EFTA01393146.pdf

interest, may fail or may not work effectively or effi- ciently at times. During the past few years, for exam- ple, the operations of various U.S. markets have been disrupted by earthquake. flood, fire, electricity out- ages, and computer failure. Moreover, no system can be expected to work perfectly at all times. The options markets may rely on manual methods to record trade information, and errors or omissions can occur in their reports of price, volume and other information, and these can be expected to be exacerbated on days of significant volume or volatility. It is also beyond the scope of this booklet to discuss the risks that may result to investors from the use by market participants of options pricing theories. There are a number of publications that are commercially available which discuss such theories. 8. This booklet does not attempt to describe risks that may be inherent in an investment in the underlying interest. It is obvious that the investment potential of an option can be dependent on the performance of the underlying interest and that investors in options are therefore subject to the risks that may affect the value of that interest. For example, one of the risks under- taken by a purchaser of a call option (or a writer of a put option) on XYZ stock is that XYZ may decline in price during the life of the option. The risk of this decline is dependent on the risks that may affect the economy or the stock market generally or XYZ specifi- cally. Similarly, the holder of a dollar-denominated option on a foreign currency is subject to the risk fac- tors affecting the relative values of the U.S. dollar and the foreign currency. A discussion of these types of risks is beyond the scope of this booklet. 9. This booklet does not attempt to describe sys- temic risks that could affect the options markets and the investors in those markets. The options markets, like all securities markets, are interrelated with, and frequently interdependent upon. other aspects of na- tional and international financial and capital systems and upon the national and world economy. Any distur- bance or crisis of one pan of these interrelated sys- tems could severely disrupt or even threaten the performance of the options markets or of OCC. Bank failures, payments breakdowns. large and sudden ec- onomic shocks, the failure of a large securities firm, market or clearing organization, or other such events could cause other failures on a widespread basis and 93 CONFIDENTIAL - PURSUANT TOIRESERMI$066578 P. 6(e) CONFIDENTIAL SDNY_GM_00244762 EFTA01393146