Clearing Corporation Annual Reports

Mike Manning: A clearinghouse performs a variety of tasks critical to the integrity of the marketplace. It provides the mechanism for processing hundreds of thousands of transactions each day. It provides for the smooth and timely transfer of funds between market winners and losers. It maintains margin requirements and manages portfolio risk of member firms. And perhaps most importantly, it guarantees to the world each and every transaction made on the exchange or exchanges it serves.

John Sievwright: Quite simply, a clearinghouse provides operational and financial integrity to the marketplace as well as the critical information transmission which helps maintain that integrity.

Does it have the ability to measure and manage risk? Can it process voluminous amounts of trade activity flawlessly?

JS: By looking at the ability of the clearinghouse to process, settle and clear a large volume of business in an efficient way with no credit problems or defaults.

Common Clearing has been discussed for many years but has only recently achieved real momentum. What has changed to make the industry so eager for it now?

MM: International and domestic competitiveness has finally brought enough pressure to bear on the Chicago market. Competition requires us to look at ways to cut costs. In the past, political and competitive differences between the two Chicago exchanges outweighed the economic benefits of combined clearing.

JS: The industry was always eager for common clearing. And I agree with Mike that the international competition process has reactivated the discussion.

JS: Common clearing must be designed to capture efficiencies while maintaining or improving overall standards. Cross margining and product netting, a by-product of common clearing, will help reduce risk while providing a benefit to users of the marketplace.

MM: I agree. But first, we must be certain that the "economies of scale" benefits are carefully measured and implemented. Second, we must make sure that service levels and diligent risk management practices are maintained. And third, as John said, common clearing must provide benefits to member firms in areas such as common banking and cross margining.

JS: Member benefits will include reduced systems costs and lower operational support costs.

JS: A common clearinghouse by definition would better allocate resources and be able to deal with issues in a more strategic fashion than two separate clearinghouses can.

MM: Everything is very important. However, the first item for consideration should be the clearinghouse's ability to guarantee trades. The rest does not mean much without customer confidence in the financial wherewithal of the clearinghouse.

JS: We should first look at those things that make any clearinghouse effective. That is, risk management policy and procedures, clearinghouse capitalization and efficient systems that meet the needs of the exchanges it serves.

MM: I don't have the solution to that. The issue is complicated because on the face of it, it seems to make sense to use the "one share/one vote" method. Large firms have an awful lot of money being held and it seems reasonable for them to have additional control over those funds. If this system were in plac, however, smaller firms could be left without any voice. And that is not a desirable situation.

Is there a place for other markets, such as securities, in common clearing? If yes, why?

MM: Notwithstanding potential regulatory obstacles, i.e. SEC and CFTC oversight issues, I think there is definitely a benefit to including securities in a common clearing model.

JS: There is definitely a place for products, such as equity options, like those currently cleared at the Options Clearing Corporation. There would be a cross margining benefit for the many firms that trade equities, equity options and futures and options on indexes.

MM: Not much, necessarily. That may be the biggest fallacy of common clearing. The current cost for clearing a trade is the smallest component in the total cost per trade. Exchange fees, National Futures Association (NFA) fees, brokerage and commissions are all much larger. Also, in the vast majority of cases, the customer, not the firm, pays for clearing. So any reduction would be passed on to them, but it may be too minimal to increase business.

JS: Mike is right in that clearing is the least significant of a trade's costs, but every bit helps. In the end, the savings from common systems and cross margining are probably the things that will have the greatest effect in allowing us to lower prices and increase customer business.

MM: I don't know if it is hidden, but one of the biggest benefits I see in common clearing would be the ability for firms to net the daily margin calculation for all activity on exchanges participating in the clearinghouse. It's not a cost issue per se, but it is very important in order to run as sound a business operation as possible.

MM: One comes to mind but it is very hard to quantify. There is an opportunity cost that each exchange will face if it loses a clearinghouse committed only to its operations. As it stands now, exchanges can direct their clearinghouses to prepare for new products and initiatives within strict timelines. With common clearing, they may not have so much control.

