3/6/2003
                                                                                          4/6/2003                                                                                                                                 11/11/2002




                                                                                                                                                                                             TMI
                                                                                                                                                                                                                                                                                                                                                      TMI Historical Volatilities




                                                                                          5/6/2003
                                                                                                                                                                                                                                    1/11/2003
                                                                                          6/6/2003
                                                                                          7/6/2003                                                                                                                                  3/11/2003

                                                                                          8/6/2003
                                                                                                                                                                                             LC                                     5/11/2003
                                                                                          9/6/2003
                                                                                         10/6/2003                                                                                                                                  7/11/2003
                                                                                                                                                                                             MC



                                                                                         11/6/2003                                                                                                                                  9/11/2003
                                                                                         12/6/2003
                                                                                                                                                                                                                                   11/11/2003
                                                                                                                                                                                                                                                                                                                         30 day HV
                                                                                                                                                                                                                                                                                                                                     10 day HV




                                                                                          1/6/2004
                                                                                          2/6/2004




     Historical Volatilities for the DJ TMI, Large Cap, Mid Cap and Small Cap Indexes.
                                                                                                                                                                                                                                    1/11/2004
                                                                                                                                                                                             SC




                                                                                          3/6/2004
                                                                                                                                                                                                                                    3/11/2004




21
4. Pricing and Fair Value
Determinants of Fair Value
The price of a futures contract is a risk-adjusted forecast of the value of the cash
index at the expiration of the contract based on the expectations and risk
preferences of market participants. This derivation is analogous to the valuation of
the cash index, but there are two important differences:

• The price specified for a cash index is for current payment where the price specified
for a futures is for payment at expiration.

• The price of a futures excludes the value of dividends paid prior to futures
expiration. The cash index includes this value.

Comparing these fair values to actual futures levels allows traders to gauge the
relationship of the futures price to its theoretical fair value and to decide whether
futures are trading rich or cheap. Given these differences, the futures price is not
equal to the underlying cash index, but has the following fair value relative to the
underlying index:

CBOT DJIA
Futures Fair Value = DJIA*(1+ r (days/360) – DJIA dividends

CBOT DJ U.S. Total Market Index
Futures Fair Value = TMI*(1+ r (days/360) – TMI dividends


Here, r is a short-term rate from the current date to the futures expiration, typically
the relevant maturity LIBOR. Days refers to the number of days to expiration.
Dividends is the sum of dividends, in index points, to be paid by expiration. The
difference between the fair value of a futures contract and the underlying cash index
is called the fair value premium or discount depending on its sign. The sign depends
on the effective rate of interest relative to the dividend yield of the cash index. In the
past, fair values were generally at a premium, except towards expiration when the
effective rate of interest might be low enough to be offset by dividends. In the
current low interest rate environment, fair value is more often at a discount. The fair
value of nearby DJIA futures is updated daily at www.cbot.com/dow.




                                                                                        22
CBOT DJIASM Futures Fair Value Example:

A quick example
FV = C*[1 + r*(t/360)] – D
Where,
C = cash DJIA index
r = short term interest rate
t = days to futures expiration
D = Dividends to expiration, expressed in Index points.


Given the following inputs –
C = 9400.00
R = 1.10 %
T = 29
D = 10.00


FV = 9400.00*[1 + .011*(29/360)] - 10.00 = -1.67
So, the theoretical futures price should be 9398.33 (futures minimum tick is 1 Dow
point, so we would simply view FV as 9398).


The CBOT website publishes the FV level every day before the markets open
(www.cbot.com/dow).




Mispricing and Arbitrage
What keeps CBOT mini-sized Dow futures in line with the cash DJIA?


Professional arbitrage firms and institutions trade baskets composed of the 30 stocks
in the DJIA against CBOT mini-sized Dow futures and DJIA futures. They also trade
ETFs such as the Diamonds against futures. In both these cases, the arbitrage will
help keep markets in line during the vast majority of time. There may be cases of
extreme volatility where futures and cash move “out of line” for a brief time
(basically a matter of seconds) before being forced back to fair value.

