Credit Default Options and Credit Default Basket Options Credit default options are based on debt securities of one or more issuers or guarantors other than the U.S. Trea- sury. A significant difference between such debt secunties and Treasury securities is the non-negligible risk that an issuer or guarantor of debt securities other than Treasury securities may default on its obligations. For example, the issuer might not pay the full interest and face amount of the securities when due or might file lor bankruptcy, thereby making it nearly certain that it will not make timely payment of the full interest and face amount. Financial market partici- pants call this credit risk. Credit risk is an important compo- nent of the value of most debt securities. Credit default options relate to the credit risk presented by one or more specified debt securities. called reference obligation(s), of one or more specified issuers or guarantors, each of which Is called a reference entity. The reference obligation(s) and each reference entity for a class of credit default options are selected by the listing options market. When a credit default option is based on reference obliga- tion(s) of more than one issuer or guarantor it is referred to as a credit default basket option. There are further variations on credit default basket options as described below. A credit default option is automatically exercised and pays a fixed cash settlement amount if a credit event is confirmed for one or more reference obligations of a refer- ence entity prior to expiration of the option. The reference obligations of a reference entity may include all of the out- standing debt securities constituting general obligations of the reference entity or direct claims on the reference entities (excluding any non-recourse debt). A credit event includes a failure to make a payment on a reference obligation as well as certain other events that the listing options market may secretly