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A New Foundation

for a New Century

tradingpithistory.com
eeting the Challenge of Change

CHICAGO MERCANTILE EXCHANGE
news release
www.cme.com
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CHICACO MERCANTILE EXCHANGE®

CONTACT: Ellen G. Resnick, 312/930-3435
eresnick@cme.com

FOR IMMEDIATE RELEASE

CHICAGO MERCANTILE EXCHANGE UNVEILS FOR-PROFIT PLAN
First Maior U.S. Financial Exchange to Produce Blueprint for Converting
from Member-Owned Organization to For-Profit Corporation

CHICAGO, Nov. 2, 1999 - The Chicago Mercantile Exchange (CME)
today unveiled a comprehensive plan to transform itself from a member-owned
institution into a for-profit corporation. While many exchanges are considering a
similar move, the CME's demutualization plan, presented to its members at their
annual meeting late this afternoon, marks the first such blueprint for a major U.S.
financial exchange.

The plan, unanimously approved by the CME's board of directors following
extensive discussions, calls for the conversion of membership interests into
equity securities and aims to facilitate new business strategies and strategic
relationships, as well as to improve and streamline the exchange's governance
and management structure.

"Given our history of innovation and leadership, it's no surprise that we're
the first major U.S. exchange to take this critical step in preparation for a
successful future," CME Chairman Scott Gordon said. "We have successfully
transformed demutualization generalities into a concrete proposal."

Gordon said the plan is the product of the exchange's comprehensive
strategic plan, announced at last year's annual meeting and undertaken to
address the profound changes that have been sweeping the financial services
industry. The Strategic Planning Committee has been exploring the possibility of
demutualization for more than a year, in concert with the CME's financial advisor,
Salomon Smith Barney.

(more)

Any offering of securities described In this document w/11 be made only by means of a
prospectus flied as part of a registration statement under the Securities Act of 1933.

30 South Wacker Drive Chicago, Illinois 60606-7499
Corporate Communications 312/930-3434 Fax 312/930-3439 e-mail news @cme.com
LONDON WASHINGTON TOKYO
Page Two - CME For-Profit Plan

CME Second Vice Chairman Jim Oliff, chairman of the exchange's
Strategic Planning Committee, cited five major objectives the plan is designed to
accomplish:
• Improve governance
• Create a strong financial decision making model
• Facilitate the pursuit of new business strategies
• Unlock the equity values of exchange members
• Provide a signal and a currency for working with strategic partners.

"The financial world is moving at Internet speed," Oliff said. "Our
demutualization plan will give us the swift decision making capabilities and other
tools we need to compete effectively and position the exchange as the
preeminent global marketplace." ·

Subject to member approval and upon consummation of the
demutualization transaction, the CME would become a Delaware for-profit stock
corporation in which the members would own two classes of common stock.
They would receive shares of "Class B" common stock representing their existing
trading rights and privileges plus equity, and shares of "Class A" common stock
representing pure equity in the exchange. Eligibility for Class 8 share trading
privileges would be subject to the same membership approval process currently
employed by the exchange.

Class A shares in the new for-profit corporation would be allocated to the
exchange's Chicago Mercantile Exchange (CME), International Monetary Market
(IMM) and Index and Option Market (IOM) members on a 3:2:1 basis.

There would be multiple series of Class 8 shares to reflect the existing
divisional structure and to preserve open outcry and electronic trading rights for
owners of these shares. Members of the exchange's CME, IMM, IOM and
Growth and Emerging Markets (GEM) divisions would receive Class 8 shares
representing trading privileges and an allocation of the Class 8 share equity on a
3:2:1 :1/6 basis.

(more)

Any offering of securities described In this document wl/l be made only by means of a
prospectus ffled as part of a registration statement under the Securities Act of 1933.
Page Three - CME For-Profit Plan

Under the plan, governance would be greatly simplified. The existing 39-
member board would ultimately be cut approximately in half to a 19-member
board, following a two-year transition period. The board's responsibilities would
match those of other public corporations and would involve less of the day-to-day
operations. The new for-profit entity would be run by a chief executive officer to
be hired by the board. In addition, the exchange's more than 200 member
committees would be eliminated and replaced with a greatly streamlined
committee structure designed to efficiently manage key functions of the
exchange.

For corporate law reasons, the conversion to a for-profrt entity would be a
two-step process. It would also include a simultaneous acquisition of the
exchange's PMT Limited Partnership, a for-profit subsidiary that governs the
CME's GLOBEX2 electronic trading system. Exchange members holding PMT
partnership units would receive Class A shares or cash in place of their units.
The 3:2:1 ratio for overall equity distribution in the new plan corresponds to the
original distribution of ownership of the PMT partnership.

The consummation of the demutualization requires the accomplishment of
a number of activities, including the preparation, filing and effectiveness of a
registration statement with the Securities and Exchange Commission (SEC}, the
approval of the exchange's membership, and the receipt of a favorable ruling
from the Internal Revenue Service regarding the tax consequences of the
proposed transactions. It is expected that a membership vote would occur in the
beginning of 2000 and that the transactions could be consummated in the first
half of 2000. Votes on core issues at the exchange are weighted by division. A
two-thirds majority is required on this issue.

The Chicago Mercantile Exchange trades futures and options on futures
on agricultural commodities, foreign currencies, interest rates and stock indexes,
as well as credit and weather indexes.

[Editor's note: The Plan for Demutualization of the CME, along with Gordon's
annual meeting remarks to members, can be found on the CME Web site at
www.cme.com.J

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99-148

Any offering of securities described In this document w/11 be made only by means of a
prospectus filed as part of a registration statement under the Securities Act of 1933.
REMARKS OF SCOTT GORDON
CHICAGO MERCANTILE EXCHANGE CHAIRMAN
1999 CME ANNUAL MEMBERS' MEETING
November 2, 1999

Introduction and Overview

It is again a profound honor and privilege to appear before you . As my second year as .
Chairman draws to a close I want to convey to you my deep appreciation for the efforts of so
many people in ensuring that we retain our premier position as a global marketplace for the next
century. I am truly confident in our ability to meet the challenge of change we face. During
today's meeting we will convey to you our recent progress in addressing the continuous
transformation of the risk management industry, as well as share with you our ongoing plans. I
hope that you will then join me in my enthusiasm and optimism over what lies ahead for our
Exchange.

There is much to be excited about in the past year's accomplishments of our Board, our staff
and our membership. First, let me pay tribute to the people you see up here with me: my fellow
directors. They have remained calm under the "fire" of change and have stayed the course in
building the foundation for our future.

Second, I want to thank our very capable staff, led by Fred Arditti and Jerry Beyer, who have
been given the tremendous responsibility of executing and implementing our vision. It truly
amazes me to see the spirit and drive of this group, not to mention their incredible work product,
which has propelled us forward.

Finally, I want to thank you, the membership, for your progressive behavior and willingness to
embrace change and take the necessary measured risks that will ensure our ability to remain at
the forefront of global financial markets. I am deeply proud to be associated with all of you, and
know that we will be rewarded for our efforts.

There is no doubt in my mind that our Exchange has what it takes to be the global leader. We
have the strategic vision, we have the drive, and we have the opportunities. And with your
continued support, we will have the requisite tools to continue building the foundation for the
CME to lead the industry into the next century as the preeminent global marketplace.
Gordon Annual Meeting Remarks
11/2/99

Take notice that I didn 't say futures and options marketplace - I simply said marketplace. As the
lines between traditional exchanges and OTC markets continue to blur; with the twin drivers of
technology and regulation continuing to reshape our world; and as the power of derivatives
continues to be proven, especially those traded on a regulated exchange such as ours that
offers the benefits of a world-class clearing house, we find ourselves with many of the assets
needed to make the most of the wide range of opportunities that have become available to us.

All that remains is for us to stay the course and continue to embrace the change that surrounds
us. Staying the course means remaining vigilant about would-be competitors . Just because we
have succeeded in keeping competitors at bay so far, we must not be lulled into complacency.
Our success is due to the fact that we have gone on the offensive, and on the offensive we must
stay. If we become complacent over the survival of open outcry and continued predominance of
our Eurodollar contract, for instance, that is when the competition will strike.

