DELTA CLEARING CORP /DE/, POS AM, 1997-05-05

DELTA CLEARING CORP /DE/
POS AM, 1997-05-05
INVESTMENT ADVICE

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REGISTRATION NO. 33-21409

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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POST-EFFECTIVE AMENDMENT NO. 7

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

-------------------------

DELTA CLEARING CORP.

(Exact name of registrant as specified in its Charter)
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<TABLE>
<CAPTION>
DELAWARE 9999 13-3456486
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

525 WASHINGTON BLVD. - SUITE 3300
JERSEY CITY, NEW JERSEY 07310
(201) 418-8900

(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)

STEPHEN K. LYNNER
525 WASHINGTON BLVD. - SUITE 3300
JERSEY CITY, NEW JERSEY 07310
(201) 418-8900

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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Copy to:
STEPHEN H. COHEN, ESQ.
MORGAN, LEWIS & BOCKIUS
101 PARK AVENUE
NEW YORK, NEW YORK 10178
(212) 309-6000

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PROSPECTUS

DELTA CLEARING CORP.

PUT AND CALL OPTIONS ON U.S. TREASURY SECURITIES

to be issued by Delta Clearing Corp.

-------------------------------

This Prospectus pertains to 250,000 option contracts
consisting of put options and call options on U.S. Treasury securities (the "Put
and Call Options") to be issued from time to time by Delta Clearing Corp. (the
"Company")in connection with its options clearing business (the "Options
business"). The premium payable in connection with each Put Option or Call
Option will be established by the Company's customers who are parties to each
transaction (the "Participants"). See "DESCRIPTION OF SECURITIES." This
Prospectus contains a brief description of the Put and Call Options, the Company
and the Options business.

Both the purchase and writing of the Put and Call Options may
involve a high degree of risk and may not be suitable in certain circumstances
for many persons. Such transactions should be entered into only by persons who
have read and understand this Prospectus and, in particular, who understand the
nature and extent of their rights and obligations and are aware of the risks
involved. SEE "SPECIAL RISKS."

----------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

(Copyright) 1997 Delta Clearing Corp.

April 25, 1997

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AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended, with respect to the offering contemplated
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement. The Registration Statement is available for inspection
without charge at the public reference facilities maintained by the Commission,
at 450 Fifth Street, N.W., Room 1024 Washington, D.C. 20549, as well as at the
Regional Offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048, and copies can be obtained from
the Public Reference Section of the Commission, Washington, D.C. 20549, at
prescribed rates.

The Company intends to furnish to its stockholders annual
reports containing audited financial statements certified by an independent
accounting firm and quarterly reports containing unaudited financial information
for the first three quarters of each fiscal year.

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GLOSSARY OF TERMS

Certain sections of this Prospectus and certain of the terms
set forth below are summaries of various provisions of the Procedures governing
the operation of the Company, as they may be amended from time to time (the
"Procedures"), which have been filed as an exhibit to the Registration
Statement, of which this Prospectus forms a part and which will be furnished to
all Participants. These summaries do not purport to be complete and are subject
to and qualified by reference to all of the provisions of the Procedures,
including the definitions contained therein. The Options business, as well as
the Company's other business activity which includes the clearance and
settlement of Repurchase Agreements and Reverse Repurchase Agreements
(collectively "Repos"), are subject to all of the provisions of the Procedures.

Account - An account established for a Participant for
clearance and settlement of Transactions.

Business Day - Any day other than a Saturday, Sunday or a day
on which banking institutions in the City of New York are authorized by law to
close or any day on which government securities dealers in the City of New York
are not open for business.

Call Option or Call - An Option which confers upon the Holder
the right, but not the obligation, to purchase from the Company at a specified
price and within a specified period particular Treasury Bonds, Notes, or Bills,
as the case may be, in the aggregate principal amount of $1,000,000.

Class of Options - In respect of Treasury Bond Options or
Treasury Note Options, all Put Options or Call Options, as the case may be,
covering securities having the same maturity date and coupon rate. In respect of
Treasury Bill Options, all Put Options or Call Options, as the case may be,
covering Treasury Bills having the same maturity week.

Clearing Bank - Bank of New York (New York).

Closing Price - The midpoint price (the mean between the bid
and asked prices) derived from the late afternoon price quotations reported by
Muller Data, Inc. (or such other price reporting service of similar repute and
reliability selected by the Company and announced to all Participants, such

other price reporting service to be used from and after the time specified in
such announcement until a later announcement with respect thereto by the
Company) for the Underlying Security. The Company may, at its discretion,
determine the Closing Price if it has reason to

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believe the market price for the underlying Treasury Security may have
changed by at least one-half of one standard deviation from the composite 3:30
P.M. quotations for Treasury Securities published by the Federal Reserve Bank of
New York ("FRB-NY"), or another similarly reputable pricing service. The
standard deviation shall be calculated using a method that is widely accepted by
the statistical profession in the United States. The standard deviation shall be
derived from the average market price, during the 100 consecutive trading days
ending on the last trading day of the prior week, of Treasury Securities which
are equivalent (taking into account remaining term to maturity and, as the case
may be, coupon rate or annual yield to maturity) to the underlying Treasury
Security. If the Company has reason to believe the market price for the
underlying Treasury Security may have changed to the extent indicated above, the
Closing Price shall be the price for the underlying Treasury Security which the
Company believes represents the latest available market price for the underlying
Treasury Security at the close of business.

Closing Purchase Transaction - A transaction in which a
Participant who is obligated as a Writer of an Option terminates its obligations
thereunder by purchasing an Option of the same Series as the Option previously
written.

Closing Sale Transaction - A transaction in which a
Participant who is the Holder of an outstanding Option eliminates its position
as a Holder by selling an Option of the same Series as the Option previously
purchased.

Closing Transaction - A Closing Purchase Transaction or a
Closing Sale Transaction.

Correspondent Bank - A bank which has been designated by a
Participant to transfer and receive funds and/or Treasury Securities on behalf
of the Participant in connection with the settlement and exercise of
Transactions.

Credit Enhancement Facility - A facility which may include
Surety Bonds and/or Letters of Credit or any combination thereof, to secure
payment of the obligations owed to the Company in the event of a default by one
or more Participants on certain obligations owed to the Company.

Daily Margin Report - The Daily Margin Report Summary issued
on each Business Day to each Participant reflecting the margin required on the
Participant's Positions.

Daily Position Report - The Daily Position Activity Report
issued on each Business Day to each Participant reflecting the status of the
Participant's Account.

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Delivering Participant - With respect to a Matching Call, a
Writing Participant to whom an exercise notice is assigned; with respect to a
Put, a Purchasing Participant who has exercised such Option.

Exchange Act - The Securities Exchange Act of 1934, as
amended.

Executive Committee - The executive committee appointed by the
Board of Directors of the Company and comprised of the President and four
directors of the Company.

Exercise Price - The price at which the underlying Treasury
Securities in the aggregate principal amount of $1,000,000 may be purchased, in
the case of a Call Option, or may be sold, in the case of a Put Option, upon
timely exercise of such Call Option or Put Option, as the case may be.

Exercise Settlement Date - The date of settlement of an Option
which has been exercised.

Expiration Date - means, the date upon which an Option
Contract expires, which may be any Business Day occurring not later than the
last Business Day on which the second anniversary of the writing of the Option
Contract occurs. If the second anniversary date is not a Business day, then the
Expiration Date shall be the preceding Business Day.

Exposure Limit - The limit set for a Participant by the
Company on the aggregate margin obligations that the Participant may incur or
carry in respect of its Positions.

Holder - A Person who has purchased an Option and thereby has
the right to purchase from the Company, in the case of a Call, or sell to the

Company, in the case of a Put, the underlying Treasury Securities in accordance
with the terms of the Option.

Insurer - Any insurance company that is the provider of a
Surety Bond.

IDB - Specialized inter-dealer brokers who operate and
maintain computer-supported communications facilities which display and report
transactions between and among Participants.

Letter of Credit - The irrevocable Letter of credit provided
for the benefit of the Company to ensure, in accordance with its terms and up to
its stated amount, payment when due of the obligations owed to the Company by
Participants, which are insured parties under the Letter of Credit,in the event
of a Default by a Participant.

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Letter of Credit Bank - Any bank that is the provider of a
Letter of Credit.

Liquidating Settlement Account - The account established for
the orderly liquidation of a suspended Participant's Positions and exercised
Options.

Long Position - The aggregate interests of the Holder of one
or more Options.

Matching Call - An Option purchased by the Company from a
Writing or a Selling Participant contemporaneously with and as a condition to
the issuance by the Company of a Call to a Participant, and having terms
identical to those of such Call.

Matching Put - An Option purchased by the Company from a
Writing or Selling Participant contemporaneously with and as a condition to the
issuance by the Company of a Put to a Participant, and having terms identical to
those of such Put.

Matching Trade Reports - Reports of a Transaction filed by
Participants effecting a trade or, in the case of a Transaction brokered by an
IDB, a report of a Transaction filed by an IDB on behalf of the Participants
effecting a trade, provided the reports agree as to the terms of the trade.