For example, if DJIA futures fair value is –12.00, ie if cash DJIA is at 9400, then DJIA
futures should be at 9388. If DJIA futures are instead trading at 9380, about 8 points
too cheap, traders will buy the DJIA futures and sell baskets of the 30 Dow stocks.
As more traders enter this spread, the futures will quickly get back to trading at –
12.00 below the cash DJIA.




                                                                                     23
Basically, for individual traders, the arbitrage game is normally out of reach given
the costs & capital involved. However, individual traders do benefit from having
arbitrage firms, as the latter help keep markets in line, and also add liquidity to both
the futures and cash markets.


Exhibit 13: Fair Value Over Time & Interest Rate Changes

              Fair Value Convergence to Cash over Time                    Pos FV         Neg FV


              40
              30
              20
  FV Spread




              10
               0
              -10
              -20
              -30
              -40
                    60   54   48    42     36   30    24      18    12    6     0
                                         Days to Expiration




               Effect of Interest Rates on FV                      t=60               t=30
                      (using Div = 30)
              60
              50
              40
              30
  FV Spread




              20
              10
               0
              -10
              -20
              -30
                     1.00%         2.00%        3.00%          4.00%          5.00%
                                     Short Term Interest Rate




                                                                                                  24
5. Administrative Details
Settlement Process
Daily Settlement and Margins
The initial margin for CBOT DJIA futures, CBOT mini-sized Dow futures and CBOT DJ
U.S. TMI futures contracts ranges from 4% to 7% of contract value. Daily gains and
losses are debited from customer accounts at futures brokerage firms. If the amount
in the account falls below the maintenance margin, the account must be brought
back to its initial level. The maintenance margin is 1/1.35 of the initial margin.

The CBOT Clearing House gives margin credits on certain inter-index spreads. For
current margin details, visit www.cbot.com/dow.


Final Settlement Price and Special Opening Quotation
CBOT DJIA, CBOT mini-sized Dow and CBOT DJ U.S. TMI futures are settled in cash,
not by physical delivery of the basket of stocks. The final settlement price is a
Special Opening Quotation (SOQ) of the cash index determined on the day following
the last day of trading, usually the third Friday of the contract month. Unlike the
futures, which are quoted in full index points, the SOQ is calculated to two decimal
places, as are the underlying cash indexes.

The SOQs of the DJIA and the DJ U.S. TMI index are calculated from the sequence of
opening prices of the underlying individual stocks in each index. In contrast, the DJIA
and the DJ U.S. TMI are calculated from the sequence of last transaction prices, or, if
the stock has not traded yet, its last closing price. The official opening prices of
stocks traded on the NYSE and the AMEX are their first traded prices and are
determined by the relevant specialists through a special opening auction. The exact
opening time depends on the magnitude of order imbalances in the specialist’s book,
and different stocks typically open at different times. The opening prices of the
stocks traded on Nasdaq are also the first traded prices but are determined through
the regular trading process.

Because of the different prices input into the SOQs, they are unlikely to be equal to
either the current or to nearby values of the DJIA or the DJ U.S. TMI, including their
opening values. To illustrate, suppose that the DJIA includes just two stocks, General
Motors and Microsoft, the divisor is 0.01, and the following prices occur:




                                                                                    25
Determining the SOQ
                    Last Close         9:30 a.m.*         9:31 a.m.*       9:32 a.m.*

General Motors           $46.01         Not Open           $46.09           $46.03

Microsoft                $47.48         Not Open           Not Open         $47.50

SOQ                                                                           9359

DJIA                      9349            9349               9357             9353

*Eastern Standard Time




Notice that at 9:30, neither stock is open, and the DJIA quote is the same as the last
close. A minute later, General Motors opens at $46.09, and this drives the index up 8
points to 9357. Finally, at 9:32, Microsoft opens at $47.50, and General Motors
trades down 6 cents to $46.03. The two 9:32 prices drive the index down 4 points to
9353. The SOQ, based on the two opening prices, is 9359, which is 6 points higher
than the traded index price. This illustrates the process for arriving at an SOQ and
shows why the SOQ is unlikely to match the currently traded DJIA level.