At last year's annual meeting, I called 1998 "a year of unprecedented turmoil within our
industry." This environment of change, wh ile unprecedented last year, has since become the
norm. Yet with change comes challenge, and with challenge, opportunity. I encourage you to
turn the concept of each challenge upside down and think of every challenge as an opportunity.

The ambitious strategic plan we unveiled at last year's annual meeting was developed to do just
that. While many in our industry focused on the negative or ran from the challenges, we set out
to boldly redefine the very core of what an exchange is, and then begin taking the necessary
steps to create new opportunities and meet the challenge of change.

And like the environment in which we operate, our strategic plan has not been a static
document. It has had to evolve with the twists and turns this industry is taking every day.
Although the plan will continue to evolve as the industry evolves, I believe that we have a much
clearer picture today of where we are headed. And I like what I see in front of us.

We spent much of last year in intense self-evaluation as we assessed the changes taking place
around us. We worked tirelessly to understand the challenges and opportunities posed by
these changes. We consulted with members, customers, industry professionals, academics,
technology companies and our colleagues from other exchanges and OTC markets around the
world to figure out how to best position the Mere going forward.

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But - whi le last year was about careful ana lysis, this year has been a year of action . Today we
are here to report the progress we have made in carrying out important elements of our
strategic plan, and more importantly, to discuss what else remains to be done.

Last year we talked a lot about the need to prepare for competition, but our strategic efforts
have been driven by more than making ourselves competitive . Our efforts have been driven by
the need to define - or redefine - our Exchange and our marketplace to keep apace with, and
stay ahead of, change .

We are taking a pragmatic, step-by-step approach to making our Exchange as strong as it can
be in this evolving environment. Let me highlight those steps with a brief recap of this year's
milestones. Then we will turn our attention to the giant leap we must make to create a new
foundation for the new century.

Results of the Strategic Plan

Our Strategic Plan, as set forth very eloquently by Jim Oliff one year ago at this very meeting,
set the course of our action throughout 1999. I would again like to express my gratitude to
Jimmy and his Strategic Planning Steering Committee for their tireless work over the last 18
months. This group includes Jimmy and me as well as our other Board officers: Terry Duffy,
Marty Gepsman and Tom Kloet; our policy advisors Leo Melamed and Jack Sandner; and the
committee's vice chairs, Yra Harris, Buck Haworth and Bill Shepard, and a staff think tank
coordinated by Craig Donohue and John Curran. We were assisted by our financial advisors at
Salomon Smith Barney and legal advisors at Sidley & Austin, and Freeman, Freeman &
Salzman. This team has been working non-stop, and I hope that you are as pleased as I am
with the interim results and the foundation that has been laid for our future.

To briefly review the five objectives that marked our strategic plan and therefore our course for
the year, we set out to:

1. Strengthen and defend our products
2. Use technology to the benefit of our customers and members
3. Recognize clearing as a strategic asset
4. Develop alliances to complement and expand our technology, products and distribution

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5. Change our governance structure to a more commercial business model

At the same time that we discuss the changes being driven by technology and how we
capitalize on those changes, we must also talk about a second critical driver: regulation.

This point was underscored not only by myriad competitive threats, but also by a shifting
regulatory climate in Washington, D.C. We have launched a massive campaign, in conjunction
with the Chicago Board of Trade and the New York Mercantile Exchange, to modernize our
regulator, as well as the laws that apply to us as an exchange. As Congress goes through the
tortuous process of periodic reauthorization of the CFTC, this becomes a "battle royal," the
results of which will be as important in defining our future as will any new technology.

Whenever I testify in front of Congress or the CFTC, or host a senator, representative or
regulator, I am continually reminded of the years of effort on the part of Leo and Jack to build
the necessary foundation in Washington for us to be able to make the frontal assault that we are
currently making. I am grateful for their past and present efforts and support, and along with
able assistance from our Vice Chairman, Terry Duffy, the four of us are leading our Washington
troops in this battle. I encourage you to join this battle by supporting the CME/PAC. It is critical
that our voice continues to be heard, and that our strength continues to be felt by the lawmakers
who have the power to lift the burden of regulation from our markets.

Our Washington efforts have already resulted in progress on several fronts, including making it
possible for us to introduce new products without undue regulation and leveling the playing field
to better defend against foreign competitors. We intend to continue pushing hard for the
overthrow of the burden of the Shad-Johnson Accord, which has prevented us from trading
narrow-based stock indexes as well as futures on individual stocks over the last 17 years. Just
imagine the possibilities if we are successful on this front!

We are encouraged in our overall efforts to modernize the CFTC by our burgeoning relationship
with Bill Rainer, the newly appointed CFTC chairman . In fact, in a major speech last Thursday
here in Chicago, he made it clear that he recognizes the convergence of OTC markets and
formally regulated futures exchanges and called for deregulation of financial futures. He
understands that the ability of the OTC markets to duplicate exchange facilities, processes and
procedures without the regulatory burdens imposed on exchanges creates an unacceptable
government preference for these competitors. We are very pleased that Chairman Rainer sees

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the need for futures markets to receive prompt and equal regulatory treatment and that he has
been able to grasp the complexities of the CFTC and the issues facing it in the short time he
has held the position. Particularly as Congress contemplates the future of the CFTC and
Commodity Exchange Act, the gains we make in Washington will be critical as we continue to
address the first point of our strategic plan - to strengthen and defend our products.

Strengthen and Defend our Products
To that first point of our strategic plan, our product line took a strong defensive stance and
gained major offensive ground this year. We made significant investments to the GLOBEX®2
system, expanding its capacity, speed and functionality while enhancing its reliability. The
software upgrades we put into place early this summer continue to reap enormous dividends.
Add to this a doubling of CME GLOBEX terminals worldwide to nearly 1,200 screens, not to
mention countless other computers that access GLOBEX through an Internet interface with our
clearing members, and you start to get the picture of what is possible and what is happening
here. It is important to note that our top 1O clearing members doing retail business are using the
Internet to enter E-mini trades, and these Internet order entry systems are setting records as we
speak. Ramping up GLOBEX2 has also allowed us to introduce new products such as the E-
mini Nasdaq 100, E-mini currencies (both Yen and Euro-FX) as well as our new and very
innovative weather futures and options. Additionally we have been able to offer daytime trading
of Eurodollars, which allows us to continue to defend our largest volume product from
competitive attack.

The increased access to GLOBEX2 also has helped the E-mini S&P become our third largest
futures contract, with a recent record daily volume of more than 75,000. And just as important,
many of the E-mini users are new customers to the futures markets from around the globe. This
is truly a powerful combination that can only bode well for us going forward. And the E-mini is
continually cited by other exchanges and market participants as one of the most important new
products in the industry in years.

On the topic of our new weather products, at the end of this week I will be giving the keynote
speech at a large derivatives conference in Florida. The sole topic is weather derivatives, and
every major energy derivatives dealer and user will be there. You will probably be surprised to
learn that the fastest growing sector in the entire world of derivatives is weather, and within that
sector, temperature - which is the first of our weather products -- is by far the largest. Just as

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we have captured the bulk of other sectors, such as stock indexes, by being first on the scene,
we intend to be the premier market for weather by doing the same.

Before I leave the topic of new products I want to assure you that we are currently working on
other new products just as innovative as the weather, and just as capable of becoming as
mainstream as stock indexes, currencies and interest rates . I look forward to sharing these with
you once we are further along in the development process.

Use Technology to Benefit our Customers and Members
That so many of our product advancements were ushered in with GLOBEX2 is not a
coincidence . The Mere has a tradition of employing innovative, practical applications of
technology to serve our customers and members. Accordingly, the second point in our strategic
plan was to employ technology advancements to provide you enhanced ability to conduct
business. In the last year, more than one thousand people participated in our GLOBEX2
training classes. Hundreds more have taken advantage of other electronic trading technology
classes .

Further, we now have in place a new interface that permits routing of orders both to our open
outcry markets and to our GLOBEX2 system called the CME FIX API. The new API is an
interface to the electronic trading, order routing and management services of the CME. Our
TOPS, CUBS2 or GLOBEX2 systems can route and execute orders to and from the floor or
screen and return the fill information back within seconds.