Maximum Potential System Exposure ("MPSE") - At any time, the
amount of liability, stated in dollars, represented by all Positions of all
Participants adjusted to reflect a hypothetical adverse movement, in the
aggregate, to such Participants of six standard deviations in the Market Prices
(as hereinafter defined) of the Treasury Securities underlying such Positions,
less the sum of (a) the aggregate value of all Positions of such Participants
adjusted to reflect the same hypothetical six standard deviation movement, (b)
margin on deposit from such Participants, and (c) margin due and owing from such
Participants at or before the immediately succeeding Settlement Time. The amount
of liability shall be calculated using a product specific pricing model
generally accepted in the marketplace at the time of such calculation. The
applicable standard deviation shall be calculated using a method that is widely
accepted by the statistical profession in the United States. The standard
deviation shall be derived from the greater of (a) the average market price
based upon trading prices during a period of 100 consecutive trading days ending
on February 19, 1980 of Treasury Securities which are equivalent (taking into
account remaining term to maturity and, as the case may be, coupon rate or
annual yield to maturity) to Treasury Securities underlying such Positions or
(b) the average market price of similarly equivalent Treasury Securities during
any subsequent period of 100 consecutive trading days. MPSE is a hypothetical

<PAGE>

amount and not necessarily indicative of actual maximum system exposure.

For purposes of calculating MPSE, the Market Price shall be,
with respect to calculations at the close of each Business Day, the Closing
Price for such Business Day and, with respect to calculations during the
Business Day, the midpoint price for the underlying Treasury Securities which
the Company believes fairly represents the latest available market price of the
underlying Treasury Securities.

New York Time - All times refer to New York time, unless
specifically stated to be some other time.

Net Daily Premium - The net amount payable to the Company at
any Settlement Time or by the Company within six hours after the Settlement Time
in respect of the Options purchased and written by a Participant on the prior
Business Day.

Opening Purchase Transaction - A transaction in which a
Participant becomes the Holder of an Option.

Opening Writing Transaction - A transaction in which a

Participant becomes the Writer of an Option.

Opening Transactions - An Opening Purchase Transaction or an
Opening Writing Transaction.

Option - A Put Option or a Call Option issued by the Company
to a Participant or a Matching Put or a Matching Call acquired from a
Participant by the Company. Each Option is described in terms of the underlying
Treasury Security to which it pertains, the Expiration Date, the Exercise Price
and whether the Option is a Put or a Call.

Participant - A Person admitted to clear and settle
Transactions.

Person - A corporation, association, partnership, an
organization, joint stock company, trust, government or political subdivision
thereof, legislative body or committee thereof, or a governmental agency, but
not a natural person.

Positions - All Long Positions and Short Positions and all
Repos accepted for clearance and settlement by the Company.

Premium - The price of an Option agreed upon between the
Purchasing Participant and the Writing or Selling Participant.

Purchasing Participant - The purchaser of an Option issued by
the Company.

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Put Option or Put - An Option which confers upon the Holder
the right, but not the obligation, to sell to the Company at a specified price
and within a specified exercise period particular Treasury Bonds, Notes or
Bills, as the case may be, in the aggregate principal amount of $1,000,000.

Receiving Participant - A Purchasing Participant who has
exercised a Call and a Writing Participant to whom an exercise notice is
assigned with respect to a Matching Put.

Repos - Transactions involving Treasury Securities sold under

agreement to repurchase and Treasury Securities purchased under agreement to
resell.

Selling Participant - The seller of an Option purchased by
the Company in a Closing Sale Transaction.

Series of Options - All Options of the same Class with the
same Exercise Price and Expiration Date.

Settlement Time - 11:00 A.M. or, in the event the Federal
Reserve wire has not opened by 11:00 A.M., the earliest time practicable
following the opening of the Federal Reserve wire.

Short Position - The aggregate obligations of a Participant
as the Writer of one or more Options.

Surety Bond - The surety bond issued for the benefit of the
Company to ensure, in accordance with its terms and up to its stated amount, the
payment when due of certain obligations owed to the Company by Participants,
which are insured parties under the surety bond, in the event of a Default by a
Participant.

Transactions - All transactions settled and cleared by the
Company.

Treasury Bill - A Treasury Security with a term to maturity of
fifty-two weeks or less at the time of original issuance.

Treasury Bond - A Treasury Security with a term to maturity of
more than ten years at the time of original issuance.

Treasury Note - A Treasury Security with a term to maturity of
at least one year but no more than ten years at the time of original issuance.

Treasury Security - A Treasury Bill, Note or Bond issued by
the United States Department of the Treasury.

<PAGE>

Writing Participant or Writer - The Participant who has
written an Option and has thereby undertaken to sell to the Company, in the case
of a Matching Call, or to purchase from the Company, in the case of a Matching
Put, the underlying Treasury Securities.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus.

Participation Criteria

Participation in the Options business is open to any Person
designated as a primary dealer by the FRB-NY, and to any other broker-dealer,
commercial bank, insurance company or other institutional investor meeting the
financial and other requirements established by the Company. See "PARTICIPATION
CRITERIA."

The Company

Delta Clearing Corp. was incorporated in January, 1988 in the
State of Delaware. The business of the Company consists of the clearance and
settlement of Repos and the issuance and clearance of Put and Call Options on
Treasury Securities. Prior to October, 1995, when the Company began engaging in
the clearance and settlement of Repos, the Option business represented the
Company's sole business activity. The Company has been registered as a clearing
agency with the Commission pursuant to Section 17A of the Exchange Act. The
Company's principal executive offices are located at 525 Washington Blvd. -
Suite 3300, Jersey City, New Jersey 07310, telephone number (201) 418-8900. See
"THE COMPANY."

Options Issued By The Company

The securities covered by this Prospectus are Put and Call
Options issued and cleared by the Company. Each Option relates to particular
underlying Treasury Securities with an aggregate principal amount of $1,000,000.
The Company acts as the issuer of each Put Option and Call Option and,
accordingly, is the party obligated to the Holder to perform upon proper
exercise of such Option. For each Put Option and Call Option issued by the
Company, the Company contemporaneously purchases from a Writing Participant a
Matching Put or a Matching Call, as the case may be, so that the Company's Short
Positions are at all times completely offset by corresponding Long Positions.

Participants, negotiating directly with each other or through
an IDB, agree on the variable terms of the Options, including the Premium,
Exercise Price, Expiration Date and the issue of the underlying Treasury

Securities (identified by maturity and coupon or yield). Subject to certain
limitations, the Holder of a Call has the right to purchase from the Company,

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and the Holder of a Put has the right to sell to the Company, the underlying
Treasury Securities covered by the Option at the stated Exercise Price at any
time prior to the expiration of the Option. See "DESCRIPTION OF THE OPTIONS
BUSINESS" - Exercise of Options", for a discussion of the rights and obligations
of Holders and Writers of Options.

Upon exercise of a Put Option or a Call Option by a
Participant, the Company has the direct obligation to perform. The Company, upon
receiving an exercise notice, in turn, exercises its Matching Put or Matching
Call. Other than the Company, no other Person has any obligation to Participants
arising under any Put Option or Call Option.

Credit Enhancement Facility

The Company maintains a Credit Enhancement Facility ("CEF")
which at all times has an aggregate amount available to be paid to the Company
of at least three times MPSE, as defined in the Procedures. The basic CEF
currently maintained by the Company represents an aggregate notional amount of
$250 million, with the maximum coverage of any Participant equal to $30 million.
Under the current terms, the Company may purchase additional coverage in
increments of $25 million to a total aggregate amount of $300 million. These
increases may be activated upon 10 days' notice with the Company paying an
additional fee chargeable at such time. The Company, if circumstances warrant,
may also elect to decrease the amount of the CEF to an amount not less than $150
million, with the right to reinstate and increase coverage in increments of $25
million as described above. The CEF, composed of an insurance agreement and
surety bond, is currently provided by Capital Markets Assurance Corporation
("CapMAC"), a financial guaranty insurance company, and is payable to the
Company in the event of a default by one or more Participants on certain
obligations owed to the Company. CapMAC's claims-paying ability is rated "Aaa"
by Moody's Investors Service, Inc. "AAA" by Standard & Poors Corporation and
"AAA" by Duff & Phelps, Inc. Each Participant, which must be accepted as an
insured party under the Surety Bond, agrees to reimburse CapMAC thereof for any
payments made by CapMAC to the Company resulting from any default in the
performance of its obligations. CapMAC has been the provider of the CEF to the
Company since the Company's inception. See "DESCRIPTION OF SECURITIES - Credit
Enhancement Facility" and "INSURER" for a further description of the CEF and its
provider.

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Options Services Provided To Participants

Participants disseminate bid and ask quotations through an IDB
designating the Company as counterparty to all Option transactions. This affords
Participants with the opportunity to effect Options transactions on a "blind
brokered" basis through an automated communications network linking video
display terminals in their respective offices. As an alternative to using an IDB
as a blind broker, Participants are free to communicate bid and ask quotations
directly to each other.

Upon negotiation of an Option transaction, the Participants or
the IDB (in the case of a blind brokered trade) must submit the trade to the
Company for acceptance and subsequent clearance and settlement of the
transaction.