Exchange for Physicals (EFPs)
EFPs, also referred to as against actuals or versus cash, were originally designed to
allow two hedgers to exchange futures for cash positions. In an EFP trade, the two
counterparties negotiate the price and size of offsetting futures and securities
transactions. For CBOT Dow futures, the CBOT accepts EFPs against any security,
which is reasonably correlated with the DJIA, such as portfolios of correlated stocks
and DIAMONDS. For CBOT DJ U.S. TMI futures, the CBOT accepts EFPs against any
security, which is reasonably correlated with the DJ U.S. TMI, such as portfolios of
correlated stocks and Barclays Dow Jones U.S. Total Market Index iShares.

Only the futures side of the EFP is transacted on the futures exchange, but clearing
firms on the opposite sides of an EFP are required to confirm the terms of the cash
market side of the EFP before submitting the futures orders. The CME clearing
process requires that EFPs for both CME and CBT transactions be entered using the
CME’s Online Clearing 21® EFP (Exchange for Physicals) Trade Entry System.
This system appears on the CME 3270 Supersession menu as PCBT-EFP. It is listed
in the same section of the menu as PCBT-TES. EFPs should not be entered as
standard type 9 trades. Clearing 21 EFP uses a one-sided entry method, and it is the
responsibility of the sell side to submit CBOT products.

The execution time is defined as the time the EFP is actually executed, not the time
at which the parties to the trade report it to their respective firms. Confirmation and
processing of EFP trades can be done either on the floor of the exchange or in back
offices.




                                                                                     26
Fungibility
CBOT mini-sized Dow ($5 multiplier) and CBOT DJIA futures ($10 multiplier) are
fully fungible contracts. Fungibility allows the offset and liquidation of CBOT mini-
sized Dow against CBOT DJIA futures held in the same account, contract month, and
year in a ratio of 2 to 1.

   •   CME Clearing will facilitate these offsets as a Type 8 transaction and Transfer
       Reason Code P. CME Clearing will take the opposing side as firm 995.
   •   The user will enter only one side of the transaction and the opposing side will
       be created by the system. For example, customer 12345 is long 10 mini-
       sized Dow futures and short 5 full-size contracts. The user would go into the
       Fungible Product Offset Entry screen and enter a transaction to sell 10 mini-
       sized Dow futures and enter account number 12345. Upon hitting enter, a
       buy of 5 full-sized Dow futures is created at the prior day’s settlement price.
       Upon hitting enter again confirms the entries and sends both records to the
       firm’s bookkeeping system via MQM/TREX messaging.
   •   All positions must be in the correct ratio of two minis to one full size.
   •   Offsets that are correctly entered will be matched; if not, they will be
       considered an outtrade and displayed on the back office unmatched trade
       report.
   •   The Trade Register will identify these adjustments as position offsets, and the
       register data file will indicate position offsets with a unique transaction type
       of X in card column 46.
   •   CME Clearing will report open interest for all cleared net offset positions in
       CBOT DJIA and CBOT mini-sized Dow futures under firm 995.




Price Limits and Trading Halts
CBOT DJIA futures and options, CBOT mini-sized Dow futures and options and CBOT
DJ U.S. TMI futures have price limits and related trading halts. The trading halts are
coordinated with trading halts at the primary securities market, the NYSE. These
trading halts are often referred to as circuit-breakers.

NYSE Trading Halts:
Successive NYSE trading halts are triggered by 10%, 20%, and 30% intra-day
declines of the DJIA from its previous closing value. More precisely, circuit-breaker
threshold levels are specified in index points and are calculated at the end of every
quarter as 10%, 20%, and 30% of the average daily closing value of the DJIA in the
preceding calendar month, with rounding to the nearest 50 points. New quarterly
circuit-breaker levels are announced on January 1, April 1, July 1, and October 1.