But our technology commitment goes beyond GLOBEX2. In March, we had a remarkably
successful roll-out of our new GALAX-C™ hand-held devices in the currency pits, and then in
June we did the same in the Eurodollar quadrant. We anticipate expanding this program in the
coming months.

We also have improved the stability and increased the distribution of our CUBS2 floor broker
system in the S&P pit and expanded CUBS2 to other pits, including currencies. This system
enables brokers to electronically manage and report orders, providing a direct link between the
firm's order desk and the filling broker.

While I am on the topic of technology, I'd like to give you a quick update on our Y2K
preparations. I am happy to report that the Exchange is well prepared for the Year 2000. To

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date, we have successfully completed the assessment, remediation and testing of all of our
systems. In addition to our own tests, we participated in tests coordinated through the Futures
Industry Association and other entities with our clearing members, market data vendors and
other exchanges, as well as the SWIFT Banking Network. We encountered no problems related
to the so-called Millennium Bug.

We have restricted additions or changes to our systems until January 31 5 \ 2000 and undertaken
an extensive contingency planning effort. My hat goes off to the team that spent years
assessing, converting and testing our systems, and preparing for contingencies. Their hard
work will certainly help ensure it will be business as usual come January 2nd when our markets
reopen.

Recognize Clearing as a Strategic Asset
This year also saw many advances in the efficiency and capabilities of the clearing side of the
Exchange as we continue to develop our world class Clearing House as a strategic asset. We
have made great progress in working with our clearing members to give them the most efficient
use of their substantial capital on deposit with the Exchange. This year we have implemented
cross-margining and common banking with the Board of Trade Clearing Corporation. We are
working on cross-margining with our GLOBEX Alliance partners and with LIFFE and the London
Clearing House. We also introduced net margining and risk-based capital requirements to bring
lower costs to member firms, while still offering enhanced financial safeguards. Our Clearing
House will continue to work with our clearing members to further the goal of providing the most
efficient, lowest cost services with the highest level of financial integrity.

Develop Alliances to Complement and Expand Our Technology, Products and
Distribution
The points I've covered so far accentuate the fact that our market does not operate in isolation,
but thrives on collaboration. To continue to meet our fourth strategic objective, which is to
enhance our technology and expand our products and distribution, we must continue to form
strong, strategic alliances. While other exchanges were just waking up to the notion of alliance
partners, the Mere led the way when we introduced our mutual offset system 15 years ago with
SIMEX and established a partnership with the Paris Exchange through GLOBEX almost 1O
years ago. Indeed, as both of those relationships are stronger than ever today, we have
demonstrated to the world our value and reliability as a strategic partner. The GLOBEX
Alliance, which we announced in Paris in February of this year, now spans three of the world's

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major time zones, not to mention North and South America, with five global partners: the CME,
ParisBourse, SIMEX, BM&F in Brazil, and our newest partner, Canada's Montreal Exchange.
This alliance allows all five partners to enjoy a common trading platform, cross-margining of
highly correlated products, harmonization of trading rules and joint marketing and cost
efficiencies.

The GLOBEX Alliance is complemented by the CME/LIFFE partnership that we announced in
August of this year. This exciting venture will allow cross-exchange access and interconnection
of our trading platforms or networks. It will foster initiatives to strengthen our short-term interest
rate franchise . And finally, it will form a new for-profit joint venture to capitalize on new products
and services.

Change our Governance Structure to a More Commercial Business Model
Before I come to the fifth and final critical component to the strategic plan that set our course of
action for 1999, I would like to give you a brief update on our search for a new President and
CEO . I am very pleased to inform you that we have identified a candidate that has the
unanimous support of our Board's Search Committee. We are currently in negotiations with that
candidate and as such must respect the need for strict confidentiality. I can tell you that the
person has a thorough understanding of derivatives, technology and the global financial
services landscape, has managed organizations through change and will provide us with the
creative vision and strong leadership needed to propel us forward at Internet speed . I look
forward to sharing more with you in the near future.

As we explored various alliance partners, it became obvious they expected to see a concrete
commitment to an organizational structure here at the Mere that could be agile and responsive.
And as we explored various technology improvements, it became apparent that we would need
new sources of capital for implementation.

At last year's annual meeting I said: "Our competition is sleeker and quicker than we are, and
our future is not guaranteed. We must convert from our present structure into a more effective,
competitive organization." This is still the case. However, this year we lay before you a solid
plan for demutualization for you, our members, to consider.

Changing our whole structure is not something that can happen overnight. It takes
conscientious planning and careful implementation. Clearly, we are breaking new ground. The

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Chicago Mercantile Exchange was the first major U.S. exchange to make a firm commitment to
explore demutualization, and we are the first to deliver a real plan. Your Board of Directors is
committed to doing what it takes to ensure that the Chicago Mercantile Exchange has a new
foundation for a new century. The new structure we present to you today will capitalize on the
intrinsic value the Mere holds for its members, customers, potential partners and the global
financial community.

***

I want to thank you once again for your patience, input and support as we plotted our course
and developed our plan of action this year. I hope that you are as pleased as I am with our
progress. We have much to be proud of, but at the same time we must not lose sight of the
constant competitive threats and global challenges that surround us.

Make no mistake that we have a tremendous amount of work left to do. Make no mistake that
we are under attack or face threats on numerous fronts. Make no mistake that we must continue
to challenge our traditional methods of doing business, lest someone else steps in to offer an
alternative that is more attractive to our customers. And above all, make no mistake that we
need your constant support in navigating the dangerous shoals that are in front of us.

This is truly a pivotal juncture in the history of our Exchange. And with your help I am truly
confident in our ability to succeed and remain one of the world's foremost global marketplaces.
Once you hear the specifics of our upcoming plans I know that you will share my tremendous
enthusiasm for our limitless future.

It is now my great pleasure to introduce to you the principal architect of our strategy, Jim Oliff,
who will present to you our Plan for Demutualization.

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CHICACO MERCANTILE EXCHANCE®
Scott Gordon
Chairman of the Board
312/930-3300
FAX: 312/930-2040
msg@cme.com November 2, 1999

Dear Fellow Member:

It is with great pleasure that I share with you the enclosed Plan for
Demutualization of the Chicago Mercantile Exchange approved by our
Board of Directors on October 27, 1999. This is a historic juncture for
the Exchange, and once again we have the opportunity to demonstrate
our leadership and innovation by transforming our member-owned not-
for-profit institution into a commercially driven, for-profit corporation.

The Board is very grateful for the hard work and tremendously valuable
guidance of the Strategic Planning Steering Committee led by the
Exchange's Second Vice Chairman, Jim Oliff. That committee also
included myself, the other Board officers, Terry Duffy, Marty Gepsman
and Tom Kloet; our policy advisors, Leo Melamed and Jack Sandner; and
the committee's Vice Chairs, Yra Harris, Buck Haworth and Bill Shepard.

A more detailed description of the plan will be provided in a proxy
statement that will be sent to members after a registration statement has
been filed with and declared effective by the Securities and Exchange
Commission. At least twenty days after sending you a proxy statement,
we will hold a membership vote on the proposal. A two-thirds majority
is required for the weighted vote.

Please take the time to review the summary of this plan.

30 South Wacker Drive Chicago, Illinois 60606-7 499 312/930-1000
LONDON WASHINGTON, DC TOKYO
EXECUTIVE SUMMARY

THIS DOCUMENT IS INTENDED O N LY AS A SUMMARY OF CERTAIN PROVISIONS OF THE DEMUTUALIZATION

PLAN. MORE COMPLETE IN FORMATION WILL BE PROVIDED IN THE PROXY STATEMENT THAT WILL BE SENT

TO MEMBERS DESCRIBING THE PLAN AN D RELATED TRANSACTIONS.