Options Cleared and Settled by the Company; Margin Requirements

An Option, if otherwise in compliance with the Procedures, is
accepted for clearance upon the timely receipt by the Company of Matching Trade
Reports. Upon acceptance for clearance, a Participant becomes the Holder of the
Option, the issuance of which is evidenced in book entry form and recorded in
the Participant's Account. See "DESCRIPTION OF THE OPTIONS BUSINESS - Acceptance
and Rejection of Transactions."

Each Participant maintaining Positions with the Company must
meet daily margin requirements. The amount of Option margin required is
calculated by taking into account market considerations and the amount of the
Participant's Short Positions offset by the amount of the Participant's Long
Positions. Additional margin may be requested if deemed advisable in view of the
assessed market value of the Participant's Positions, the aggregate size of a
Participant's Positions, its financial or operational condition or as otherwise
necessary to protect the Company or the public. See "DESCRIPTION OF THE OPTIONS
BUSINESS - Daily Margin Requirements."

A Holder may exercise an Option by the submission of a timely
exercise notice to the Company. American Options are exercisable at any time
after issuance until expiration. European Options are exercisable only on the
expiration date prior to expiration. Exercise notices, with certain exceptions,
are irrevocable. See "DESCRIPTION OF THE OPTIONS BUSINESS - Exercise of

Options."

A default by a Participant on any obligation arising under an
Option (including an obligation to pay Premium or margin) or arising upon the
exercise of an Option, or a violation by a Participant of any other provision of
the Procedures may subject the Participant to suspension and liquidation of all
open

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Positions and other sanctions. See "DESCRIPTION OF THE OPTIONS BUSINESS -
Default and Suspension of Participants - Sanctions."

Risk Factors

Listed below are certain significant risks associated with the
Options business. These and other significant risks associated with buying and
writing Options are discussed in greater detail in subsequent sections of this
Prospectus. See "SPECIAL RISKS."

1. It is impossible to predict the amount of liquidity that
may develop or continue to develop in Options issued by the Company.

2. Operations may be suspended or terminated by the Company,
and such suspension or termination may foreclose the ability of Participants to
reduce or eliminate open Long or Short Positions by entering into new Closing
Transactions or to effect other Transactions. Such suspension or termination may
be for economic or other reasons, including termination at any time at the sole
discretion of the Company in the event of certain adverse operating results. In
the event of such suspension or termination, however, the terms of outstanding
Options would be unaffected. In addition, the calculation of MPSE may be
adjusted due to future unprecedented volatility in the market which could also
cause a suspension or reduction in the issuance, clearance and settlement of
Options. The Commission may terminate the operations of the Company in certain
circumstances pursuant to the Exchange Act.

3. A Participant who purchases a Put or a Call may lose the
entire value of the Premium paid in a relatively short period of time. Further,
uncovered Writers of Matching Calls and Matching Puts are subject to the risk of
substantial loss in the event of adverse market movements in the price of the

underlying Treasury Securities required to be delivered or purchased in the
event of exercise of such Options. Covered Writers of Matching Calls and
Matching Puts also remain subject to risk of adverse market movements in the
value of their underlying Treasury Securities positions. In exchange for the
Premium, so long as such Persons remain covered Writers of Matching Calls and
Matching Puts, they will have foregone the opportunity for gain resulting from,
in the case of a covered Call Writer, an increase in the price of the underlying
Treasury Securities above the Exercise Price (plus Premium received) or, in the
case of a covered Put Writer, a decrease in the price of the underlying Treasury
Securities below the Exercise Price (minus Premium received).

4. The Company may impose restrictions on the size of a
Participant's Positions or on new Opening Transactions upon

<PAGE>

determining that the condition of the market or the financial or operational
condition of a Participant makes such action necessary or advisable.

5. The Company may require a Participant to post additional
margin or to enter into Closing Transactions or the Company may restrict a
Participant from effecting Opening Transactions to ensure that the MPSE does not
exceed the prescribed limit.

6. The Company has wide discretion with respect to other
matters concerning its operations and the obligations of Participants generally.
The exercise of such discretion by the Company could adversely impact a
Participant.

7. The Company has limited capital and subordinated debt
(approximately $5.1 million as of December 31, 1996) in relation to its
potential obligations to Participants. Although the Company has obtained the
Credit Enhancement Facility to secure the obligations of Participants, the
Company may have only limited resources available to it upon full utilization of
the Credit Enhancement Facility. See "DESCRIPTION OF SECURITIES - Credit
Enhancement Facility." Also see "MANAGEMENT's DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital
Resources."

8. Participation is open to certain brokers and dealers,
including government securities brokers and dealers registered with the
Commission, commercial banks and insurance companies that meet certain
prescribed financial requirements established by the Company. Other Participants

must also meet the financial criteria established by the Company on an
individual basis. There is no assurance that the financial and other
requirements applied by the Company to Participants will be adequate to ensure
the performance by Participants of their contractual obligations to the Company.

<PAGE>

SPECIAL RISKS

Before entering into an Option Transaction, Participants
should be aware of the special risks inherent in the Options business. Although
the Company believes that the services it makes available to Participants will
increase their trading opportunities in Options on Treasury Securities, there
can be no assurance as to the extent of liquidity that may develop with respect
to the purchase of Options or the ability of Participants to enter into Closing
Purchase or Closing Sale Transactions to reduce or eliminate open Short or Long
Positions in such Options. An absence of liquidity may adversely affect the
prices that can be obtained for reducing or eliminating a Participant's open
Short or Long Positions, in the event of the liquidation of a Participant's
Positions upon suspension.

Participation is open to certain primary dealers designated as
such by the FRB-NY, brokers and dealers, including government securities brokers
and dealers registered with the Commission, commercial banks and insurance
companies that meet certain prescribed financial requirements established by the
Company. Other Participants must also meet the financial criteria established by
the Company on an individual basis. There is no assurance that the financial and
other requirements applied by the Company to Participants is adequate to ensure
the performance by Participants of their contractual obligations to the Company.

Participants should be aware that, for economic or other
reasons, the issuance, clearance and settlement of Options may be suspended or
terminated by the Company. Such suspension or termination shall have no effect
on the terms of any outstanding Option or the obligations of the Company with
respect thereto, but may upon taking effect, foreclose the ability of
Participants to reduce or eliminate open Long or Short Positions by entering
into Closing Sale or Closing Purchase Transactions and to effect any other
Transactions. The operations of the Company may be terminated at any time by the
Company. In addition, the operation of the Company will be terminated if the
Company is unable to secure and maintain a Credit Enhancement Facility of at
least three times MPSE. In addition, the calculation of MPSE may be adjusted due
to future unprecedented volatility in the market which could cause a suspension
or reduction in the issuance, clearance and settlement of Options. Participants
should note that the Commission pursuant to the Exchange Act may terminate the

operations of the Company under certain circumstances, and may also, as trustee
appointed by a court, take possession and operate or terminate the operations of
the Company for the protection of Participants.

A Participant who purchases a Put or a Call from the Company
may lose the entire value of the Premium paid in a relatively short period of
time. Further, an uncovered Writer of a Matching Call is subject to a risk of
substantial loss should

<PAGE>

the price of the underlying Treasury Security increase above the Exercise Price
(plus Premium received), and an uncovered Writer of a Matching Put is similarly
subject to a risk of substantial loss should the price of the underlying
Treasury Security decrease below the Exercise Price (minus Premium received).

A covered Writer of a Matching Call and a covered Writer of a
Matching Put remain subject to risk of adverse market movements in the value of
their underlying Treasury Securities positions. In exchange for the Premium, so
long as such Participants remain Writers of Options, they will have foregone the
opportunity for gain resulting from, in the case of a covered Call Writer, an
increase in the price of the underlying Treasury Security above the Exercise
Price (plus Premium received) or, in the case of a covered Put Writer, a
decrease in the price of the underlying Treasury Security below the Exercise
Price (minus Premium received).

Participants should also be aware that the Company may impose
restrictions on the size of a Participant's Positions upon determining that the
condition of the market or the financial condition or operational condition of
the Participant makes such action necessary or advisable for protection of the
Company or the public. The Company may impose restrictions on new Opening
Transactions by a Participant and require the Participant to reduce or eliminate
through Closing Purchase Transactions existing Short Positions and/or through
Closing Sale Transactions existing Long Positions in such Participant's Account.

A Participant may be required to post additional margin or to
enter into Closing Transactions or may be restricted in effecting Opening
Transactions, which otherwise meet the required criteria for acceptance, in
order to ensure that MPSE does not exceed the limit then in effect.

Participants should note that the Company has wide discretion
in relation to a number of matters concerning its operations and the obligations
of Participants generally. The exercise of such discretion by the Company could
adversely impact the rights of Participants.

A failure by the Participant to meet its obligations can
result in suspension and liquidation of all of the Participant's open Positions.
Any such suspension could have an adverse economic effect on the suspended
Participant. See "DESCRIPTION OF THE OPTIONS BUSINESS - Default and Suspension
of Participants." If a Participant is terminated as an insured party under a
Surety Bond or as an account party on a Letter of Credit, if any, such
Participant shall be deemed to have withdrawn as a Participant and its Account
shall be liquidated in the same manner as that of a suspended Participant and
such Participant shall not submit any Transactions for acceptance,

<PAGE>

clearance and settlement to the Company. See "DESCRIPTION OF SECURITIES -
Credit Enhancement Facility."