Until common clearing becomes a reality, what are some things clearinghouses can do to improve?

JS: My advice would be not to get distracted by anything else. Just help get the job done.

John Sievwright is president and chief operating officer for Merrill Lynch Japan. At the time of the interview, Mr. Sievwright was managing director, financial futures and options, at Merrill Lynch & Co. and chairman of the Futures Industry Association.

Michael Manning is executive vice president of Rand Financial Services, Inc., a Chicago-based futures commission merchant. He serves on the boards of both BOTCC and the CBOT.

Patrick Parkinson
Associate Director, Division of Research and Statistics,
The Board of Governors of the Federal Reserve System

You recently chaired a clearinghouse review for the Bank for International Settlements. What prompted that?

The review was prompted by the growing recognition by central banks of the critical role that futures and options markets have come to play in the financial systems of the major industrialized countries (the Group of Ten) and many other countries.

Major banks and other financial intermediaries depend on the liquidity provided by futures and options markets to manage their market risks. These institutions also depend on timely receipt of payments and deliveries related to futures and options in managing their funding needs and related liquidity risks.

While liquidity of futures and options markets and the timely completion of related settlements is important on a day-to-day basis, it becomes critical during periods of unusual price volatility, when other markets tend to become illiquid and the value of payments and deliveries associated with futures and options markets tends to increase by an order of magnitude.

Both the liquidity of futures and options markets and the timely completion of related settlements are critically dependent on their clearinghouses. Accordingly, the BIS review sought to provide a thorough understanding of the risks faced by clearinghouses and the procedures used by clearinghouses in the G-10 countries to manage those risks. The review, entitled "Clearing Arrangements for Exchange-Traded Derivatives, " can be downloaded from the BIS website (www.bis.org/publ/index.htm).

A clearinghouse seeks to ensure the financial integrity of the exchange or exchanges for which it clears by substituting itself as the central counterparty to all trades on the exchange. That is, the buyer to every seller and the seller to every buyer. In so doing, it exposes itself to counterparty credit risks and liquidity risk.

Specifically, if one of its clearing members were to default it would need to cover any losses incurred in closing out the defaulting member's open positions on the exchange. It would also need to complete its own payment obligations to other clearing members on schedule despite the default.

A clearinghouse also faces risks vís-a-vís the banks through which its money settlements with its clearing members are effected. Finally, it faces various legal and operational risks.

Our review devoted the most attention to the management of counterparty risks. In general, a clearinghouse can safeguard against such risks through one, membership requirements; two, margin requirements; three, default procedures; and four, the maintenance of supplemental financial resources.

Clearinghouses require their clearing members to meet stricter financial and operational requirements than exchanges do their non-clearing members. And of course, they impose margin requirements that are intended to ensure that in most circumstances, if a clearing member were to default, any losses incurred in closing out its positions would be covered by liquidating its margin assets. The likelihood that losses can be covered by margins is enhanced by default procedures that emphasize prompt resolution before losses can mount or margin collateral values can decline.

Nonetheless, margin requirements are not intended to cover all conceivable market conditions. In particular, if an extreme price movement (one, say, that occurs less than once every 100 days) were to be followed by a member's default, its margin assets might not cover the losses.

In that event, what becomes critical is the size and liquidity of a clearinghouse's supplemental financial resources. These can take many forms, such as capital, including retained earnings, clearing funds comprised of assets provided by the clearing members, or various third party guarantees such as insurance policies or bank letters of credit.

Safety and soundness implies that a clearinghouse can live up to its financial obligations as central counterparty to trades on the exchanges for which it clears, even under extremely adverse financial conditions.

More specifically, a clearinghouse should have sufficient financial resources to meet its obligations in a timely manner, even if one or more clearing members were to default following an extreme price movement larger, perhaps substantially larger, than allowed for in setting margin requirements.