On Wednesday, October 27, 1999, the Board of The plan, when sent to members for their
Directors ("Board") of the Chicago Mercantile consideration and approval, is considered under
Exchange ("Exchange" or "CME") approved a Federal securities laws to involve an offering of the
demutualization plan designed, among other things, new Delaware corporation's securities to the members.
to facilitate new business strategies and strategic As a result, it is necessary to prepare, file with the
relationships, improve and streamline the CME's Securities and Exchange Commission ("SEC") and
governance and managerial structure, and convert await the declaration of effectiveness by the SEC of a
membership interests into equity securities. securities registration statement describing the plan
and related matters before materials describing the
Subject to member approval, the end result of the
transaction can be sent to members seeking their
demutualization would be that the CME would
approval. It is expected that such materials will be
become a Delaware for-profit stock corporation in
sent to members in the beginning of 2000. After
which the members would own two classes of
that, and assuming membership approval and receipt
common stock - one class capturing, in addition to
of a favorable ruling from the Internal Revenue
equity, the trading rights and privileges inherent in
Service as to the tax consequences of the transactions
existing exchange memberships and the other class
contemplated by the plan, the demutualization
representing equity only. The actual process would
transaction would be made effective sometime during
involve two relatively simultaneous steps: first, the
the first half of 2000.
existing not-for-profit corporation would be merged
into a Delaware not-for-profit corporation; and As the first major U.S. exchange to develop a
second, that corporation would then be merged into concrete plan for demutualization, the Board believes
a Delaware for-profit stock corporation. As a result, that the CME has a unique opportunity to once
members would receive shares of Class B Common again display the spirit of leadership and innovation
Stock representing equity plus their existing trading that has come to define the very essence of the
rights and privileges, and shares of Class A Common Chicago Mercantile Exchange.
Srock, representing pure equity in the Exchange.

Any offering ofsecurities described in this document will be made only by means
ofa prospectus fikd as part ofa registration statement u11der the Securities Act of 1933.

5
BACKGROUND

When the CME was formed at the turn of the last To dare, the Exchange's governance and management
century, members of the Exchange had a common structure has successfully responded to the challenges
purpose: to create a central auction market in various presented by these diverse customer and ownership
agricultural commodities in order to further their bases. However, the Board believes that, today, the
individual business interests. Today, the Exchange competitive challenges facing the Exchange require a
operates a wide range of markets-agricultural, change in structure.
foreign currency, interest rate, equity and new credit
The risk management industry, and financial markets
and weather markets. Each of these markets serve
in general, are experiencing significant and rapid changes.
different customer bases and different stakeholders
These changes are largely due to advances in technology,
with different interests.
a breakdown in regulatory barriers and resultant cost
As the CME's customer base has become more efficiencies. Computer and communications systems
heterogeneous, so too has the ownership of the are bringing the world together in ways that present
Exchange. Today, the Exchange has members who new challenges to centralized physical auction markets.
use their memberships to trade and broker on the The Internet and other front-end proprietary networks
floor, members who lease their sears, and futures are changing investor behavior and revolutionizing
commission merchants (FCM's) who hold multiple how investors interface with financial markers.
seats to transact business at the CME.
The traditional exchange model is undergoing a
significant transformation with the emergence of
electronic trading technologies. For example, major
securities exchanges, such as the New York Srock
Exchange ("NYSE") and Nasdaq, are under pressure
from electronic communications networks (ECN's),
which are directing order flow away from the primary
markers. Recent reports estimate that these alternative
trading systems-which are quasi-exchanges that
electronically march orders and provide fast, low-cost
executions-have captured twenty-two percent of
Nasdaq volume and four percent oflisted share volume.

Any offering ofsecurities described in this tUJcumrot will be made 011/y by means
ofa prospectus filed as part ofa registration statement under the Securities Act of 1933.

6
Technological innovations and reduced regulatory Notwithstanding these changes and increased
burdens in the global financial markets are not only competitive activity, the Board believes that the
lowering barriers to entry and creating new competitors, Exchange is extremely well-positioned in today's
they are encouraging traditional exchanges to modernize marketplace to preserve and enhance its position.
their operations. For example, the Marche a Terme The Board also believes, however, that the Exchange
International de France (MATIF), now ParisBourse, will be better able to respond to such competition
and the Sydney Futures Exchange (SFE) have both if it is reorganized as a commercial enterprise with
fully converted to electronic trading in order to a true oversight board and a team of professional
reduce costs and expand their business. The London business managers. These managers will leverage the
International Financial Futures and Options Exchange substantial existing assets and strengths of the CME
(LIFFE) , is now aggressively transferring its remaining into new business strategies designed to maximize
contracts to the LIFFE CONNECT electronic system shareholder returns.
in order to reduce costs.
Transforming the business model will enable the
In order to achieve the necessary economies of scale Exchange to meet many of the competitive challenges
and remain competitive in a low-price/high-volume facing the Exchange. However, the Exchange faces
environment, consolidation among exchanges and significant regulatory challenges. Many of the CME's
financial intermediaries is likely to continue. With business plans will require relief from regulatory
respect to exchanges, large market users are expected strictures that constrain the growth and efficiency
to continue to seek more efficient trading, processing of futures markets. The leadership of the Exchange
and clearing facilities. Although such institutions cur- has worked tirelessly to reform regulation in the
rently justify membership in multiple exchanges and United States; the Board of CME2 will need to
clearing organizations, they are likely to concentrate continue to work with legislators and regulators
their business activity in exchanges and clearing to improve the regulatory climate and eliminate
organizations that offer standardized systems, a full disparate treatment between competitors providing
spectrum of financial products that can be traded and equivalent financial services.
cleared through a single entity, and low operating costs
and capital efficiencies for member intermediaries.

Any offering ofsecurities described in this document will be made only by means
ofa prospectus filed as part ofa ~gistration statement under the Securities Act of 1933.

7
OBJECTIVES OF DEMUTUALIZATION

Create a For-Profit Company Demutualizing the Exchange will simplify the
with an Improved Governance and management structure and create a commercially-driven
Managerial Structure. enterprise. ft will also provide more flexibility and
accelerate decision making that improves the competitive
As a membership organization, the Exchange has
position ofthe Exchange.
typically made decisions to benefit members' interests,
rather than to enhance the overall value of the
Exchange. Additionally, the CME's abiliry to respond Create an Improved Financial Decision
quickly to changing circumstances is compromised Making Model
by the need to satisfy various competing interests.
The Board believes that the Exchange is in the midst
The Exchange's competitors, however, increasingly are
of a transition from one business model to another-
for-profit companies operating with a singular purpose
one that may involve side-by-side open outcry and
to maximize profits.
electronic trading of many of the CME's products.
The traditional distinctions between the activities of
Although significant investments have already been
the Exchange and its members and clearing members
made, the Exchange must continue to invest in a new
are becoming increasingly blurred. On the one hand,
technology infrastructure in order to compete.
such members and clearing members govern the
Moreover, potential business expansion plans involving
Exchange; on the other hand, they compete directly
new markets and products will require significant
with the Exchange by developing off-exchange
investments, diminishing the Exchange's current
produces and business, and by joining alternative market
financial resources. To remain financially strong during
initiatives such as BrokerTec. The Board believes that
chis transition period, the Exchange will need to
demutualization of the Exchange will enable management
undertake cost containment and cost reduction efforts.
to reduce the impact of such conflicts on the Exchange
Additionally, Exchange management may initiate cap-
and increase the enterprise value of the CME for the
ital-raising activities to purchase or build new trading
benefit of the equiry owners.
technologies, or to fund new business initiatives.
The Board also believes that demutualization of the
Exchange will create a governance and management
structure that is more agile and swift in responding
to competition.

Under the plan, management of che demucualized
Exchange would be free to list contracts electronically,
change clearing and transaction fees, expand the
CME's existing produce and service offerings, and
invest in new business ventures.

Any offering ofsecurities described in this document will be made only by means
of a prospectus filed as part ofa registration statement under the Securities Act of 1933.