The Company has limited capital and subordinated debt
(approximately $5.1 million as of December 31, 1996) in relation to its
potential obligations on the Options. Although the Company has obtained the
Credit Enhancement Facility to secure the obligations of Participants, the
Company may have only limited resources available to it upon full utilization of
the Credit Enhancement Facility. See "DESCRIPTION OF SECURITIES - Credit
Enhancement Facility." Also see "MANAGEMENT's DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital
Resources."

PARTICIPATION CRITERIA

Participation is open to a Person designated a primary dealer
by the FRB-NY and any other Person in each case meeting the financial and other
requirements established by the Company. The Company expects that a majority of
the Participants will be brokers and dealers, including government securities
brokers and dealers, commercial banks, insurance companies and other
institutional investors, including pension funds and trusts. Each applicant must
intend and, in the opinion of the Company, must be likely to engage in
significant Options activity for the Participant's own Account upon admission by
the Company. Every applicant must meet such additional nondiscriminatory
standards of financial responsibility, operational capability, experience and
competence as may from time to time be prescribed in the Procedures. The Company
may and, in cases in which the Commission, by order, directs as appropriate in
the public interest shall, disapprove the application of any Person subject to a
statutory disqualification, as defined in Section 3(a)(39) of the Exchange Act.

To be considered for admission as a Participant, brokers and
dealers registered with the Commission and therefore subject to the Commission's
minimum net capital requirements must have at least $25,000,000 of net capital
calculated in accordance with Rule 15c3-1 promulgated under the Exchange Act.
Government securities brokers and dealers registered with the Commission must
have at least $25,000,000 of net capital calculated in accordance with net
capital rules promulgated by the Department of the Treasury pursuant to Section
15C of the Exchange Act. Commercial banks and insurance companies must have a
total equity capitalization of at least $500,000,000. Registered investment
companies must have assets of at least $300,000,000. Other applicants must meet
the financial criteria established by the Company. No Participant's financial
condition and performance,

<PAGE>

as measured by the stability, level and quality of its earnings and other
generally accepted measures of liquidity, capital adequacy and profitability,
shall create a significant risk of a potential default by such Participant of
its anticipated obligations. Applicants must apply to become account parties to
the Letter of Credit, if any, and insured parties under the Surety Bond.
Admission is limited to those applicants that receive the approval of the
Company and the providers of the Credit Enhancement Facility.

As a condition to participation, each applicant must agree (i)
to pay all clearing fees and other charges provided by or pursuant to the
Procedures for participation and services rendered to such applicant, (ii) to
pay such fines as may be imposed on it in accordance with the Procedures, (iii)
to grant the Company all liens, rights and remedies set forth in the Procedures,
and (iv) to permit inspection of its books and records by the Company upon
written demand to the participant at such times as may be reasonably requested
by the Company, provided that the scope of such inspection shall be limited to
matters related to the Procedures, the Participant's Transactions and other
matters related to the Company's business. Such written demand shall specify
with reasonable particularity the records to be produced. The Company shall be
entitled to take temporary possession of any such records at any time upon
demand. Each applicant is also required to agree to indemnify and hold harmless
the Company and its directors, officers, employees and agents against any loss
or liability arising from a default by the applicant in the performance of any
of its obligations as a Participant, a breach by such applicant of the
Procedures or any agreement entered into by the applicant with the Company, the
Letter of Credit Bank, if any, or the Insurer in connection with participation,
or any unlawful, fraudulent or willful misconduct or negligence on the part of
an applicant relating to its participation.

Each application for participation will be reviewed by the
Executive Committee. If the Executive Committee proposes to disapprove an
application, it shall first furnish the applicant with a written statement of

the specific grounds therefor and shall afford the applicant with the
opportunity to request a hearing. In the event that the Executive Committee
disapproves the application, the applicant may apply for review to the Board of
Directors by means of a written motion. The granting of any such motion shall be
within the sole discretion of the Board of Directors. In addition, the Board of
Directors may determine to review any disapproval by the Executive Committee on
its own motion. If the Board disapproves the application, written notice of its
decision, accompanied by a statement of the specific grounds therefor, shall be
sent to the applicant.

<PAGE>

Every Participant shall be responsible for acquiring and
maintaining computer and communications equipment capable of supporting software
provided by the Company which enables computer-to-computer communications of
reports, exercise notices, Trade Reports, confirmations and other items related
to the Participant's participation.

Each Participant must annually file with the Company an
audited report of its financial condition prepared in accordance with generally
accepted accounting principles. Participation is also conditioned upon the
provision by Participants of certain other financial reports as specified in the
Procedures. Any Participant that is in financial or operating difficulty, such
that the Company determines that suspension is necessary for the protection of
the Company or the public, shall be suspended. See "DESCRIPTION OF THE OPTIONS
BUSINESS - Default and Suspension of Participants."

A Participant may voluntarily withdraw as a Participant at any
time by delivering written notice thereof to the Company. Such withdrawing
Participant may not submit Transactions, other than to enter into closing
Transactions, any time after issuing such notice. Such withdrawal shall become
effective upon (1) acceptance for clearance of (a) Closing Sale Transactions
with respect to all Long Positions, if any, in such Participant's Account and
(b) Closing Purchase Transactions with respect to all Short Positions, if any,
in such Participant's Account, and (2) payment of all obligations of such
Participant to the Company in respect of the Participant's participation. For
these purposes Long Positions and Short Positions shall include all Transactions
entered into by the Participant not yet accepted for clearance.

The Company expects that its affiliates or the CEF provider
and its affiliates will not be Participants. The Company believes that it
provides safeguards for the equitable treatment of Participants, in that every
Participant being considered for admission will be considered independently by

the Company and the CEF provider. In addition, the credit decisions related to
every Participant are made independently by the Company and the CEF provider.

DESCRIPTION OF SECURITIES

Options Issued By The Company

Terms of Options. Each Option covered by this Prospectus is a
Put Option or a Call Option on Treasury Bonds, Notes or Bills with an aggregate
principal amount of $1,000,000. The Company issues each Put Option or Call
Option and interposes itself in each transaction - acting as writer to each
Purchasing Participant and as the purchaser of a Matching Put or Matching

<PAGE>

Call from each Writing Participant. The Company, accordingly, acts solely as an
intermediary in principal transactions, maintaining a "matched book." The
Company is not subject to market risk with respect to the Options written or
purchased by it, except to a limited extent in the event of a default by a
Participant in the performance of its obligations. See "DESCRIPTION OF THE
OPTIONS BUSINESS - Premiums - Daily Margin Requirements - Exercise of Options -
Default and Suspension of Participants." Because the Company interposes itself
in each transaction, Participants submit transactions in privity of contract
solely with the Company and may only look to the Company to perform the
obligations arising under the terms of an Option. Options which are issued by
the Company are registered with the Commission.

A Participant who writes a Matching Call in an Opening Writing
Transaction is obligated, upon the assignment of an exercise notice to it, to
deliver the underlying Treasury Securities represented by the Matching Call
against payment of the Exercise Price. Similarly, a Writer of a Matching Put in
an Opening Writing Transaction undertakes, upon the assignment of an exercise
notice to it, to purchase the underlying Treasury Securities represented by the
Matching Put at the Exercise Price against delivery of the underlying Treasury
Securities. The purchaser of an Option pays a Premium as consideration for the
rights and obligations represented by an Option.

Certain Option terms are standardized to facilitate the
development of a more liquid environment for the Options issued by the Company.
Such standardized terms include a unit of trading for each Option (i.e., each
Option confers the right to purchase or sell, as the case may be, underlying
Treasury Securities in the aggregate principal amount of $1,000,000), the
maximum term of the Option and the Expiration Date.

The term of an Option as to which the underlying security is a
Treasury Bond or Note may not exceed the earlier of two years from the date of

issuance of the Option or the period ending one calendar month prior to the
maturity or redemption date of the Treasury Bond or Note. If the underlying
security is a Treasury Bill, the term of the Option may not exceed the period
ending 13 calendar days prior to the maturity date of the Treasury Bill.

The variable terms of each Option are the subject of
negotiation between the Writing or Selling Participant and the Purchasing
Participant. Participants agree on the Premium, the Exercise Price, Expiration
Date, and the issue of the underlying Treasury Securities (identified by
maturity and coupon or yield).

The Company has not established specific limitations governing
the maximum number of Options in any Series or Class

<PAGE>

which may be written or purchased by a single Participant. Each Participant,
however, must not establish aggregate Short Positions which, at any time,
require the payment or maintenance of margin which, in the aggregate, would
exceed limits for such Participant prescribed by the Company at the time of the
Participant's admission and revised from time to time thereafter. The Company
may also impose restrictions on the size of Participant's Long Positions and
Short Positions under certain circumstances. See "DESCRIPTION OF THE OPTIONS
BUSINESS - Exposure Limits."

Certificateless Position Reports. Each Option is an
uncertificated security, the issuance of which is evidenced in book entry form
and recorded by appropriate entries in an Account for each Participant.
Ownership of each Put and Call is evidenced by a Daily Position Report.