To ensure that it has adequate resources, a clearinghouse should routinely and frequently perform stress tests. That is, simulations of potential exposures to clearing members from extreme price movements.

To be sure, stress testing is not a mechanical process and judgments likely will differ as to the severity of the scenarios to be prepared for, both in terms of the size of price shocks and the number of clearing member defaults.

Nonetheless, I believe safety and soundness requires that a clearinghouse have adequate resources to cover a default by any participant, no matter how large, following a price shock as severe as any experienced to date.

What might occur to the markets if a clearinghouse were unable to live up to its obligations as counterparty?

The markets would dry up. Why would anyone trade if they had no confidence that the contracts executed would be fulfilled? I suppose one could hope to switch to use of another clearinghouse. But even if this were possible, activity would likely shift to other exchanges in which FCMs and their clients justifiably had greater confidence.

Is there a role for exchange clearinghouses in the over-the-counter (OTC) derivatives markets?

I think that if OTC contracts are eventually cleared, they will be cleared by clearinghouses for the existing exchanges. The cross margining of exchange and OTC positions would generate significant cost savings that a stand-alone OTC clearinghouse could not match.

However, at this time, many OTC market participants do not see a business case for a clearinghouse, even if it would result in cross margining with exchange-traded contracts. A continuation of the spectacular growth of the OTC markets could eventually change the cost-benefit calculus and create a critical mass of support for exchange clearinghouses to extend their services to the OTC market, but that remains to be seen.

Patrick Parkinson is associate director of the Division of Research and Statistics of the Board of Governors of the Federal Reserve System. His responsibilities include analysis of public policy issues relating to futures and options markets, including their clearing arrangements.

Note: The views expressed by Patrick Parkinson are his own and not necessarily those of the Federal Reserve System or the Bank for International Settlements.

Technology

To financially secure members, one to the other. This means acting as an ironclad counterparty to every trade. To do this effectively requires that a clearinghouse handle trade accounting, collect and transfer money, and prepare for new exchange and regulatory requirements. And it must do all of these things quickly and inexpensively.

It will play a major role. Clearing is technology. Without technology you don't clear.

Because of the rapidly changing nature of the futures and options business and the diversity of new products, as well as new exchange strategic alliances and electronic trading systems, clearinghouse technology must be extremely adaptable, scalable and most of all, open. Constituents must find it easy to attach to them.

As customers push firms to be more web enabled, this will eventually push clearing entities to embrace "buzzword compliant" technologies that bring this openness-thin clients with browsers, Java and object-oriented programming, and multi-tiered network architectures with fast, intelligent backbones built on publish and subscribe methodologies.

To fully understand the importance of technology, it is important to note that clearing is mostly looked on as a cost center by clearing members. However, if technology allows a clearing organization to quickly find and reject errors, to cost less than other clearinghouses,, and to offer on-line risk management retarding the potential for major default-is it a cost center or a profit center? Is it a deterrent or a competitive tool?

What do you feel is the number one technology issue facing clearing organizations today?

On a continuing basis, major technology issues typically will involve some kind of communications interface involving real-time data collection and databases. As the financial world shrinks through consolidation and exchanges compete for new contracts and deal with more data, systems will have to handle greater amounts data more efficiently through more interfaces.

As the worldwide rate of trade volume grows, the ability to enter orders, get quotes and last sale information, and report settled trades will be aided by technology.

The futures industry should use technology to reduce the use of paper on trading floors by transmitting voice and data communications directly to the executing broker. It should experiment with new wireless and miniaturized technology that allows “straight through" processing.

For example, many trading firms are actively using hand-held terminals for trade entry from the pits. Some exchanges are experimenting with an earpiece that both sends and receives voice communication. It acts as a standard earpiece when receiving, but when the trader speaks, vibrations from his or her jaw are translated into voice communication.

But I really feel that the most significant factors impacting commerce and financial services today, and probably the greatest impact of this century, are Internet and intranet technologies.