8
The Board believes that changing the operating An innovative line of E-mini products, beginning
structure to a for-profit model will result in improved with the E-mini S&P 500 launched in 1997 and
financial decision making. For example, as manage- continuing with launches this year of the E-mini
ment of the demutualized Exchange adopts a new Nasdaq 100 and E-mini Japanese yen and EuroFX,
operating platform involving commercial decision has served to broaden the distribution of CME prod-
making, investments and expenditures will be judged ucts to a new customer base of smaller institutional
on the basis of return on investment. The Exchange's and retail customers. The E-mini S&P 500 is the
ability to obtain financing at favorable rates will most successful and fastest growing product in the
depend on whether lenders believe the CME is Exchange's history. The Exchange intends to replicate
investing prudently. the E-mini concept in its other product lines.

Finally, commercial pricing of services and a profit- The CME Clearing House is one of the world's most
making objective for Exchange management will highly regarded clearing organizations. Serving as
ensure that resources are allocated to those business buyer to every seller and seller to every buyer, the
initiatives and ventures that provide, or have the clear Clearing House eliminates counter-party risk for
business prospect of providing, competitive rates of participants in the CME's markets. Through the
return on investment. CME's comprehensive and time-tested financial
safeguards system, no customer trading any of the
This profit-making objective should provide Exchange
more than 2.39 billion futures and options contracts
management with objective measures for key operational
that have changed hands since the Exchange was
and strategic decisions.
founded in 1919 has suffered a loss due to the default
of a clearing member firm. Each day, the CME
Create a Catalyst for Aggressively Pursuing Clearing House moves an average of $990 million
New Business Strategies. through its clearing system. The CME Clearing
House also holds more than $18.7 billion in
The Exchange has very substantial assets. The CME's
performance bond assets backing market positions.
agricultural, currency, interest rate and equity index
products represent one of the most diverse risk
management product lines in the industry. The
CME's product line is led by the world's most heavily
traded short-term interest rate product, Eurodollar
futures and options, and the most actively traded
equity index product, S&P 500 futures and options,
which the Exchange trades pursuant to a long-term
license agreement with Standard & Poor's Corporation.

Any offering ofsecurities described in this dacument will be made only by means
ofa prospectus filed as part ofa registration statement under the Securities Act of 1933.

9
In terms of technology systems and infrastructure, Continuing financial innovation and demand for new
the CME is in the strongest position in its history. risk management and derivative products are fueling
During the last year, the Exchange has significantly global growth in exchange-traded and OTC products.
expanded the capacity, functionality and distribution Demutualization will better enable the Exchange to
of the GLOBEX®2 System, reducing the CME's make timely decisions, raise and invest capital in new
vulnerability to electronic competition. The Board business initiatives and explore growth opportunities
has also committed substantial funds to re-architect that increase the enterprise value of the Exchange.
the local area network and make other infrastructure For example, the Exchange may wish to significantly
improvements to enhance automation on the trading expand the range of electronically traded products,
floors. For example, the Exchange recently deployed with a straight-through processing model, twenty-
wireless hand-held devices in the currency and four hour trading, clearing and risk management
interest rate quadrants, allowing members to interface services and Internet-based access to the Exchange's
directly with the cash foreign currency markets and the markets. The Exchange may also wish to develop a
GLOBEX2 electronic trading system. The Exchange vast array of cash commodity markets and related
has also recently improved the stability and increased futures and options markets. Product innovation
the distribution of the CUBS System, the CME's opportunities exist in areas such as futures on individ-
electronic floor broker system. ual stocks, metals, energy, transportation, water, air,
weather, credit, petrochemicals, semiconductors and a
The CME has a long history of leadership and
host of other possibilities. Additional opportunities
innovation in the risk management industry. The
exist to leverage the CME Clearing House by providing
CME was the first exchange to trade futures on live
clearing services to these markets and by leveraging
animals and futures based on a frozen commodity,
the CME's existing international exchange partnerships
the first to successfully trade financial futures, the
to expand the Exchange's business around the globe
first to trade cash-settled futures contracts and the
and into other markets.
first to trade credit and weather derivatives. The
CME was also the first exchange to establish an In early 1999, the CME undertook an ambitious new
international linkage, the first to develop an electronic initiative called the GLOBEX Alliance with two of its
after-hours trading system and the first to develop a longstanding partners, ParisBourse and SIMEX. The
derivatives portfolio margining system that has GLOBEX Alliance involves cross-margining of highly
become the standard worldwide. correlated products, interconnectivity of trading plat-
forms among alliance exchanges, harmonization of
trading rules, and joint marketing and trading incen-
tives to encourage the distribution and expanded use
of alliance members' products across the major time
zones. The GLOBEX Alliance now includes the

Any offering ofsecurities described in this document will be made only by means
ofa prospectus filed as part of a rrgistration statement under the Securities Act of 1933.

10
Bolsa de Mercadorias & Fucuros (BM&F) in Brazil, Many of the Exchange's members are interested in
and the Montreal Exchange. selling only a portion of their interest in the CME.
Under the existing structure, these members have
Also in 1999, the Exchange developed a strategic
been unable co do so because they cannot sell less
partnership with LIFFE involving interconnection
than an entire membership or seat. Demutualizacion
of each exchange's trading platforms and networks,
will allow members to sell only a portion of their
short-term interest race initiatives such as cross-
interest in the Exchange.
margining and spread trading of Eurodollar and
Euribor contracts, and an innovative fully electronic, The Board believes that the equity value that will be
for-profit joint venture designed to capitalize on new unlocked as a result ofdemutualization is additive to
markets. The joint venture is designed co attract the existing value ofmemberships, including a member's
liquidity providers, providers of order flow and ocher existing equity and trading rights.
third parties as investors.

The Board believes that the proposed demutualization of Provide a Signal and a Currency for
the Exchange will, ifapproved by the membership, mark Working with Strategic Partners.
a new era ofinnovation and success for the CME
The Board believes that technology firms, as well as
firms interested in acquiring an equity stake in the
Unlock Members' Equity Values. CME, will have a strong preference for working with
the Exchange as a demucualized corporation, rather
The owners of the CME are a heterogeneous group
than a member-owned mutual organization. The
with different economic interests. During the last
Board believes that the Exchange will benefit from
five years, and prior co the recent increases in seat
entering into strategic alliances with partners or
prices and lease rates, many of the Exchange's retired
investors who can provide technology and capital
owners experienced substantial declines in their seat
resources to the Exchange. Such partnerships will
values and income from leasing. These owners are
enable the Exchange to execute business strategies
interested in maintaining and enhancing their asset
that leverage the CME's existing strengths and assets.
values, as well as deriving income from their assets. In
chis sense, many of these owners have begun co look Demutualization and conversion of memberships into
more like traditional stockholders than exchange shares will create a valuable currency for working with
members. Demucualization will unlock the equity value such partners, facilitating the ability ofthe CME to
in a membership and allow Exchange management to enter into such tramactions in the fature.
provide stockholder returns to these members in the
form of profits and, potentially, dividends.

Any offering ofsecurities described in this tUJcummt will be made only by means
ofa prospectus filed as part ofa registration statement under the Securities Act of 1933.

11
THE DEMUTUALIZATION PLAN

The Board considered a number of demutualization
PMT
alternatives and associated corporate, securities, tax Partners
- - •A Units
and regulatory issues. These considerations included CME PMTLP • B Units

the transaction form, the equity allocation among - - • General
Partner's
Units
Exchange members, the impact on open outcry and
trading floor rights of members, continuation of PMT Units PMTUnits
for Class A Shares for Class A Shares
preferential fees for trades made by members, clearing or Cash or Cash

member firm requirements and Board composition
and transition issues. The Exchange has engaged Deloitte & Touche, LLP
to provide valuation consulting services in connection

Form of Transaction with the estimation of the fair market value of the

The proposed demutualizarion involves a two-step overall equity capital of PMT.

merger and simultaneous acquisition of P-M-T
Limited Partnership ("PMT"). Conversion of Membership Interests
Memberships will be converted into two classes of
stock: one class (Class B) that, like current memberships,
CME CME 1 CM£i combines equity and trading rights, and another class
(Illinois (Delaware (Delaware
not-for-profit non-stock stock (Class A) that constitutes equity only.
corporation) -- corporation) - corporation)

Member Interests Member Interests Current Demutualized
for Member Interests for Shares

Class A Shares:
For corporate law reasons, the CME, an existing "Pure" Equity
Ownership
Illinois nor-for-profit corporation ("Existing CME"), Interest
will be merged first into a new Delaware non-stock + ~ +
Badge
corporation (CME 1), and immediately thereafter into ("Right to Trade") Class B Shares:
a Delaware stock corporation ("CME2"). Equity and
Trading Rights
The assets and operations of PMT will be transferred
to CME2 in exchange for Class A shares of CME2 or
cash, followed by the liquidation of PMT and a distribu-
tion of such shares or cash to the PMT partners. The
exchange of PMT units for Class A shares or cash will be
based upon the equity valuation of PMT, determined
as of the dare of the demurualizarion transaction.