Price Limits for CBOT Dow Complex Futures and Options
Price limits for all CBOT Dow Complex contracts are set equal to NYSE 10%, 20%,
and 30% quarterly circuit-breaker thresholds. The 10%, 20%, and 30% price limits
are effective when the primary securities market is open for trading, usually 8:30
a.m. to 3:00 p.m., Chicago time. The limits are restricted to price changes below the
previous daily settlement. They apply to contracts traded in open auction and on the
CBOT electronic trading system. When the primary securities market is not open for



                                                                                     27
trading, only the 10% price limit is in effect and it applies to price changes both
above and below the previous daily settlement price.

Trading Halts for CBOT Dow Complex Futures and Options
Trading halts for CBOT Dow Complex contracts are triggered when (a) the primary
CBOT DJIA futures contract is limit offered 10%, 20% or 30% below its previous
close and (b) the corresponding NYSE trading halt is in effect. The full schedule of
trading halts and resumptions of trading follows:

8:15 a.m.-12:00 p.m. (Chicago time)
Trading in futures contracts halts if and only if (a) the primary futures contract is
limit offered at the 10%, 20%, or 30% limit and (b) the corresponding 10%, 20%,
or 30% trading halt has been declared on the NYSE. Trading in options is suspended
while the underlying futures are locked limit. The 10% NYSE trading halt lasts one
hour. The 20% NYSE trading halt lasts two hours. The 30% NYSE trading halt lasts
until the close. Trading in futures and options contracts resumes after 50% (by
capitalization weighting) of the underlying DJIA stocks have reopened for trading
after a trading halt. The next higher price limit (if applicable) is then in effect.

12:00 p.m.-1:00 p.m. (Chicago time)
The 10%, 20%, and 30% quarterly price limits are still in effect and are subject to
the same conditions as above, but the 20% NYSE trading halt lasts one hour instead
of two hours.

1:00 p.m.-1:30 p.m. (Chicago time)
The 10%, 20%, and 30% quarterly price limits are still in effect and are subject to
the same conditions as above, but the 10% NYSE trading halt lasts one half hour
instead of one hour, and the 20% and 30% NYSE trading halts last until the close.

1:30 p.m-3:00 p.m. (Chicago time)
The 10% quarterly price limit and corresponding 10% NYSE trading halt are no
longer in effect. The 20% and 30% limits are still in effect and are subject to the
same conditions as during the 1:00 p.m. to 1:30 p.m. period.




Electronic Error Policy
If a CBOT member or electronic trading terminal operator believes the price of a
trade executed on the CBOT electronic platform is in error, he can contact CBOT
Market Operations to report the situation. It is important to note that this notification
must occur within 5 minutes of the execution time of the asserted mistrade.
Otherwise, the trade will stand. For a complete statement of the CBOT electronic
error policy, visit www.cbot.com and go to the electronic user area.




                                                                                       28
6. Appendixes
CBOT Dow Complex: Salient Features

CBOT mini-sized Dow Futures
Trading Unit
                         Five ($5) times the Dow Jones Industrial Average Index. The DJIA is a
                         price-weighted index of thirty (30) of the largest, most liquid U.S. stocks.
Tick Size
                         Minimum price fluctuation is one point ($5.00 per contract).
Price Quote              One point equals $5 per contract
Contract Months          Mar, Jun, Sep, Dec Four months listed at all times.
Last Trading Day         The trading day preceding the final settlement day.
Final Settlement Day     The third Friday of the contract month.
Settlement               Cash settlement on the final settlement day. The final settlement price is
                         $5 times a Special Opening quotation of the index.
Trading Hours            Electronic Trading: 7:15 p.m. to 4:00 p.m., Chicago time, Sunday - Friday.
                         Trading in expiring contracts closes at 3:15 p.m. Chicago time on the last
                         trading day.
Exchange Ticker Symbol
                         Electronic: YM
Daily Price Limits       Successive 10%, 20% and 30% limits.
Fungibility              CBOT mini-sized Dow futures ($5) and CBOT DJIA futures ($10) are
                         fungible contracts. Tou can offset positions in these contracts on a 2:1
                         ratio if they are held in the same account and have identical expiration
                         dates.




