EFTA01393186

subject to a minimum redemption increment and other conditions. Redemption of index-linked securities may affect the market for the securities by reducing the quantity of securities available for trading. Index-linked securities may return less than the principal originally invested, regardless of the solvency of the issuer of the securities. An adjustment may be made to certain of the standardized terms of outstanding options on index- linked securities if a particular event occurs that is determined by an adjustment panel to warrant the adjustment. As in the case of stock options, an adjustment panel for options on index-linked securities would be composed of representatives of one or more U.S. options markets and a representative of OCC, as described above in Chapter II. As a general rule, if the issuer of a particular index- linked security calls the entire issue of the security, the event will be treated like an event in which an underlying equity security is converted into the right to receive a fixed amount of cash, If an event is treated in this manner, when the issue of index-linked securities is called, outstanding options on that issue will be adjusted to require the delivery upon exercise of a fixed amount of cash, and trading in the options will ordinarily cease. As a result, after such an adjustment is made all options on that security that are not in the money will become worthless and all that are in the money will have no time value. The expiration date of the options will ordinarily be accelerated to fall on or shortly after the date on which the underlying security is called. Holders of an in-the•money option whose expiration date is accelerated must be prepared to exercise that option prior to the accelerated exercise cut-off time in order to prevent the option from expiring unexercised. See the discussion in Chapter VIII under "How to Exercise." Writers of options whose expiration date is subject to being accelerated bear the risk that. in the event of such an acceleration, they may be assigned an exercise notice and be required to perform their obligations as writers prior to the original expiration date. When the expiration date of an option is accelerated, no adjustment will be made to compensate for the accelerated expiration date. As with a stock option whose underlying security is converted into a right to receive a fixed amount of cash, 164 CONFIDENTIAL - PURSUANT TOEFEESERL)O5068649 P. 6(e) CONFIDENTIAL SDNY_GM_00244833 EFTA01393186