CBOEdirect

On October 26, 2001, the Chicago Board Options Exchange

(CBOE

) launched its much-anticipated screen-based trading platform, CBOEdirect. With a state-of-the-art trading engine, innovative features, and robust trading environment, this is a system truly deserving of introducing electronic trading at CBOE.

"CBOEdirect demonstrates that CBOE is the leader in trading technology and innovation. We are particularly proud of the fact that the system has been built completely in-house," said William J. Brodsky, CBOE's Chairman and Chief Executive Officer. With the introduction of CBOEdirect, CBOE becomes the only marketplace where the best of trading floor automation is melded with screen-based capabilities.

The system has been launched in an extended trading hours (ETH) session which currently runs from 7:00 am - 8:15 am CT. Three products are now available: Options on the Dow Jones Industrial Average

Index (DJX), S&P 100

Index options (OEX/XEO

), and the Russell 2000

Index options (RUT).

Several CBOE member organizations have been named as Lead Market Makers (LMM) in the DJX and OEX/XEO products on CBOEdirect during the ETH session. These Lead Market Makers represent a wealth of derivative experience and have demonstrated the ability to provide the capital and experience needed to maintain competitive markets. SLK-Hull Derivatives, the Designated Primary Market Maker (DPM) in the Russell 2000 Index during the regular trading hours session, will serve as DPM in the extended session on CBOEdirect.

Each of the LMMs named in the DJX and OEX/XEO products will serve through two full rotation cycles before any additional applicants will be considered. If approved, additional LMM entities will be added to the cycle after August 2002 expiration in DJX, and after October 2002 expiration in OEX/XEO. For a complete list of organizations named as LMMs and rotation cycles for each product, please visit www.cboedirect.com/keydates.

The LMMs during ETH will be responsible for providing continuous two-sided quotes for all series in the front two trading months and all series that are trading 2.5% in the money and 2.5% out of the money in the back months of the product. The LMM will also be responsible for responding to a higher percentage of Request for Quotes (RFQ) than standard market makers.

Order types and representation. In the initial launch session, only day type, limit orders will be eligible. Market orders and GTCs will be introduced in a later phase. Eligible order types include customer, firm, broker-dealer and market maker. Some contingency orders will be eligible for the ETH session. These include All or None (AON), Fill or Kill (FOK), and Immediate or Cancel (IOC). It is important to be aware the ETH book will not "roll" to the regular trading hours (RTH) session. If a market participant wishes continued representation in the RTH session, a separate order must be submitted. ETH orders not traded will receive a "nothing done" at the end of the session.

Market Conditions. CBOE recognizes and wishes to stress to the investing public that underlying markets during ETH sessions are likely to be fundamentally different in terms of liquidity and potential volatility. It is imperative that this information be communicated to clients by member firms.

Quote and last sale dissemination. ETH quotes and last sales will be disseminated to OPRA (Options Price Reporting Authority) with an "a" session indicator (for AM). End users should check with their data vendor to determine how or if this information will be displayed, and whether intraday displays are screening out ETH transactions from "High/Low" displays.

CBOE has developed new interfaces to promote member and firm access to our trading systems. These interfaces are designed to support both electronic and open-outcry trading at CBOE. The new CBOE-designed CBOE Market interface (CMi) will provide remote market making functionality in the screen-based environment and will accept orders for all CBOE products in all trading sessions in an upcoming phase. CBOE will also support a FIX (Financial Information eXchange) messaging protocol interface for institutional and customer order flow, as well as provide mass-quoting capabilities for the ETH session. FIX version 4.2 will be available upon the launch of CBOEdirect. CBOE's current front-end interface, COMPASS, will remain as an alternative method of providing access to all CBOE products, however, a change to the time in force code from the current DAY to DAA must accompany orders intended for the ETH session. For all interfaces, the CBOE Order Routing System will be fully responsible for delivering order flow to the proper trading system for representation and execution during all trading sessions.

Market participants accessing CBOE via the FIX or CMi interfaces may subscribe to receive CBOEdirect market data, such as book depth, and will have access to CBOE product information, such as valid series. These features will not be available through the COMPASS interface.

A trader must be assigned to a seat in order to conduct business on this system. A seat may be used by a trader in the ETH session and then "swapped out" to another trader for the RTH. At no time may more than one trader be assigned to a given seat. Retail customer orders must be submitted to the system by CBOE member firms.

CBOEdirect.com & CBOEdirect Express Newsletter
On November 7, 2000, CBOE launched cboedirect.com; a stand-alone website dedicated solely to news and information concerning CBOEdirect. With areas such as What's New, Tech Corner, Vendor Corner, and Trader's Corner, www.cboedirect.com should be a first stop for anyone wishing to keep current with CBOEdirect developments. In addition, CBOE publishes CBOEdirect Express, a periodic newsletter available by subscription. To subscribe, send your email address to [email protected].

CBOEdirect Contact Information
General Information	[email protected]
FIX/CMi API Technical Info	[email protected]
Existing Connections (COMPASS)	[email protected]; [email protected]
To Arrange New Connections	[email protected]
Subscribe to CBOEdirect Express	[email protected]
Visit Us on the Web	www.cboedirect.com

BE READY FOR IT!

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document are available from your broker or the Options Clearing Corporation. 400 S. LaSalle Street, Chicago, IL 60605.

S&P 100 is a registered trademark of the McGraw-Hill Companies, Inc., and is licensed for use by the CBOE. The "Russell 2000 Index" is a registered trademark of Frank Russell Company. "Dow Jones Industrial Average" is a service mark of Dow Jones & Company, Inc. and has been licensed for certain purposes by the CBOE. CBOE, Chicago Board Options Exchange and OEX are registered trademarks of CBOE.

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