Principal Transactions/Transferability. Each Participant shall
effect Options as principal for its own account, and not on behalf of customers
or other Persons. No Option issued by the Company shall be transferred or
pledged by a Participant, except in accordance with the Procedures or with the
prior written consent of the Company.

Credit Enhancement Facility

The Company maintains a CEF comprised of Surety Bonds or
Letters of Credit or any combination thereof, to secure payment in the event of
a default by one or more Participants on certain obligations owed to the
Company. See "DESCRIPTION OF THE OPTIONS BUSINESS - Default and Suspension of

Participants - Sanctions." The amount available to be paid to the Company
pursuant to the CEF shall be at all times during the operation of the Company
equal to an aggregate amount of at least three times MPSE.

Each Participant must be accepted by each Insurer as an
insured party under its Surety Bond and by any Letter of Credit Bank as an
account party under its Letter of Credit. Each Participant must agree to pay
each Insurer and Letter of Credit Bank, if any, (i) for any payment made to the
Company under its respective Surety Bond and/or Letter of Credit, if any, in
respect of defaults by such Participant, (ii) interest on all amounts due to
each Insurer and/or Letter of Credit Bank, if any, by such Participant which
have not been paid, and (iii) all reasonable expenses, including attorneys'
fees, incurred by each Insurer and/or Letter of Credit Bank, if any, in
enforcing its rights against such Participant. Currently CapMAC has agreed that
interest on all amounts due to CapMAC by a Participant, which have not been
paid, shall bear interest at the rate of 5% per annum above the "Base Rate"
announced publicly by Citibank, N.A. New York, New York from time to time as its
"base rate." If a

<PAGE>

Participant is terminated as an insured party under a Surety Bond or as an
account party on a Letter of Credit, if any, such Participant shall be deemed to
have withdrawn as a Participant and its account shall be liquidated in the same
manner as that of a suspended Participant and such Participant shall not submit
Transactions to the Company.

The Insurers and the Letter of Credit Banks, if any, shall
have no obligation to Participants with respect to the obligations of the
Company as issuer of Put Options and Call Options, and the failure of an Insurer
to honor its Surety Bond or a Letter of Credit Bank, if any, to honor its Letter
of Credit will not impair a non-defaulting Participant's rights against the
Company.

Surety Bond of Capital Markets Assurance Corporation. A Surety
Bond under the CEF is currently provided by CapMAC, a financial guaranty
insurance company, for the benefit of the Company in the amount of $250 million
(with maximum coverage of any Participant equal to $30 million). The Company may
from time to time have a need to increase the CEF to the extent necessary to
ensure coverage equal to at least three times MPSE. CapMAC has agreed to provide
additional Surety Bond coverage in increments of $25 million up to a total
aggregate amount of $300 million. These increases may be activated upon 10 days'
notice to CapMAC with the Company paying an additional fee chargeable at such
time. The Company may also decrease the amount of coverage if warranted to a
minimum of $150,000,000. See "INSURER."

The Company is obligated to reimburse CapMAC for the
applicable "Loss Share Amount" of any payment made by CapMAC under the Surety
Bond. Currently, the Company's Loss Share Amount of any Surety Bond payment will
be 10% of the first $10 million of aggregate payments made under the Surety Bond
and thereafter, a percentage of the payment determined by dividing $4 million by
the difference between the aggregate amount of the Surety Bond then in effect
and $10 million. In the event that the Company's net worth exceeds $10 million
or certain changes in control events occur, the applicable Loss Share Amount
will be subject to change. The Company has agreed that, at all times during
which the Surety Bond issued by CapMAC remains effective, it will maintain net
worth inclusive of subordinated debt of at least $5 million.

The Surety Bond issued by CapMAC expires on the earlier of (I)
January 27, 2000 or (ii) the date, following termination of the Company's
operations, on which no Positions remain outstanding, provided, however, that on
or before the 90th day prior to each anniversary of the date of issuance, CapMAC
shall determine whether to extend its Surety Bond for additional one year
periods beyond the termination date. The settlement date

<PAGE>

for any Transaction will be no later than the day prior to the expiration date
of the CEF.

DESCRIPTION OF THE OPTIONS BUSINESS

General

The Company's services relating to its Options business are
designed to facilitate the acceptance, clearance and settlement of Put and Call
Options on Treasury Securities. Participants disseminate bid and ask quotations
through an IDB designating the Company as counterparty to all Option
transactions. This affords Participants with the opportunity to effect Options
transactions on a "blind brokered" basis through an automated communications
network linking video display terminals in their respective offices. The
automated quotation network distributes real time updates of quotations
submitted by Participants. Participants will be expected to have access to
communications or data distribution systems generally available to participants
in the Treasury Securities market. As an alternative to using an IDB as a blind
broker, Participants are free to communicate bid and ask quotations directly to
each other.

After submission of an Options transaction to the Company by
an IDB or by Participants, the Company accepts the transaction for clearance if

the trade for a Writing or Selling Participant and a Purchasing Participant
match, each Participant is a Participant in good standing, and the trade would
not breach the Exposure Limit or any other limit imposed by the Company on
either Participant. The issuance of the Option is evidenced in book entry form
and recorded in the Account of each Participant. Each Participant receives a
Daily Position Report evidencing the issuance of the Option and a Daily Margin
Report.

As an example, assume that ABC & Co., a Participant, wishes to
buy a Call on two-year Treasury Notes in an aggregate principal amount of $1
million, entitling ABC to acquire such Treasury Notes at par at any time within
a six-month period. XYZ & Co., another Participant, is willing to write a
six-month Matching Call against that position for a Premium of $50,000. XYZ
would instruct an IDB to enter its ask quotation into the automated quotation
network. ABC, upon seeing the quotation for a Call Option, would instruct an IDB
to effect a trade for ABC's account. If ABC and XYZ are both Participants in
good standing, the Company will interpose itself in the trade by simultaneously
(1) selling to ABC a six-month Call Option on such Treasury Notes for a Premium
of $50,000 and (2) buying a Matching Call from XYZ with identical terms and
Premium. As an alternative, ABC and XYZ, if aware of each other's trading
interest, may negotiate

<PAGE>

directly with each other and, upon agreeing upon the terms of a trade, submit
the Transaction to the Company for clearance. The Company does not issue any
Option to a Participant unless, concurrently, a second Participant has agreed to
write or sell an Option with identical terms to the Company.

Acceptance And Rejection Of Transactions

An Option transaction, otherwise meeting the criteria for
acceptance, is accepted for clearance upon the timely receipt by the Company of
Matching Trade Reports. The Put or Call is then issued in book entry form and
recorded in the Participant's Account. A Participant becomes the Holder of an
Option at the time such Transaction is accepted and issued.

The Company shall reject Transactions which contravene
limitations imposed on Participants. For example, the Company shall reject an
Opening Transaction if the transaction would cause a Participant's aggregate
margin obligations in respect of Positions in the Participant's Account to
exceed such Participant's Exposure Limit. The Company shall also reject an
Opening Transaction if the transaction would exceed position limits prescribed
by the Company, as a result of the condition of the market or the financial or
operational condition of the Participant or if the Company deems it necessary to
maintain MPSE within the prescribed limit. See "PARTICIPATION CRITERIA,"

"DESCRIPTION OF THE OPTIONS BUSINESS - Daily Margin Requirements" and "SPECIAL
RISKS." In addition, the Company shall reject any Option transaction entered
into by a Participant who has been suspended or who has withdrawn. See
"DESCRIPTION OF THE OPTIONS BUSINESS -Default and Suspension of Participants."
If an Option Transaction is rejected, the Company will promptly notify the
Participants who are parties to the Transaction.

Premiums

At or before the Settlement Time on each Business Day, each
Participant who has purchased one or more Puts and/or Calls is obligated to pay
the Net Daily Premium, if any, shown to be due to the Company on the Daily
Position Report for such day. The Participant is required to instruct its
Correspondent Bank to wire to the Company in Federal Reserve funds an amount
equal to the Net Daily Premium due to the Company. Within six hours after the
Settlement Time, the Company will wire to each Participant, assuming the
Participant has paid all its obligations to the Company, the amount of any Net
Daily Premium shown to be due to the Participant on the Daily Position Report
for such day.

Failure to timely pay Net Daily Premium when due results in
suspension of the Participant, unless such suspension is deferred, and may
result in the imposition of a fine or other

<PAGE>

penalties. See "DESCRIPTION OF THE OPTIONS BUSINESS -Default and Suspension of
Participants - Sanctions."

Daily Margin Requirements

Writing Participants are required to deposit margin daily to
secure the obligations of such Participants arising under the Options written by
them. Daily margin for each Participant is calculated, pursuant to a
computerized option pricing model, to take into account any adverse movement in
the market price of underlying Treasury Securities during the preceding Business
Day, and an estimate (based upon historical market data) of the most severely
adverse movement in the market price of such Treasury Securities which
reasonably could be anticipated to occur over the course of the next succeeding
Business Day. In addition, a Participant may be required to deposit additional
margin on an intra-daily basis at any time such action is deemed necessary and
advisable to protect the Company or the public.