What do you see as the number one technology issue facing the futures and options industry in general?

The ability to accurately and comprehensively maintain financial accounting for worldwide markets used by multiple profit centers. Maintaining all of that information is very, very difficult. This is known as real-time data distribution/integration.

It's going on-line. It's going Internet. It's going intranet. It's integrating voice, data and video. It's trading from home. It's trading electronically.

Compared to other financial services industries, how does the futures industry as a whole rate in terms of technology investment?

It lags other industries, some significantly. Perhaps the major reason for that is that the futures industry was much later than other markets in using computers. Twenty years ago some futures exchanges had no computers! And others were comparative beginners.

Many people feel that the OTC markets have taken away a great deal of business from exchanges. Has technology played a role in the OTC market's rapid growth?

There are more specialized technology solution providers in the OTC derivatives markets for several reasons. One is that the OTC market is large and dynamic and has pockets of large players in Chicago, New York and London. Another is that there is more to win or lose so risk management and trading technology vendors have flourished in niche boutiques.

I say there is more to lose because these instruments tend to be less liquid, more volatile and more arcane than listed derivatives. It is apparent that technology has become the main enabler and equalizer of OTC players.

It can learn that if you don't continue to strive for excellence in management and technology, someone might take a market away!

Yes, but not negatively. Most organizations have more than one strategic supplier. And new open system technologies, such as UNIX and Windows NT, mean that firms can migrate to the latest and greatest technologies because of the transportability of these underlying technologies.

No. If anything it will spur it. I saw a cartoon in the newspaper recently. The picture was of a classroom in a business school. The teacher was teaching strategy and had written on the blackboard two successful business strategies. One, convince Microsoft that you are a competitor. Two, accept their buy-out offer.

BOTCC recently began clearing futures and futures options on the Dow Jones Industrial Average. These contracts are attracting greater numbers of retail investors to the Chicago Board of Trade, the world's leading market. Can technology make the futures market in general more useful to the general public?

Yes. Firms and exchanges can use the Internet to educate and inform the general public, and even the not so general public. The Futures Industry Institute's web site is geared just to that-and not only for the general public but also industry participants and especially the press.

There has been much discussion lately about open outcry vs. electronic trading. Many people see electronic trading being superior due to lower transactional costs. Others feel that open outcry's greater liquidity outweighs any transactional savings. Are there other advantages and disadvantages of each that no one has considered?

I doubt it! However, it is less likely that all advantages and disadvantages, if compiled for the same application, would not be transferable from one circumstance to another similar application.

There is great change within the futures industry right now as trading firms and clearing institutions work to replace their legacy systems. What will the impact be on both firms and clearinghouses?

Greater efficiency and effectiveness. There will be some turmoil, but that's to be expected in an evolutionary environment. Increased computing power brings increased demands which bring a need for increased computing power. It's a very predictable cycle.

The futures industry is in a period where its growth has dictated new systems a necessity.

I would first ask, "Is the problem that a new system must solve unique?" It may not be. There may be a solution out there with the appropriate functionality. If there is and it stands up to stringent cost-benefit analysis, then I have two words of advice-buy it!

If the situation is unique and/or its solution is not out there, ask, "What is the best technology for the problem?" "Do we have the internal capabilities to develop a system ourselves?" Do we buy source code externally?" Any of these options requires a great deal of thought and consideration.

Gerald Tellefsen is senior vice president with the Tellefsen Consulting Group, Inc. and specializes in providing management counseling to clients in the equity, fixed income, options, commodities and banking businesses.

Chairman's Letter

1997 was a remarkable year for the Board of Trade Clearing Corporation: We worked with the Chicago Board of Trade, our strategic partner, on a record number of initiatives, including the LIFFE link, Dow launch and related cross margining with The Options Clearing Corporation, and the change from bushels to contracts; common clearing, strongly supported by our Board of Governors, moved ahead with increased vigor; BOTCC® became the first clearinghouse in the world with both an AAA rating from Standard & Poor's Corporation and $100 million in default insurance; and we continued with our prudent assessment of risk management and new technologies to better serve the CBOT® and our clearing members.