Any offering ofm:uriries tkscribed in this document will be made only by means
ofa prospectus filed as part ofa registration statement untkr the Securities Act of 1933.

12
Shareholder Classes Share Allocation Methodology
There will be several series of Class B shares reflecting Equity interests in CME 2 will be allocated to
the existing CME divisional structure. Class B shares each member of Existing CME depending upon the
will preserve open outcry trading rights and electronic particular divisional membership owned. Ninety
trading access for the owners of such Class B shares. percent of the total equity interest in CME2 will be
allocated to issued Class A shares and ten percent of
For example, series B-1 shareholders will have trading
the equity interest will be allocated, along with the
rights in all products that CME Division members cur-
trading privileges, to the Class B shares.
rently have access to under Exchange rules; series B-2
shareholders will have trading rights in all produces The number of Class A shares to be issued co members
chat IMM Division members currently have access to will be determined immediately prior to the time chat
under Exchange rules; series B-3 shareholders will the registration statement is declared effective by the
have trading rights in all products chat !OM Division SEC. At such time, CME, IMM and !OM members
members currently have access to under Exchange will receive an allocation of Class A shares on a 3-2-1
rules; and series B-4 shareholders will have trading basis, and CME, IMM, !OM and GEM members will
rights in all products chat GEM Division members receive Class B shares representing trading privileges
currently have access to under Exchange rules. and an allocation of the Class B share equity on a
3-2-1-1/6 basis. Table 1 and Table 2 on the following
Demutualization page characterize a possible assignment of equity
r•-•• •- •••••••••••••••••••-•• r•••••••••••••••••••••••• • • •• •••••••••••••• • •••• :
I
interest in CME2.
~ ~----, i
i CME ! .. !I B1 Share, I+ - I le is expected chat CME2 would have authorized but
unissued Class A shares, which would be available for
~---------------------------; A
capital raising activities (e.g., sale of stock), strategic
i i f~ s business initiatives (e.g., acquisition of another company
i IMM 1--o-:--1-4_~1 ~ + ; for stock) and share-based compensation programs
r··················-------··1 (e.g., stock option incentive compensation plans).

i IOM i l B· :
GEM 11 • r--r::-~::r -
----·········---------------' :...............................................1
Ownership Equity and Pure
Interests and Trading Equity
Membership Rights
Rights

Any offering ofsecurities described in this document will be made only by means
ofa prospectus filed as part ofa registration statement under the Securities Act of 1933.

13
Table 1. Example Assignment of Equity Issued to Individual Members of Existing CME

A-shares B-share equity Total equity
(in relative A-shares) (in relative A-shares)
CME 16,200 1,800 18,000
IMM 10,800 1,200 12,000
IOM 5,400 600 6,000
GEM 100 100

Table 2. Example Assignment of Total Equity Interests Issued

Total Total B-share equity Total equity Pct of equity
A-shares (in relative A-shares) (in relative A-shares) distributed to members
CME (625) 10,125,000 1,125,000 11,250,000 39.1%
IMM (813) 8,780,400 975,600 9,756,000 33 .9%
IOM (1,287) 6,949,800 772,200 7,722,000 26.8%
GEM (467) 46,700 46,700 0.2%

Total (3,192) 25,855,200 2,919,500 28,774,700 100%

Transfer Rights
The Board reserves the right to consider transfer • Institute appropriate limits on the sale of shares
restrictions to address the following issues: to maintain orderly markets which reflect
the underlying economic value of the shares.
• Maintain sufficient liquidity to allow members to
efficiently and effectively realize the equity value of • Protect, in the shore term, against an investor
their current membership interests. building up or establishing a controlling position,
without the Board's consent, at prices that the
Exchange believes may not reflect its longer
term value.

Any offering ofsecurities described in this document will be made only by means
ofa prospectus filed as pan ofa registration statement under the Securities Act of 1933.

14
• Protect, in the longer term, against an investor Using and Leasing of Trading Privileges
building up or establishing a controlli ng stake, The trading privileges component of a Class B share
without the Board's consent, with the aim of could be used by the owner of such Class B share or
exercising influence over the affairs or direction could be leased our to another party who satisfies the
of the Exchange. eligibility requirements imposed by CME2. It is
intended that such eligibility requirements will be
The Board's determination with respect to the ulti-
substantially comparable to the requirements set forth
mate transfer restrictions to be imposed will be fully
in the Exchange's existing membership rules. It is also
disclosed in the prospectus that will be distributed to
intended that the current differentiated clearing fee
the members pursuant to the members' referendum
structure will apply to owner/holders and lessees of
(proxy solicitation) .
the trading privileges component of a Class B share.
The Exchange's Membership Department will act
Lessees of such trading privileges would be subject to
as transfer agent for all purchase and sale transactions
existing Exchange requirements, including, for example,
in the Class A and Class B shares. These services will
approval from the CME Membership Department
be similar to the transfer and administrative services
and Membership Committee.
currently provided by the Membership Department
with respect to membership interests. For example,
Special Rights of Class B Shareholders
the CME maintains a "book" reflecting the bid and
In order to assure members that their current floor
ask prices for membership interests. The CME also main-
trading rights will be protected, the Board has
tains the names and ask prices at which members have
designed provisions to preserve members' core open
indicated a willingness to sell, and provides such
outcry trading rights. These core rights include:
information to persons who have expressed an interest
(1) current divisional product allocation rules
in acquiring membership interests.
applicable to each series of Class B shares; (2) current
floor access rights and privileges, including the
commitments to the membership described below;
(3) decisions regarding the issuance of additional
Class B shares; and (4) eligibility requirements for
exercising and transferring the trading privileges
component of Class B shares.

Any offering ofsecurities described in this document will be made only by means
of a prospectus filed as part ofa registration statement under the Securities Act of 1933.

15
Commitments to the Membership: Open Outcry An open outcry market will be deemed liquid ifit meets
and Trading Floor Facilities any ofthe following tests on a quarterly basis:
The Board believes that open outcry markets will
• if a comparable exchange-traded product exists,
continue to play a prominent economic role in the
the CME open outcry market has maintained at
future of CME2, Therefore, the terms of the demutu-
least thirry percent of the average daily volume of
alization transaction balance the objectives of the
such comparable product (including for calculation
CME with certain commitments to maintain open
purposes, volume from EFP transactions in such
outcry trading.
open outcry market); or

• if a comparable exchange-traded product exists and
the CME's product trades exclusively by open out-
cry, the CME open outcry market has maintained
Maximize flexibility at least thirty percent of the open interest of such
to pursue new
comparable product; or
Maintain existing strategic initiatives
member privileges or respond to
competitive • if no comparable exchange-traded product exists,
pressures the CME open outcry market has maintained at
least forty percent of either the average quarterly
volume in that market in 1999 (including for
calculation purposes, volume from EFP transac-
tions in such open outcry market); or
The plan includes the following commitments to
• if no comparable exchange-traded product exists
maintain open outcry markets:
and the CME's product trades exclusively by
As long as an open outcry market is liquid, CME2 will open outcry, the CME open outcry market has
continue to provide: maintained at least forty percent of the average
open interest in that market in 1999.
• a facility for conducting business, for the dissemination
of price information, and for clearing and delivery; and Ifa market is deemed illiquid, management of CME2
will make commercial decisions consistent with the best
• reasonable financial support (consistent with 1999
interests of the shareholders.
budget levels) for technology, marketing and research.
"Consistent" expenditures shall reflect the overall
financial health of the corporation and then-current
volume and revenue levels in the affected market.