CBOT DJIA Futures
Trading Unit
                         Ten ($10) times the Dow Jones Industrial Average. The DJIA is a price-
                         weighted index of 30 of the largest, most liquid U.S. stocks.
Tick Size
                         Minimum price fluctuation is one point ($10.00 per contract).
Price Quote
                         One point equals $10 per contract
Contract Months          Mar, Jun, Sep, Dec - Four nearest months in March quarterly cycle and two
                         additional Decembers listed at all times.
Last Trading Day
                         The trading day preceding the final settlement day.
Final Settlement Day
                         The third Friday of the contract month.
Settlement               Cash settlement on the final settlement day. The final settlement price is
                         $10 times a Special Opening quotation of the index.
Trading Hours
                         Open Auction: 7:20 a.m. to 3:15 p.m. Chicago Time, Mon.-Fri.
                         Electronic: 7:15 p.m. to 7:00 a.m. Chicago time, Sun.-Fri.
Exchange Ticker Symbol
                         Open Auction: DJ - Electronic: ZD
Daily Price Limits
                         Successive 10%, 20% and 30% limits.
Fungibility              CBOT mini-sized Dow futures ($5) and CBOT DJIA futures ($10) are
                         fungible contracts. Tou can offset positions in these contracts on a 2:1
                         ratio if they are held in the same account and have identical expiration
                         dates.



                                                                                                    29
Options on CBOT mini-sized Dow Futures
Underlying
                         One CBOT mini-sized Dow futures contract.
Tick Size
                         Minimum price fluctuation is one point ($5.00 per contract).
Premium Quotation
                         One point equals $5 per contract
Strike Price Intervals   Twenty 100 index point intervals up and down from the futures price plus
                         an additional twenty 200 point intervals above and below the highest and
                         lowest 100 point intervals.
Contract Months
                         Quarterly cycle of March, June, September, December plus two monthly
                         (serial) option contracts. The monthly option contract exercises into the
                         nearby futures contract. For example, an August option exercises into a
                         September futures position.
Last Trading Day         For standard quarterly option contracts: The Thursday immediately
                         preceding the Final Settlement Day.
                         For serial option contracts: The third Friday of the serial contract month.
Final Settlement Day
                        The third Friday of the contract month.
Exercise and Settlement
                        Options are American style exercise.
Process
                        Serial options or non-expiring quarterly options exercise into the
                        underlying futures contract. Exercise of expiring quarterly options results
                        in cash settlement based on the SOQ.
                        Buyers of options can exercise options on any business day prior to
                        expiration. Deadline for notice to the Clearing House is 6:00 pm Chicago
                        time.
                        On the last day of trading for serial options and the day following the last
                        day of trading for quarterly options, in-the-money options are
                        automatically exercised unless notice is given prior to 6:00 pm Chicago
                        time.
Expiration
                        Unexercised quarterly expiration options expire at 7:00 p.m. Chicago time
                        on the business day following the last trading day. Unexercised serial
                        expiration options expire at 7:00 p.m. on the last trading day.
Trading Hours
                        Electronic Trading: 7:15 p.m. to 4:00 p.m., Chicago time, Sunday - Friday.
                        Trading in expiring contracts closes at 3:15 p.m. Chicago time on the last
                        trading day.
Exchange Ticker Symbol
                        Electronic: OYM
Daily Price Limits
                        Successive 10%, 20% and 30% limits.




