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Non-Tech : Derivatives: Darth Vader's Revenge
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To: Peter Singleton who wrote (19)9/3/1998 8:09:00 AM
From: Henry Volquardsen  Read Replies (1) of 2794
 
Peter,
I characterize that risk as fairly remote but not impossible. It depends who is on the hook for the losses. If it is a big bank or someone who can come with the cash, no problem. But it is someone like a giant hedge fund that just gets wiped out, then it may cause problems. But I don't want to overestimate the risk, most of the exchanges have pretty decent support systems they can call on. But it is not unheard of for an exchange to have to at least cause some nervousness. The COMEX had some nervous moments in the 80s when some big locals got in trouble, but they survived it fairly easily in the end. In the scenario of a quick Dow decline to 4000, they might get a little nervous but I suspect they will survive. Also you can't underestimate the governments willingness to provide liquidity in a crisis, even to an exchange. FWIw I don't anticipate a 29-32 style scenario for the US.

Henry
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