On behalf of BOTCC's members, we worked diligently with the CBOT, the Chicago Mercantile Exchange and other industry participants on common clearing and we continue to be one of its greatest proponents. In fact, we were one of the first parties to present a common clearing paper for consideration.

Meanwhile, we continued to strive to meet the market's clearing needs for today and the future. While we cannot predict the future, we know that our most important goal will always be to enhance the safety and soundness of the markets we serve. The CBOT's continued rapid volume growth and desired entrance into new markets such as government securities, further add to the necessity that we do everything in our power to support its market integrity. Thus, we pursued an AAA rating from Standard & Poor's, which we were awarded on April 17. As Standard & Poor's said, the AAA rating was based on our “important position in financial and agricultural futures markets, the matched nature of (our) clearing obligations (and) conservatively modeled credit and financial safeguards."

An additional enhancement was achieved on May 27 when we contracted a $100 million default insurance policy as a unique way to develop a cost-effective capital pool for times of catastrophic member default. We are now the only futures and options clearinghouse in the world with both an AAA rating and default insurance. This underscores our position as a leader in our field, in the forefront of the industry.

Another way to insure the integrity of the markets is continued investment in technology. As such, we moved ahead with our long-term technology plan to ensure that we are prepared to meet the needs of the Board of Trade.

We have completed our assessments of our future clearing and processing needs and we are determining whether to build the desired systems internally; out-source development; buy a "turn key" solution; or integrate separately purchased components to provide the new and enhanced clearing functionality we require. A leading consulting firm will help us solicit and evaluate proposals; choose the best option available; and provide us with a detailed, low-risk migration plan for BOTCC and our members.

It is notable that all of the above took place as BOTCC processed and cleared record volumes in an accurate, real-time manner and maintained the world's lowest cost per side. 1997 brought record levels of cleared and processed volume. Cleared volume rose 11.1% over 1996. Meanwhile, our discounted fee structure achieved an effective clearing fee of 4.4¢ per contract side, the lowest in the business. Also of financial significance to our members, effective August 7, BOTCC began paying interest accumulated on members' accounts, that amounted to over $800,000, further decreasing members' costs of doing business and making the CBOT and MidAmerica Commodity Exchange more competitive markets.

These are exciting times for the AAA-rated BOTCC and its shareholders. We had a great deal of success in meeting our 1997 objectives as the independent clearinghouse of the CBOT and MidAm, and we have a great deal of work ahead of us.

With continued leadership from BOTCC's Board of Governors and the commitment of its dedicated staff, we will continue to achieve our goals as well as those of the CBOT.

We would like to take this opportunity to give special thanks to John C. Hiatt, who served as President and Chief Executive Officer during the past four years. He was a valued member of BOTCC's senior management team and under his guidance BOTCC made great strides. Our AAA rating, a history of sound financial management and increased operating efficiency are a legacy for which we are grateful to John.

We would like to close with a word of praise of BOTCC's staff. These are uncertain times and this group of driven professionals has worked tirelessly on behalf of its members and the CBOT. On behalf of BOTCC's Board of Governors and senior management, we wish to thank each one of them for their dedicated service.

CBOT® is a registered trademark of the Board of Trade of the City of Chicago.
BOTCC® is a registered trademark of the Board of Trade Clearing Corporation.

This year's Annual Report from the Board of Trade Clearing Corporation seeks not only to profile its financial health and to cover the events of last year, but also to provoke clear thoughts on various topics that were important to the leaders of the futures and options industry in 1997.