The amount of margin is calculated on every Business Day based
on the amount of the Participant's Short Positions, offset by the amount of the
Participant's Long Positions. The amount of margin is derived from two
calculations: "mark-to-market" margin and "performance" margin. The
mark-to-market margin represents the net amount of the estimated cost to
liquidate a Participant's Short Positions offset by the estimated proceeds from
liquidation of its Long Positions. Performance margin represents an estimate of
the net shortfall from the liquidation of a Participant's Short and Long
Positions at the close of the next succeeding Business Day, taking into account
the most adverse market movement in the price of underlying Treasury Securities
which reasonably could be anticipated. Additional margin may be requested if it
is deemed advisable to reflect the market value of the Short Positions in a
Participant's Account during such day, the size of a Participant's Positions, or
the financial or operational condition of a Participant, or to otherwise protect
the Company or the public. Additional margin may also be required of any
Participant to ensure compliance with MPSE. See "SPECIAL RISKS."

The Participant must fulfill its margin requirement by
instructing its Correspondent Bank to wire to the Company in Federal Reserve
funds, or Treasury Securities, an amount equal to, or greater than, the margin
due to the Company. Failure to timely deposit margin when due results in
suspension of the Participant, unless such suspension is deferred, and may
result in the imposition of a fine or other penalties. See "DESCRIPTION OF THE
OPTIONS BUSINESS - Default and Suspension of Participants - Sanctions."

<PAGE>

The Company holds margin deposits for the benefit of the
Company to secure the obligations of Writing Participants. Margin deposits
consisting of cash are invested in overnight repurchase agreements or other
overnight investment placement. To the extent cash is invested in overnight
repurchase agreements, the delivery of collateral consisting of Treasury
Securities is required. Amounts earned on invested margin deposits are allocated
among the Participants, less a small fee charged by the Company for investment
services.

Return Of Margin

The Company releases margin deposits made in respect of an
Option on the first Business Day following the expiration or timely settlement
by the Participant of the exercised Option or applies such margin deposits
against margin deficits and other obligations of the Participant to the Company.
Excess margin is returned to the Participant, assuming the Participant has paid
all amounts of Net Daily Premium and discharged all its other obligations
relating to the Company.

Exposure Limits And Position Limits

An Exposure Limit is prescribed for each Participant at the
time of admission and may be revised from time to time, to limit the risks posed
to the Company upon the default of such Participant. Such Exposure Limits are
established for all Participants on the aggregate incremental margin due to the
Company on any given day that the Participant may incur or carry in respect of
all its Positions. The Company shall reject a Transaction by a Participant if
such Transaction would cause a Participant's aggregate margin obligations to the
Company to exceed the Exposure Limit set for that Participant.

Exposure Limits established by the Company are not uniform for
all Participants and depend on the range or bracket within which a particular
Participant falls. The Company has established specified ranges or brackets
within which Exposure Limits for Participants will be uniform, and such ranges
or brackets will be revised from time to time. In establishing Exposure Limits
for Participants, the Company performs a credit analysis for each Participant in
accordance with prescribed procedures, and such analysis involves an analysis of
several factors including but not limited to balance sheet strengths and
weaknesses, amount and trend of earnings, ownership, availability and structure
of capital, the cyclical nature of the Participant's business, vulnerability to
changes in interest rates and liquidity of assets.

In addition to Exposure Limits, limits on aggregate Long
Positions or Short Positions may be imposed on Participants if the condition of
the market or the financial or operational

<PAGE>

condition of a Participant makes it necessary or advisable for the protection of
the Company or the public. In this connection, the Company may restrict the
Participant from buying any Opening Purchase Transactions and/or writing any
Opening Writing Transactions or require a Participant to reduce or eliminate
existing Long Positions through Closing Sale Transactions and/or existing Short
Positions through Closing Purchase Transactions in the Participant's Account.

Exercise Of Options

Any unexpired Option may be exercised by the Holder of the
Option. The exercise of an Option takes place by the timely submission of an
exercise notice to the Company. Notice of exercise of an American style Option

may be given on any Business Day (early exercise).

The exercising Holder of the Option is obligated to pay the
Exercise Price for the underlying Treasury Securities in the case of a Call, or
to deliver the underlying Treasury Securities in the case of a Put, on the
Exercise Settlement Date. Once a Call is exercised, the exercising Holder
becomes subject to all of the risks of a Holder of the underlying Treasury
Securities.

An exercise notice accepted by the Company is assigned to a
Writing Participant from whom the Company has acquired a Matching Put or
Matching Call. In the event that two or more Participants have written Options
identical in their terms (other than Premium) and less than all of such Options
have been the subject of timely exercise, the exercise notice is allocated pro
rata to all Participants maintaining a Short Position in the same Class of
Options.

Each Participant must settle with the Company on the Exercise
Settlement Date. If the Option exercised by the Participant is a Put, the
Company receives securities from the exercising Holder against payment to the
Holder and delivers securities to the Participant assigned the exercise notice
against payment from such Participant. If the Option exercised is a Call, the
Company delivers securities to the Holder against payment from the Holder and
receives securities from the Participant assigned the exercise notice against
payment to such Participant.

Early Exercise. A Participant may exercise an American style
Option on any Business Day other than the Expiration Date by delivering an
exercise notice to the Company between 9:00 A.M. and 5:00 P.M. Every tender of
an exercise notice to the Company becomes irrevocable at 5:00 P.M. on the date
of tender unless previously revoked or modified. No Participant shall revoke or
modify an exercise notice unless its filing was attributable to a bona fide
error by the Participant in which event any revocation

<PAGE>

or modification must be in compliance with the Procedures. The Company presumes
a modification or revocation of an exercise notice to be attributable to a bona
fide error, unless it has reason to believe otherwise. Each Participant that
revokes or modifies an exercise notice shall prepare, and preserve, for not less
than three years, a memorandum describing in reasonable detail the error that
gave rise to the revocation or modification.

Exercise notices accepted by the Company are assigned at or
before 8:00 A.M. on the following Business Day. On each Business Day, each
Participant is issued an exercise and assignment activity report which reflects
all exercise notices filed by the Participant with respect to Options and
accepted by the Company on the preceding Business Day, and all exercise notices
assigned to the Participant.

The Exercise Settlement Date, in the case of a Treasury Bond
Option or a Treasury Note Option exercised prior to the Expiration Date, is the
following Business Day. The Exercise Settlement Date for a Treasury Bill Option
is the Thursday of the week following the week in which an exercise notice was
tendered for the Option or, if such Thursday is not a Business Day, on the next
succeeding Business Day.

Expiration Date Exercise Procedure. Each Participant is issued
at or before 8:00 A.M. on each Expiration Date an Expiring Option Position
Report ("Morning Expiration Report") listing each expiring Option position in
the Participant's Account and the Closing Prices of the underlying Treasury
Security for each Option.

At or before 3:30 P.M. on each Expiration Date, each
Participant shall be issued a Preliminary Exercise Report ("Preliminary Exercise
Report") listing each expiring Option Contract in the Participant's Account
including all trading and adjustments to expiring Option Contracts for that day.
Expiring Options are not subject to exercise prior to the issuance of the
Preliminary Exercise Report.

Upon receiving a Preliminary Exercise Report, each Participant
shall no later than 4:00 P.M. indicate on the report, opposite the Option
positions listed for the Participant's Account, the number of Option contracts,
if any, to be exercised. Such indication shall be via computer entry and
computer-to-computer electronic data transmission or such other means as the
Company may prescribe. Such Preliminary Report shall be final except for a bona
fide error by the Participant. The Company presumes a modification or revocation
of an exercise notice to be attributable to a bona fide error, unless it has
reason to believe otherwise. Each Participant that revokes or modifies an
exercise notice shall prepare and preserve, for not less than

<PAGE>

three years, a memorandum describing in reasonable detail the error that gave
rise to the revocation or modification.

At or before 5:00 P.M., on each Expiration Date the
Participants shall be issued the Final Exercise Report ("Final Report")
reflecting those Options Contracts as to which exercise instructions were given
by the Participant on the Preliminary Exercise Report and listing any additional

Option Contracts in the Participant's Account expiring on the Expiration Date
that have been added due to the reconciliation of the day's trades or otherwise.

In the event of a bona fide error on the part of the
Participant and in accordance with the Procedures, a Participant may revoke,
modify or add to exercise instructions previously given in the Preliminary
Exercise Report. Each Participant shall communicate via telephone all such
exercise information and bona fide errors to the Company. The Company shall
transmit confirmation of such exercises and confirmation of such correction, by
issuing a Revised Final Exercise Report through facsimile transmission,
computer-to-computer communication or such other means as it shall deem
appropriate. Each Participant shall return a signed printed copy of the Revised
Final Report as updated and corrected to the Company by facsimile transmission
or such other means as the Company may prescribe by 6:00 P.M.

Each Participant is deemed to have properly and irrevocably
tendered to the Company immediately prior to the Expiration Time on each
Expiration Date an exercise notice with respect to every Option position listed
in the Participant's Final Report which the Participant has indicated be
exercised and every option position of each Series of Options listed in the
Participant's Final Report (whether or not the Participant has returned the
Final Report to the Company). Option Contracts will not be automatically
exercised by the Company. It is the obligation of a Participant to affirmatively
exercise Option Contracts it wishes to exercise.