Any offering ofsecurities tkseribed in this document will be made only by means
of a prospectus fikd as part ofa registration statement untkr the SecuritiLs Act of 1933.

16
Changes in Class B Shareholder Rights Clearing Fees
Management initiatives that significantly alter the In recognition of the importance to the CME2 of the
core open outcry trading rights granted to Class B liquidiry provided by holders of Class B shares,
shareholders must be ratified by the Class B CME2 will grant preferential clearing fees on current
shareholders. In the event such alterations are submitted CME products for trades made by such holders. For
by management of CME2 to the Class B shareholders, example, the trades of a Class B shareholder who uses
weighted voting on a 6-2-1-1/6 basis shall apply the trading privileges component of his Class B share
(i.e., each series B-1 shareholder's vote shall be multi- would be entitled to equity rates when trading
plied by a factor of 6; each series B-2 shareholder's "in d ivision"; the trades of a lessee of such trading
vote shall be multiplied by a factor of 2; each series privileges will be entitled to lessee rates when trading
B-3 shareholder's vote shall be multiplied by a factor "in division. " The Board will have discretion to pro-
of 1; each series B-4 shareholder's vote shall be multi- vide preferential clearing fees or other incentives with
plied by a factor of 1/6). respect to trades of other persons, including persons
considered by the Board to be especially important to
Due to the fact that Class B shares will be registered
CME2 as providers of market liquidity.
under the Securities Exchange Act of 1934, as
amended ("1934 Act"), the referendum process may The clearing fees for open outcry trading will never
be considered a "solicitation" triggering the proxy be greater than the electronic market clearing fees.
disclosure requirements imposed by the 1934 Act,
and Rule 14A thereunder. Additional Share Characteristics
Voting rights on issues (other than core trading rights
and rights to elect Directors), dividend rights, and
liquidation rights will be pro rata on a Class A share
equiry equivalent basis; that is, Class B shares will
receive voting rights, dividend rights and liquidation
rights in proportion to the Class A share equity
assigned to a given Class B share at the time of the
demutualization transaction.

The Board is considering the inclusion of provisions
in the governing documents designed to protect
CME2 from unsolicited takeovers that may disadvan-
tage shareholders.

Any offering ofsecurities described in this document will be made only by means
of a prospectus filed as part of a "gistration statement under the Securities Act of 1933.

17
Clearing Membership requirements of Rule 902. The management of
The right to be a clearing member will require an CME2 may airer these ownership interest requirements.
ownership interest in CME 2 equivalent to current
requirements. Rule 902.-SPECIAL REQUIREMENTS, Clearing House Governance
provides that each CME clearing member must have The Board of CME2 will create a Clearing House
at least two CME memberships, at least two IMM governance structure that secures the continued
memberships, and at least two IOM memberships. participation of clearing members in CMEz, maxi-
Additionally, a clearing member which was an IMM mizes shareholder value and insures the financial
Class A clearing member on or prior to May 6, 1987, integrity of the Clearing House.
must have at least one CME membership, three IMM
Changes in Board Composition
memberships, and two !OM memberships assigned
In order to manage the transition to a demurualized
to it. Finally, after November 3, 2000, each clearing
for-profit corporation, the current composition and
member must have at least one GEM membership
terms of the CME Board wiil be maintained for the
assigned to it. Rule 902 also provides that at least one
first year following the December 1999 Directors'
CME, one IMM, one !OM and one GEM membership
Elections. After the first year, the size of the Board
assigned to the clearing member must be owned by
will be reduced, in two stages, from thirty-nine
the clearing member or an officer, principal or panner
Directors to nineteen Directors. Following the two-
with an acceptable proprietary interest.
stage reduction, six Board Directors will be elected by
Upon consummation of the demurualizarion transaction, Class B shareholders (voting as a separate class), six will
each clearing member will be required to satisfy the be elected by Class A shareholders and Class B share-
above-described criteria by owning Class A shares and holders (voting together as a single class) and as many
Class B shares in an amount reflecting the total shares as seven will be elected by Class A shareholders and
allocated to such clearing member in respect to the Class B shareholders (voting together as a single class)
memberships held by it for purposes of meeting the from a Board nominated slate. Directors elected from

6 Directors 6 Directors 7 Directors

3 Elected by series B-1 shareholders Elected by A Class shareholders Elected by Class A shareholders
and B Class shareholders and Class B shareholders

2 Elected by series B-2 shareholders

1 Elected by series B-3 shareholders
Class B Directors Equity Directors Board-Slated Directors

Any offering ofsecurities described in this document will be made only by means
ofa prospectus filed as part ofa Tt!gistration statement under the Securities Act of 1933.

18
the Board nominated slate could include the President After the Stage 1 transition, the Board of CME2
and CEO and other executive staff members, represen- would have no more than thirty elected members.
tatives from the FCM community, industry experts
and representatives and public directors from outside The Board Transition: Stage 2
the industry as required by the Commodity Futures In December 2001 , the terms of the thirteen Board
Trading Commission ("CFTC"). members elected in December 1999, and the six
members appointed in conjunction with that election,
The Board Transition: Stage 1 will expire. At that time, no more than ten individuals
In December 2000, the terms of twelve of the would be elected to the Board of CME2 for a term
twenty-four elected Board members, and six of the of two years.
appointed Board members, will expire. At that time,
• Equity Directors: Three individuals would be
no more than nine individuals would be elected to
elected by the Class A and Class B shareholders from
the Board of CME2 for a term of two years.
a slate of candidates presented by a nominating
• Equity Directors: Three individuals would be elected committee. The transition Board shall determine
by the Class A and Class B shareholders from a slate the composition of the nominating committee.
of candidates presented by a nominating committee.
• Class B Directors: Two individuals would be elected
T he transition Board shall determine how candidates
by the Class B-1 shareholders and one individual
shall be slated.
would be elected by the Class B-2 shareholders. It is
• Class B Directors: One individual would be elected envisioned that three individuals will be elected from
by the series B-1 shareholders, one individual would a nominated slate of six individuals. A Director
be elected by the series B-2 shareholders and one elected by the Class B shareholders must own a
individual would be elected by the series B-3 Class B share. The transition Board shall determine
shareholders. It is envisioned that three individuals the composition of the nominating committee.
would be elected from a nominated slate of six
• Board-Slated Directors: The Board could nominate
individuals. A Director elected by the Class B
as many as four individuals for election by the
shareholders would be required, as a qualification
Class A and Class B shareholders (voting as a single
co serve, to own a Class B share. The nomination
class) to the Board.
process for Class B Directors shall be substantially
similar co the nominating process currently provided After the Stage 2 transition, the Board of CME2
for under Exchange rules. would have not more than nineteen elected members.

• Board-Slated Directors: The Board could nominate
as many as three individuals for election by the
Class A and Class B shareholders (voting as a single
class) to the Board.

Any offering ofsecurities described in this document will be made only by means
of a prospectw filed as part ofa registration statement unekr the Securities Act of 1933.

19
Class B Directors for approval. Class B shareholders would vote on a
Following the transition, the series B-1 shareholders Class A share equivalent basis (as described above). The
(CME) will elect three Board members, the series B-2 Board-Slated Directors will each serve staggered terms
shareholders (IMM) will elect two Board members, of two years.
and the series B-3 shareholders (IOM) will elect one
Board member. A Director elected by a particular Chairman of the Board and Board Officers
series of Class B shareholders must own a Class B share The Board members of CME2 will appoint a
in such series in order to be qualified to serve as a Chairman of the Board and other Board Officers from
Director. The nomination process for Class B among the elected Directors.
Directors shall be substantially similar to the nominating
process currently provided for under Exchange rules. Responsibilities of Management
The Class B Directors will each serve staggered terms The management of CME2 will make commercial
of two years. decisions concerning open outcry trading subject
to limitations prescribed by core open outcry trading
Equity Directors rights. The management of CME2 will make com-
Six individuals would be elected by the Class A mercial decisions, including decisions concerning
and Class B shareholders from a slate of candidates electronic trading, produces, access, distribution,
presented by a nominating committee. Class B share- side-by-side trading and electronic execution fees.
holders would vote on a Class A share equivalent basis.
Therefore, if a series B-1 share has equity equivalent to Committees
300 Class A shares, the Class B-1 shareholder vote The CME2 will streamline the existing committee
would be weighted by a factor of 300 relative to the structure. Because the success of CME2 will depend
vote of a single Class A share. The Board shall deter- upon ics ability to serve the marketplace, manage-
mine the composition of the nominating committee. ment will continue to seek the guidance from traders
The Equity Directors will each serve staggered terms and Board members through the streamlined com-
of two years. mittee structure and through direct contact with
traders, brokers, FCM's and market users.
Board-Slated Directors
Further, CME 2 will have a committee structure
The Board can nominate as many as seven additional
that includes Class B shareholders to oversee trading
Board members, subject to compliance with the
floor core rights. The Board of CME2 may consider
CFTC's Board composition requirements. The Board
establishing other appropriate committees.
of CME2 will nominate the slate of additional Board
members, which would be submitted to all shareholders

Any offering ofsecurities described in this document will be made only by means
ofa prospectus filed as part ofa "gistration statement under the Securities kt of I 933.