To do that, BOTCC presents “Clear Thinking, " a series of discussions with four distinguished and well-known futures industry participants speaking on topics in which they are leading authorities: Common Clearing is discussed with John Sievwright, president and chief operating officer of Merrill Lynch Japan and former chairman of the Futures Industry Association, and Michael Manning, executive vice president of Rand Financial Services, Inc. and a Board member of both the Chicago Board of Trade and BOTCC; Safety & Soundness with Patrick Parkinson, associate director, Division of Research and Statistics, Board of Governors of the Federal Reserve System; and Technology with Gerald Tellefsen, senior vice president of Tellefsen Consulting Group, Inc.

For the Board of Trade Clearing Corporation, 1997 was marked by the exciting prospect of common clearing; its continued prudent and cost-effective investment in new technology initiatives to better serve its members and the Chicago Board of Trade; and continued efforts to help ensure safe and sound marketplaces at the CBOT and the MidAmerica Commodity Exchange.

Among those issues, the most significant to many was that of common clearing between the CBOT and Chicago Mercantile Exchange (CME). The competitive markets in which BOTCC's clearing members and the exchanges it serves operate make every penny saved very important. More than ever, exchanges and clearinghouses must do all that they can to keep costs as low as possible through increased efficiency and cost savings.

This has been the spur for the most recent round of talks on the subject of common clearing. As the independent clearinghouse for two exchanges, BOTCC recognizes that common clearing can provide significant efficiencies and cost savings. It is for that reason that BOTCC's Board of Governors enthusiastically supports common clearing between Chicago's two leading exchanges, the CBOT and the CME.

Another way clearinghouses such as BOTCC can keep clearing operations as efficient and as sound as possible is through investment in the best cost-effective technology available. Clearing is nothing if not technology dependent.

To stay technologically advanced is especially challenging to clearinghouses. Technology changes very rapidly and yet a clearinghouse must rigorously test and evaluate new systems or applications to be sure that they in no way weaken the clearing function. Such change requires the same cautious, prudent business approach as the management of the Clearinghouse itself. BOTCC has taken that approach over the last year and a half in testing new open system technology and relational databases which will position BOTCC to meet the future needs of clearing members and the CBOT without any sacrifice in the clearing function.

But while it is important to keep an eye on costs and efficiency, the safety and soundness of the marketplace must not be compromised in any way. Because one of the futures market's greatest strengths is its counterparty guarantee, it is of the utmost importance that the common clearinghouse retain or improve on all of the highest current standards of market integrity. BOTCC's unique status as the only clearinghouse with both an AAA rating and $100 million in default insurance gives its clearing members and the markets confidence, no matter the market conditions. Its members deserve no less.

Statistical Information

Clearances (In Contracts)

Shareholder Register

December 31, 1997

ABN AMRO Chicago Corporation
ADM Investor Services Inc.
AGE Commodity Clearing Corp.
Arnold R. Imrem d/b/a ARI Grain
Alaska Commodities, Inc.

BA Futures, Inc.
BNP Securities (U.S.A.), Inc.
BT Futures Corp.
Sidney Bark d/b/a The Bark Grain Company
Bear, Stearns Securities Corp.
Bielfeldt & Company
Bradley Dean Kolton d/b/a Bradley Dean Kolton Commodities
Daniel F. Brophy d/b/a Brophy Commodities

Cantor Fitzgerald & Co.
Cargill Investor Services, Inc.
Carr Futures Inc.
Central Soya Company, Inc.
Chase Futures & Options, Inc.
Robert G. Martin d/b/a Circle Grain
E.M. Combs & Son
Commerz Futures Corporation
Continental Grain Company
Credit Lyonnais Rouse (USA) Limited
Credit Suisse First Boston Corporation
Cresvale International (US) LLC*
Crossland Corporation
Cunningham Commodities, Inc.