Under the Expiration Date exercise procedure, at or before
8:00 A.M. on each Expiration Date each Participant will be issued an Expiring
Options Position Report including the closing prices of underlying Treasury
securities for the preceding Business day.

Each Participant must review Morning, Preliminary and Final
Reports against the Participant's own positions and verify the accuracy of such
reports. There are no closing prices for Treasury Securities as there are for
exchange-listed securities. The price quotations obtained by Participants from
other sources may be different from those used by the Company. In addition, the
Company may determine the Closing Price under certain circumstances. See
"GLOSSARY OF TERMS - Closing Price." Trading

<PAGE>

in expiring options ceases at 1:30 P.M.. By 3:30 P.M. each Participant will
receive a Preliminary Expiration Report listing each expiring Option Contract in

the Participant's Account. By 4:00 P.M. the Participant is to indicate on the
report those Option Contracts it wishes to exercise. By 5:00 P.M. a Final
Exercise Report will be issued reflecting exercised Option Contracts. Signed
final reports, identifying any bona fide errors, are to be returned to the
Company by 6:00 P.M.

At or before 6:00 P.M. on the Expiration Date the Company
shall issue to each Participant an exercise and assignment report.

Settlement takes place on the Business Day immediately
following the Expiration Date for a Treasury Bond Option or a Treasury Note
Option. Settlement for a Treasury Bill Option takes place on the Thursday of the
week following the week in which the exercise notice was tendered or if such
Thursday is not a Business Day, on the next succeeding Business Day. The
settlement obligations of each Participant are netted to the extent that such
Participant is both a Delivering Participant and a Receiving Participant for
Options of the same type (i.e., Put or Call), covering the same issue of
Treasury Securities and having the same Exercise Price. After netting the
Participant's settlement obligations, each Participant that remains a Delivering
or a Receiving Participant is required to effect settlement on the Exercise
Settlement Date. An exercise settlement report is issued which specifies the
quantity of each issue of Treasury Securities to be delivered to or received
from such Participant.

Delivery and Payment. A Delivering Participant is required by
12:00 P.M. on the Exercise Settlement Date to deliver to the Company in book
entry form, against payment of the settlement amount in Federal Reserve funds,
the underlying Treasury Securities represented by the Option. A Receiving
Participant is obligated to receive in book entry form, against payment of the
settlement amount in Federal Reserve funds, the Treasury Securities represented
by the Option.

Remedies. If the delivery of the underlying Treasury
Securities is not made by 1:00 P.M. on the Exercise Settlement Date, the Company
may buy-in Treasury Securities for the account and liability of the Delivering
Participant to cover the Delivering Participant's obligations. The failure of a
Delivering Participant to discharge its delivery obligations will result in
mandatory suspension, unless such suspension is deferred, and may result in the
imposition of a fine or other penalties. See "DESCRIPTION OF THE OPTIONS
BUSINESS - Default and Suspension of Participants-Sanctions."

<PAGE>

Upon the request of a Delivering Participant and for good
cause shown, the Company may defer, for not more than 24 hours from the time
when delivery was first due, suspension of the Participant and execution of a
buy-in if the Company has reason to believe the default of the Delivering
Participant will be cured or that other arrangements adequate to protect the
interests of the Company or the public have been made. In such event the Company
may borrow the underlying Treasury Securities for the account and liability of
the Delivering Participant to cover the Delivering Participant's obligations,
charge all costs of the borrowing to the Participant's Account and apply margin
in respect of the exercised Options and any credit balance in the Participant's
Account to the costs of such borrowing. The Delivering Participant shall
promptly, and in no event later than one hour after receiving notice, pay the
remaining costs of such borrowing. The defaulting Delivering Participant shall
instruct its Correspondent Bank to wire to the Company in Federal Reserve funds
such amount. The failure of the Delivering Participant to pay timely the
remaining costs of the borrowing will result in mandatory suspension and may
result in the imposition of a fine. See "DESCRIPTION OF THE OPTIONS BUSINESS
Default and Suspension of Participants - Sanctions."

If the Receiving Participant refuses to accept, and pay for,
all securities tendered to it on the Exercise Settlement Date and such refusal
continues or occurs after 1:00 P.M., the Company will sell-out the tendered
securities for the account and liability of the defaulting Receiving
Participant. The failure of the Receiving Participant timely to accept, and pay
for, securities tendered to it results in mandatory suspension and may result in
the imposition of a fine. See "DESCRIPTION OF THE OPTIONS BUSINESS - Default and
Suspension of Participants - Sanctions."

Security Interest and Netting

The Company has a security interest in, lien upon and a right
of setoff as to all money (including margin), securities (and rights with
respect to the securities) and Long Positions held, carried or maintained in a
Participant's Account (including a Participant's Liquidating Settlement Account)
to secure any liability or obligation of a Participant to the Company in
connection with the Participant's clearance activities. Assets of a Participant
may be returned to the Participant only in accordance with the terms of the
Procedures. See "DESCRIPTION OF THE OPTIONS BUSINESS - Premiums-Return of
Margin." The security interest of the Company terminates when the assets are
returned in accordance with the Procedures.

Each Participant acknowledges that it has entered into and
will enter into each Option Contract in consideration of and in reliance upon
the fact that all the Participant's Positions

<PAGE>

constitute a single business and contractual relationship between it and the
Company and have been made in consideration of each other. Accordingly, (i) all
obligations between such Participant and the Company under all Transactions
shall be performed by it, and a default in such performance shall constitute a
default by it in respect of all Transactions between them, (ii) such Participant
and the Company shall be entitled to set off claims and apply property held by
it in respect of any other Transaction to which such Participant is a party and
(iii) all payments, deliveries and other transfers made by or to be made by the
Company to such Participant or Participant to the Company in respect of any
Transaction to which such Participant is a party shall be deemed to have been
made in consideration of payments, deliveries and other transfers in respect of
any other Transaction between such parties, and the obligations to make any such
payments deliveries and other transfers may be applied against each other and
netted.

Fees

Participants are required to pay clearing agency fees to the
Company in respect of all Transactions in such amounts as shall be specified by
the Company from time to time. Each Participant that is a party to an Option
transaction will be charged, and shall pay, such fees and shall instruct its
Correspondent Bank to wire to the Company in Federal Reserve funds the amount of
such fees.

Default And Suspension Of Participants

A Participant shall be summarily suspended if it has defaulted
on its obligations to pay Net Daily Premium when due, to pay margin when due or
to deliver or receive Treasury Securities, in each case in accordance with the
Procedures. Suspension may be deferred, however, not more than two hours in the
event of a default on the payment of Net Daily Premium, not more than two hours
in the event of a default on the payment of margin and not more than twenty-four
hours in the event of a default on the delivery of Treasury Securities.

A Participant may be summarily suspended if the Participant
fails to meet the financial criteria established for admission or if the
Participant is in such financial or operating difficulty that the Company
determines that suspension is necessary for the protection of the Company or the
investing public, and so notifies the Participant's appropriate regulatory
agency, as defined in Section 3(a)(34) of the Exchange Act. A Participant may be
summarily suspended if it has been and is expelled or suspended from any
self-regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act, but not including the Municipal Securities Rulemaking Board) or is subject
to an order or direction withdrawing, suspending,

<PAGE>

revoking, or declaring invalid any license, charter, permit, membership or
registration necessary or appropriate for any material portion of its business
or causing it to cease or limit any of its customary business activities. In
addition, the commencement of a case or proceeding under any bankruptcy,
insolvency, reorganization, liquidation, dissolution, or similar law may be
grounds for summary suspension. A Participant that is unable to meet its
obligations or is insolvent, or that fails to meet financial criteria
established for admission, is required to cease entering into any Transactions
and immediately notify the Company.

A suspended Participant, during the period of suspension, is
ineligible to submit trades to the Company for clearance. Upon the suspension of
a Participant, all margin deposited by such Participant and any credit or debit
balance or other property in the Participant's Account shall be treated as
constituting a Liquidating Settlement Account. Long Positions and Short
Positions and exercised Options shall be closed promptly insofar as practicable
and the net proceeds from the closing of all Positions and exercised Options
shall be credited to the Liquidating Settlement Account. Any Premium, clearing
agency fees, finance charges and other costs and expenses incurred in closing
the Positions and exercised Options of the suspended Participant are charged to
the Liquidating Settlement Account. A Participant shall instruct its
Correspondent Bank to wire to the Company, Federal Reserve funds in the net
amount of such obligations.

A defaulting Participant which is an insured party under a
Surety Bond will be liable to the issuer thereof for reimbursement in the event
of a payment to the Company under such Surety Bond triggered by such
liquidation. See "DESCRIPTION OF SECURITIES - Credit Enhancement Facility." A
defaulting Participant which is an account party to a Letter of Credit, if any,
purchased by the Company will also be liable to the issuer thereof for
reimbursement in the event of a draw on such Letter of Credit by the Company
triggered by such liquidation. See "DESCRIPTION OF SECURITIES - Credit
Enhancement Facility."