                                                                                                     30
Options on CBOT DJIA Futures
Underlying
                         One CBOT DJIA futures contract.
Tick Size
                         Minimum price fluctuation is 0.05 point of option premium or 0.5 index
                         points, which is equal to $5.
Premium Quotation
                         Option premium is quoted with an implicit multiplier of $100. For
                         example, 34.65 points of option premium is equal to $3,465, which is
                         also equal to 346.5 index points.
Strike Price Intervals
                         Twenty 100 index point intervals up and down from the futures price plus
                         an additional twenty 200 point intervals above and below the highest and
                         lowest 100 point intervals.
Contract Months
                         Quarterly cycle of March, June, September, December plus 2 to 3 nearest
                         months (serial months) such that four consecutive contract months are
                         listed.
Last Trading Day         For standard quarterly option contracts: The Thursday immediately
                         preceding the Final Settlement Day. For serial option contracts: The third
                         Friday of the serial contract month.
Final Settlement Day
                        The third Friday of the contract month.
Exercise and Settlement Options are American style exercise.
Process                 Serial options or non-expiring quarterly options exercise into the
                        underlying futures contract. Exercise of expiring quarterly options results
                        in cash settlement based on the SOQ.
                        Buyers of options can exercise options on any business day prior to
                        expiration. Deadline for notice to the Clearing House is 6:00 pm Chicago
                        time.
                        On the last day of trading for serial options and the day following the last
                        day of trading for quarterly options, in-the-money options are
                        automatically exercised unless notice is given prior to 6:00 pm Chicago
                        time.
Expiration              Unexercised quarterly expiration options expire at 7:00 p.m. Chicago time
                         on the business day following the last trading day. Unexercised serial
                         expiration options expire at 7:00 p.m. on the last trading day.
Trading Hours            Open Auction: 7:20 a.m. to 3:15 p.m., Chicago Time, Monday-Friday.
                         Electronic Trading: 7:15 p.m. to 7:00 a.m., Chicago time, Sunday - Friday.
                         Trading in expiring contracts closes at 3:15 p.m. Chicago time on the last
                         trading day.
Exchange Ticker Symbol
                         Open Auction: DJC for calls / DJP for puts.     Electronic: OZD
Daily Price Limits
                         Successive 10%, 20% and 30% limits.




                                                                                                  31
CBOT DJ Total Market Index: Salient Features

CBOT Dow Jones U.S. Total Market Index Futures
Trading Unit
                         Five hundred ($500) times the Dow Jones U.S. Total Market Index. The
                         TMI is a free-float adjusted market capitalization weighted index
                         representing 95 percent of the total U.S. stock market universe.
Tick Size
                         Minimum price fluctuation is .05 points ($25.00 per contract).
Price Quote
                         .05 points equals $25
Contract Months
                         Mar, Jun, Sep, Dec - Four nearest months in March quarterly cycle and two
                         additional Decembers listed at all times.
Last Trading Day
                         The trading day preceding the final settlement day.
Final Settlement Day
                         The third Friday of the contract month.
Settlement
                         Cash settlement on the final settlement day. The final settlement price is
                         $500 times a Special Opening quotation of the index.
Trading Hours
                         Electronic: 7:15 p.m. to 4:00 p.m. Chicago time, Sun.-Fri.
Exchange Ticker Symbol
                         Electronic: TMI
Daily Price Limits
                         Successive 10%, 20% and 30% limits.




                                                                                                32
Ticker Symbols
                                  Options on    CBOT®
                    CBOT®          CBOT®        DJ U.S.
                   mini-sized     mini-sized      TMI              CBOT®                    Options on
                  Dow Futures    Dow Futures    Futures       DJIA Futures ($10)         CBOT® DJIA Futures
Vendor              Electronic     Electronic   Electronic   Electronic   Open Auction   Electronic   Open Auction
CBOT                   YM            OYM           TMI          ZD            DJ           OZD         DJC / DJP
Bloomberg              DM                                       EDJ           DJ           EDJ             DJ
CGI (Star Data)        YM                                       ZD            DJ            ZD             DJ
Comstock               YM                                       ZD            DJ            ZD             DJ
CQG                    YM                                       DFA           DF           DFA            DF
DTN                   @YM                                      @DJ            DJ            N/A            DJ
Esignal                YM                                       ZD            DJ            ZD             DJ
FutureSource          EYM                                       ZD            DJ         CDJ / PDJ     CDJ / PDJ
Hyperfeed              /YM                                      /ZD           /DJ           /ZD           /DJ
ILX                    D./                                      Z./           DJ/           Z./           DJ/
NAQ                   5YM                                       5ZD           2DJ          5OZD           2DJ
Reuters                YM                                       ZD            DJ            ZD             DJ
Reuters Bridge         YM                                       ZD            DJ            ZD             DJ
Sunguard              2YM                                       2ZD           2DJ           2ZD           2DJ
Townsend               /YM                                      /ZD           /DJ           /ZD           /DJ
Track Data              Q                                       ZD            DJ            ZD             DJ