DKB Financial Futures Corp.
Daiwa Securities America Inc.
Deutsche Morgan Grenfell Futures Inc.
Dorman Trading, L.L.C.
Richard Durra d/b/a Durra Grain

E.D. & F. Man International Inc.
Eagle Market Makers, Inc.
Rick F. Enriquez d/b/a Enriquez Trading

FCT Group, L.L.C.*
Farmers Commodities Corporation
Jerry I. Feig d/b/a Feig Grain Company
FIMAT Futures, USA, Inc.
First American Discount Corporation
First Chicago Futures, Inc.
First Options of Chicago, Inc.
Flakus Trading*
Fuji Securities Inc.

H. Gordon Behrel d/b/a G.B. Grain Co.
GNI Incorporated
Gelber Group, Inc.
Michael G. Ginakakis
Goldenberg, Hehmeyer & Co.
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
Griffin Trading Company

HSBC Securities, Inc.
Hagerty Grain Co., Inc.
Redmond P. Harkins d/b/a Harkins Grain Co.
Harris Futures Corporation
Patrick F. Hayes d/b/a Hayes Grain Company
Patrick S. Hillegass
Hull Trading Company, LLC

Mark Karmin d/b/a Karmin Trading
Kenosha Trading Company
John R. Kinsella d/b/a Kinsella Trading Co.
Kottke Associates, Inc.*

LFG, L.L.C.
Aubrey G. Lanston & Co., Inc.
Lawrence-Bonfitto Trading Company
Lehman Brothers Inc.
Lind-Waldock & Company
John L. Pietrzak d/b/a Longwood Trading*

Marquette Partners, L.P.
McBride Brothers
Jos. McNealy & Associates
Merrill Lynch Futures, Inc.
Mitsui & Co. (U.S.A.), Inc.
Mitsui T&B Options Inc.
Morgan Stanley & Co. Incorporated
Patrick J. Morris d/b/a Morris, Morris & Co.
Terrence E. Morris d/b/a Morris Trading*

NationsBanc-CRT Services, Inc.
The Nikko Securities Co. International, Inc.
Nomura Securities International, Inc.
Northern Futures Corporation
R.J. O'Brien & Associates, Inc.
O'Connor & Company LLC

PaineWebber Incorporated
Paribas Corporation
Peter J. Roche d/b/a Pennsylvania Trading
Produce Grain, Inc.
Prudential Securities Inc.

Steven P. Roche d/b/a RB Trading
Robert D. Gregory d/b/a RDG Trading*
REFCO, Inc.
Rand Financial Services, Inc.
Republic New York Securities Corporation
Rosenthal Collins Group, L.P.

SBC Warburg Futures Inc.
SMW Trading Company, Inc.
Sakura Dellsher, Inc.
Salomon Brothers Inc.
Sanwa Futures L.L.C.
Art Schulman d/b/a Schulman Trading
Paul H. Schwendener III d/b/a Schwendener Trading
Shatkin, Arbor, Karlov & Co.
Smith Barney Inc.
Saul Stone and Company, L.L.C.
Michael E. Stone d/b/a Stone Trading
Scott M. Swank d/b/a Swank Trading Co.

TENCO, Inc.
Term Commodities Inc.
Timber Hill LLC
Tokyo-Mitsubishi Futures (USA) Inc.
TradeLink L.L.C.
TransMarket Group L.L.C.
Carl M. Zapffe d/b/a Triple Nickel Trading Co.

Citicorp Futures Corporation
Credit Agricole Futures, Inc.
Kenneth M. Wilson d/b/a Dean Grain Company
Dean Witter Reynolds, Inc.
Feldman, McCracken & Co.
Forster Trading Corporation
Paul F. McGuire
Dennis M. O'Shaughnessy d/b/a O'Shaughnessy Trading Company
Spike Trading L.L.C.
Yamaichi International (America), Inc.

Board of Governors and Officers

Christopher K. Hehmeyer
Chairman
Goldenberg, Hehmeyer & Co.

Dennis A. Dutterer*
Acting President and Chief Executive Officer/Secretary/General Counsel

*Replaced John C. Hiatt, who resigned effective January 16, 1998.
**Replaced Delbert Heath, Jr., who retired effective January 9, 1998.