20
SECURITIES LAW CONSIDERATIONS

It will be necessary to prepare and file a registration The shares of CME 2 are expected to be registered
statement with the SEC on Form S-4 with respect under the Securities Exchange Act of 1934 and
to the shares of stock of CME2 to be offered in con- CME2 will be required to comply with the periodic
nection with the merger. This registration statement reporting requirements of that Act, including the
would include, as a prospectus, the proxy statement preparation and filing of quarterly reports on Form
to be sent to the members of Existing CME regarding I 0-Q and annual reports on Form 10-K, the preparation
the reorganization transactions. The proxy statement of current reports on Form 8-K regarding material
will describe the proposed transactions in greater developments and the preparation of annual reports
detail, the difference between the existing CME and proxy statements.
organization and the proposed Delaware corporation,
the compensation arrangements for the Board of
Directors and Executive Officers, and other matters
that should be considered by members in evaluating
the demutualization proposal.

Any ojfmng ofserorities tkscribed in this dorommt will be m,uu only by means
ofa prospectus filed as part ofa registratio11 statement untkr the Serorities Act of 1933.

21
TAX CONSIDERATIONS

The proposed conversion of Existing CME into CME2
is intended to qualify as a tax-free reorganization for
federal income tax purposes. Under reorganization tax
treatment, neither the CME nor CME members
would recognize taxable income (or tax losses) as a
result of the conversion. A member's tax basis in a
CME membership would be carried over to the
Class A shares and Class B shares received in the
conversion, with the carried over basis allocated
between Class A shares and Class B shares in
proportion to the fair market values of those shares
at the time of the transaction.

Because of the novelty of the transaction, the
Internal Revenue Service will be asked by the CME
to issue a ruling to the effect that the conversion
will qualify for tax-free treatment for federal income
tax purposes. Implementation of the demutualizarion
plan is contingent upon the issuance of such a
favorable tax ruling.

Any offering ofsecurities described in this d,u:ument will be made only by means
ofa prospectus filed as part ofa ~tratio11 statement under the Securities Act of 1933.

22
IMPACT OF DEMUTUALIZATI0N ON
SELF-REGULATORY RESPONSIBILITIES

Recent media reports regarding the planned The CFTC periodically examines each exchange to
demurualization of exchanges in the United States ascertain whether it is adequately fulfilling its
have raised questions regarding potential conflicts of self-regulatory responsibilities. The CFTC has
interest between an exchange's desire to maximize authority to compel an exchange to fulfill such
profits and its ability to properly discharge its self- responsibilities, including for example, the power to
regulatory responsibilities. issue a deficiency order against an exchange if the
exchange's trade monitoring system does not satisfy
The Commodity Exchange Act ("CEA") and CFTC
statutory requirements and the power to refrain
regulations impose strict self-regulatory responsibilities
from approving any application for designation as a
on designated contract markets. The CEA and CFTC
contract market. Even more broadly, the CFTC has
rules require a contract market to enforce all of its
the power to suspend or revoke the contract market
rules and to maintain "a continuing affirmative action
designation of any exchange that has failed or refused
program" to secure compliance with the CEA, CFTC
to comply with any of the provisions of the CEA or
regulations and the contract market's rules.
CFTC regulations.
CFTC regulations further specify that each exchange
The CME2 has a strong business incentive to preserve
shall establish an adequate enforcement staff which
its reputation as a well-regulated exchange, and a
shall be authorized by the exchange to initiate and
reputation for market integrity would be equally
conduct investigations, to prepare reports and to
important to a for-profit exchange.
investigate and, if appropriate, prosecute possible rule
violations. The Board of Directors believes that the CME2 can
properly discharge its self-regulatory responsibilities as
a demutualized for-profit corporation.

Any offering ofsecurities ,uscribed in this dacument will be made only by meam
ofa prospectus filed as part ofa registration statement under the Securities Act of 1933.

23
TIMING

Preparation of the required corporate documents
and the registration statement for CME2 is expected
to take approximately six to eight weeks. Following
the filing of the registration statement, it is expected
that the SEC will review the registration statement
before declaring it effective. Following the effective-
ness of the registration statement, expected in early
2000, copies of a proxy statement/prospectus describ-
ing the demutualization transaction will be printed
and mailed ro the membership of Existing CME.
Illinois corporate law requires at least twenty days
advance notice of a membership meeting at which a
merger is to be considered. Subject to the receipt of
the favorable ruling of the Internal Revenue Service,
the demutualization transaction would be made
effective by causing the mergers to occur (which is
expected during the first half of 2000).

Any offering ofsecurities described in this document will be made only by means
ofa prospectus filed as part ofa ~gistration statement under the Securities Act of 1933.

24
CONCLUSION

The CME is not the only exchange that sees the As the first major U.S . exchange to develop a
potential benefits of shareholder ownership in the concrete plan for demutualization, the Board believes
new electronic marketplace. Since the CME that the CME has a unique opportunity to once
announced last November the Exchange's desire to again display the spirit of leadership and innovation
transform itself from a member-owned institution to that has come to define the very essence of the
a for-profit entity, in the United States the NYSE has Chicago Mercantile Exchange.
announced plans to demutualize and the Nasdaq
market has announced that it is pursuing a private
placement, perhaps followed by an initial public
offering. The Philadelphia Exchange, the New York
Mercantile Exchange and the Chicago Board of Trade
are also reportedly considering plans to go public.
Moreover, demutualization is occurring globally:
the Australian Stock Exchange went public in the
fall of 1998; the Stockholm Stock Exchange was
converted to a for-profit exchange owned by a
for-profit exchange called OM Gruppen; and the
London Stock Exchange recently announced plans
to demutualize in favor of a for-profit structure.

Any offering ofsecurities described in this document will be made only by means
ofa prospectus filed as part ofa n!gistration statement under the Securities kt of 1933.

25
ACKNOWLEDGEMENTS

The Board of Directors wishes to recognize the Strategic Planning Committee
extremely hard work and valuable contribution of Jim Oliff, Chairman
the Strategic Planning Committee, staff members Yra Harris, Vice-Chair
and outside advisers. Buck Haworth, Vice-Chair
Tom Kloec, Vice-Chair
Bill Shepard, Vice-Chair
Terry Duffy
Marty Gepsman
Scott Gordon, Chairman of the Board
Leo Melamed, Chairman Emeritus and
Senior Policy Advisor
Jack Sandner, Special Policy Advisor

StaffAdvisors
Fred Arditti
Jerry Beyer
John Curran
Craig Donohue
Phupinder Gill
David Gomach
Dick McDonald
Amy Savin
Carol Sexton

Financial Advisors
Gideon Asher, Salomon Smith Barney
Simon Hewett, Salomon Smith Barney

Legal Advisors
Jerrold Salzman, Freeman, Freeman and Salzman
Richard Astle, Sidley & Austin
Bradford Ferguson, Sidley & Austin

Any offering ofsecurities described in this document will be made only by means
ofa prospectus filed as part of a r?gistration statement under the Stcurities Act of 1933.

27