EFTA01393121.pdf

Exercises are settled through the facilities of OCC. For this purpose, OCC has established banking ar- rangements permitting it to receive and deliver each underlying foreign currency in the country of origin in satisfaction of option exercises. (Exercises and as- signments of ECU options settle within a country or countries designated by OCC.) Clearing Members or- dinarily deliver or receive foreign currency on the fourth business day after exercise that is also a bank- ing day for OCC's correspondent bank in the country of origin. In the case of dollar-denominated options. cash settlement between OCC and Clearing Members (i.e., payment or receipt of the net exercise price for each day's exercises) takes place in the United States or other locations approved by OCC. In some cases, a wholly-owned subsidiary of OCC—The Intermarket Clearing Corporation--which has the same settlement procedures as OCC, may act as OCC's agent in mak- ing foreign currency settlements with Clearing Members. For purposes of settlement between an investor and his brokerage firm. applicable rules require a holder exercising a physical delivery put option and an as- signed writer of a physical delivery call option to ar- range for the deposit of the requisite units of the underlying foreign currency into a designated bank account in the country issuing that currency no later than the time by which OCC requires delivery to it of foreign currency by its Clearing Members. Through this procedure, investors ordinarily rely upon their bro- kerage firms to make settlement with them. However, OCC has established procedures whereby Clearing Members may permit customers to make settlement directly with an OCC correspondent bank. (At the date of this booklet, such procedures are not yet available in the case of cross-rate options.) Investors should con- sult their brokerage firms with respect to these procedures. At the date of this booklet, OCC expects, subject to regulatory approval, to adopt exercise settlement pro- cedures whereby OCC's obligation to deliver or pay for underlying foreign currencies in satisfaction of option exercises may be discharged by transferring the for- eign currency to be delivered, or the net exercise price for foreign currency to be received, to an OCC corre- spondent bank that is obligated to complete the settle- ment. Brokerage firms and their customers would then be relying on the correspondent bank to deliver or pay for the underlying foreign currency. 40 CONFIDENTIAL - PURSUANT TOEFEESERMI$066525 P. 6(e) CONFIDENTIAL SDNY_GM_00244709 EFTA01393121