Quote vendor symbols for mini-sized Dow options and TMI futures to be added as
soon as they are available.




                                                                                                                33
CBOT Dow Complex Resources
To learn more about trading the contracts of the CBOT Dow Complex, visit
www.cbot.com/dow. This site provides valuable educational materials and essential
trading tools that can make it easier to reap the benefits of trading these contracts.
The materials available include:


•   Free real-time depth of market quotes (the book)
•   Free Market Profile for the CBOT mini-sized Dow
•   Free futures tutorial
•   Free real-time electronic trading simulators
•   Online Interactive Seminars with industry experts
•   Dow FAQs
•   Weekly Electronic newsletter
•   Trading strategies from industry experts
•   Links to the Dow trading community, trading resources, and news headlines




                                                                                     34
Contact Information
CBOT Business Development

To learn more about the contracts of the CBOT Dow complex, e-mail
dowinformation@cbot.com or call:

       312-341-7955

For questions specifically relating to EFPs, contact CBOT Market Surveillance.

       312-341-7758

To report electronic out-trades, call CBOT Market Operations:

       312-347-4600




                                                                                 35
©2004 Board of Trade of the City of Chicago, Inc. All rights reserved.

The information in this publication is taken from sources believed to be reliable. However, it is intended for
purposes of information and education only and is not guaranteed by the Chicago Board of Trade as to
accuracy, completeness, nor any trading result. The Rules and Regulations of the Chicago Board of Trade
should be consulted as the authoritative source on all current contract specifications and regulations.

“DJIASM,” “The DJIA®,” “DJIA Industrial AverageSM,” and “DJIASM” are service marks of Dow Jones &
Company, Inc. and have been licensed for use for certain purposes by the Board of Trade of the City of
Chicago, Inc. (CBOT®). The CBOT futures and futures options contracts based on the DowSM Averages
are not sponsored, endorsed, sold, or promoted by Dow JonesSM, and Dow JonesSM makes no
representation regarding the advisability of trading in such contracts.

“DIAMONDS®” is a trademark of Dow Jones & Company, Inc. (“Dow Jones”) and has been licensed for
use for certain purposes by the American Stock Exchange and PDR Services LLC. The DIAMONDS Trust is
not sponsored, endorsed, sold or promoted by Dow Jones and Dow Jones makes no representation
regarding the advisability of investing in such products.

LIFFE CONNECT® is a trademark of LIFFE Administration and Management and is registered in Australia,
Hong Kong, Singapore, the United States and the United Kingdom, is a registered Community Trade Mark,
and is the subject of a pending application for registration in Japan.

“Standard & Poor’s,” “S&P,” “S&P 500,” “Standard & Poor’s 500” are trademarks of the McGraw-Hill
Companies, Inc. These products are not sponsored, endorsed, sold, or promoted by the McGraw-Hill
Companies, Inc., and S&P makes no representation regarding the advisability of investing
in them.

“Nasdaq” and related marks are trademarks and service marks of Nasdaq and have been licensed for use
for certain purposes by Nasdaq Investment Product Services, Inc. The Nasdaq-100 Index without regard
to Nasdaq-100 Index TrackingSM Stock. The Corporations make no warranty, express or implied, and bear
no liability with respect to the Nasdaq-100 Index, its use, or any data included therein.

EM51-4 11.02.1000 02-03372
Business Development




                                                                                                           36

								
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