EFTA01353519.pdf

ADJUSTMENT OF CREDIT DEFAULT OPTIONS Adjustments may be made to the standardized terms of outstanding credit default options when certain events occur, such as a succession event or a redemption event, both of which will be defined by the listing options market in accordance with the terms of the reference obligations. Adjustments of credit default options will be within the sole discretion of the listing options market. Investors should familiarize themselves with the listing options markers rules and procedures governing credit default option adjustments. The listing option markets rules governing adjustments of outstanding options may be changed with regulatory approval, and the listing options market may have authority to make such exceptions as it deems appropriate to its general adjustment rules. Redemption Event Adjustments. A redemption event occurs when reference obligations of a reference entity are redeemed (or paid in full) by. or on behalf of. the issuer. In the case of all types of credit default options, if only some of the reference obligations are redeemed, the option is ordinarily adjusted such that the remaining reference obligations are the reference obligations for the option and no other adjustment will ordinarily be made. If all of the reference obligations of a reference entity are redeemed and there are other debt obligations of the reference entity that the listing options market deems appropriate to specify as successor reference obligations, then they will be substituted as the reference obligations. If, however. all of the reference obligations of a reference entity are redeemed and there are no other debt obligations of the reference entity that the listing options market deems appropnate to specify as successor reference obligations for the reference entity (a complete redemption), then the adjustment will depend upon whether or not there are other reference entities for the options. Adjustment of credit default options for a complete redemption. if there is a complete redemption affecting a credit default option, the option will cease trading on the date that the redemption event is confirmed by the listing options market. Expiration of the option will be accelerated to a specified number of days following the confirmation date of the redemption, and the option will expire unexercised if, prior to such expiration, no credit event is confirmed to have occurred poor to the effective date of the redemption event. EXAMPLE: Company XYZ is the reference entity for a credit default option contract and its 8% May 15. 2022 bond issue is the only reference obligation. During the life of the option, Company XYZ redeems the 8% May 15. 2022 bond issue and there are no other obligations of Company XYZ that the listing options market deems to be suitable for specifying as successor reference obligations. The option will cease trading on the confirmation date, and its expiration date will be accelerated. If no credit event is confirmed to have occurred within the covered period, the option will expire worthless. 170 CONFIDENTIAL - PURSUANT TOCFEESCIR11OB11M931 P. 6(e) CONFIDENTIAL SDNY_GM_00184115 EFTA01353519