A suspended Participant shall be furnished, upon request, with
a written statement of the grounds for suspension, and shall have the right to
appeal its suspension by filing a written notice of appeal with the secretary of
the Company within five days after the date of the suspension. Appeals shall be
considered and decided by the Executive Committee no more than fourteen days
after the filing of the notice of appeal. The Executive Committee shall, by
majority vote, affirm or reverse the suspension and shall notify the appellant
in writing of the decision. If the decision shall have been to affirm the
suspension, the appellant shall be given a written statement of the grounds
therefor. Any decision of the Executive Committee to

<PAGE>

affirm a suspension shall be reviewable by the Board of Directors on its own
motion or on written demand of the appellant.

The filing of an appeal shall not impair the validity or stay
the effect of the suspension which is being appealed. The reversal of a
suspension shall not invalidate any acts of the Company taken prior to such
reversal pursuant to such suspension, and the rights of any Person which may
arise out of any such acts shall not be affected by the reversal of such
suspension.

Amendments To Procedures

The Procedures may be amended from time to time by the Company
pursuant to Section 19(b) of the Exchange Act and Rule 19b-4 thereunder. Under
those provisions, a proposed rule change may take effect upon filing with the
Commission (subject to the Commission's right to abrogate such rule change) if
designated by the Company as (i) constituting a stated policy, practice or
interpretation with respect to the meaning, administration or enforcement of an
existing rule of a self-regulatory organization, (ii) establishing or changing a
fee or charge, or (iii) a change which is concerned solely with the
administration of the Company. Other rule changes may take effect after the
filing of such proposed rule changes with the Commission, the publication of
notice thereof and after providing an opportunity for the submission of written
data, views and arguments by interested persons.

Sanctions

A Participant may be suspended or its participation may be
limited for any violation of the Procedures. In addition to or in lieu of such
sanctions, such Participant may be subject to a fine. Before any sanctions are
imposed (other than pursuant to summary suspension discussed above), the
Participant is furnished with a written statement of the violation and sanction
imposed. Such Participant shall, upon submission of an answer to the written
statement, have the right to a hearing before the Executive Committee, which
shall furnish the Participant and the Board of Directors with a written
statement of its decision.

In the event that the Executive Committee fines, suspends or
limits the activities of a Participant, such Participant may apply for review to
the Board of Directors. The granting of any such motion shall be within the sole
discretion of the Board of Directors. In addition, the Board of Directors may
determine to review any such action by the Executive Committee on its own
motion. The Participant shall be notified in writing of the decision of the
Board of Directors.

Any Participant upon whom a final sanction is imposed shall be
notified in writing that the imposition of such sanction may be subject to
review by the appropriate regulatory agency, as

<PAGE>

defined in Section 3(a)(34) of the Exchange Act, for the Participant pursuant to
Section 19(d)(2) of the Exchange Act, and the rules and regulations of such
regulatory agency. The imposition of sanctions in no way limits or restricts the
assertion of other rights or remedies of the Company against a Participant under
applicable law.

Hours Of Operation

Option trades may be submitted to the Company for acceptance
and clearance on any Business Day between 9:00 A.M. and 5:00 P.M., except that
expiring options may be submitted on the Expiration Date thereof from 9:00 A.M
to 1:30 P.M.

Operation Of The Options Business

The Company reviews the trade reports delivered by
Participants and/or an IDB and accepts for clearance Option transactions in
accordance with the Procedures. The Company also receives exercise notices with
respect to Options and clears and settles the purchase and sale of Treasury
Securities upon settlement thereof. Additionally, the Company provides reports
with respect to the Options business. The issuance and distribution of such
reports are in accordance with the Procedures.

The Company maintains its books and records as necessary to
receive the payment of Premium, margin and clearing agency fees from
Participants and to facilitate the settlement of Transactions upon the exercise
of the Option. The Clearing Bank safekeeps all property and funds delivered to
it for the account of the Company.

Under arrangements with Muller Data, Inc., an independent
vendor of securities market data, bid and asked price information used in the
determination of the Closing Price is furnished to the Company.

Participants' Committee

The Company has established a Participants' Committee,
consisting of from five to fifteen members, to advise it on matters pertaining
to the operation of the Options business. The Participants' Committee acts in an
advisory capacity only and the Company is not bound by any of its actions.

Suspension Or Termination Of The Options business

Upon notice to Participants, operation of the Options business
may be suspended or terminated at any time by the Company. Such suspension or
termination will not in any respect alter the terms of any outstanding Series of
Options absent the

<PAGE>

consent of each Participant maintaining a Long or Short Position in such Series
of Options. The Commission may terminate operation of the Company in certain
circumstances pursuant to Section 19(I) of the Exchange Act. See "SPECIAL
RISKS."

THE SECONDARY MARKET IN OPTIONS

Participants as Holders or Writers of Options may liquidate
their positions in offsetting Closing Transactions. Because Holders and Writers
of Options are not contractually linked to each other, but instead have rights
and obligations running to the Company, the secondary market in Options does not
operate in the same manner as the secondary market in stocks, in that Options
are not actually transferred from one Holder or Writer to another in a Closing
Transaction. Closing Transactions are placed and executed in the same manner as
Opening Transactions.

Closing Sale Transactions

A Holder of a Call may realize a gain or loss (as the case may
be) by entering into a Closing Sale Transaction by selling a Call on the same
Treasury Securities having an identical Expiration Date and Exercise Price.
Similarly, the Holder of a Put may realize a gain or loss (as the case may be)
by entering into a Closing Sale Transaction by selling a Put on the same
Treasury Securities having an identical Expiration Date and Exercise Price. A
Holder of an Option with an unrealized gain may decide to exercise the Option
rather than enter into a Closing Sale Transaction after evaluating the relative
market prices of the Option and the underlying Treasury Securities, the
applicable transaction costs, margin requirements, tax considerations,
investment objectives, and other relevant considerations.

To effect a Closing Sale Transaction, a Participant must have
a Long Position of the number of Options involved in the transaction (otherwise
the Closing Sale Transaction shall be deemed to be an Opening Writing

Transaction). When the Closing Sale Transaction is executed, the Holder's Long
Position will be reduced or extinguished, as the case may be, and it will no
longer be able to exercise its Option. When the Closing Sale Transaction is
executed, the Company buys the Option and concurrently sells an Option which
results in an Opening Purchase Transaction or Closing Purchase Transaction for
the Participant which negotiated the trade with the Holder.

The clearance of a Closing Sale Transaction, like all other
Option transactions, is subject to the receipt by the Company of Matching Trade
Reports.

<PAGE>

Closing Purchase Transactions

Closing Purchase Transactions are effected by a Writer of a
Call or Put for varying purposes including realizing a profit on an outstanding
position and limiting a loss incurred as a result of an adverse price movement
in the underlying Treasury Securities. A Participant may realize a net gain or
loss from a Closing Purchase Transaction depending upon whether the amount of
the Premium received in writing the Option is more or less than the cost of
effecting the Closing Purchase Transaction.

To terminate the Writer's obligation, the Writer buys an
Option in the same Series as the Option it previously wrote, which has the
effect of canceling the Writer's pre-existing obligation. To effect a Closing
Purchase Transaction, a Participant must have a Short Position for at least the
number of Options involved in the transaction (or otherwise it shall be deemed
an Opening Purchase Transaction). When the Closing Purchase Transaction is
executed, the Company sells an Option and concurrently buys an Option resulting
in an Opening Writing Transaction or Closing Sale Transaction for the
Participant negotiating the trade with the Writer.

If otherwise meeting criteria for acceptance, a Closing
Purchase Transaction becomes effective upon the timely receipt of Matching Trade
Reports by the Company. Until the Closing Purchase Transaction is accepted by
the Company, the Writer's Short position will not be closed and all existing
obligations on such Short position will remain in effect.

<PAGE>

THE COMPANY

Delta Clearing Corp. was incorporated in January, 1988 in the
State of Delaware under the name Delta Options Corp. The Company amended its
Certificate of Incorporation by changing its name to Delta Government Options
Corp. in June, 1988, and once again, to Delta Clearing Corp. in February, 1996.
The Company is a registered clearing agency pursuant to Section 17A under the
United States Securities Exchange Act of 1934, as amended. The Company commenced
operations on January 12, 1989 immediately following the issuance of the
Company's Clearing Agency Order by the United States Securities and Exchange
Commission. The Company's principal executive offices are located at 525
Washington Blvd. - Suite 3300, Jersey City, New Jersey 07310, Telephone number
(201) 418-8900.

Directors And Executive Officers

The Company's directors were elected in March 1997 and the
terms of office of all directors and executive officers extend to March 1998 or
to such later date on which their successors are elected. The directors and
executive officers of the Company are as follows:

NAME POSITION

Hans Angermueller..... Director and Chairman of the Board

Michael Spencer....... Director
Julian Childs......... Director
Peter Edge............ Director
David Gelber.......... Director

Michael L. Hein....... Director

Stephen K. Lynner..... Director and President

John Grebenstein...... Director and Executive Director

Ronald H. Buckner..... Chief Financial Officer
and Controller

Declan Kelly.......... Secretary

Hans H. Angermueller, 72, has been non-executive Chairman of the
Company since May 1996. Mr. Angermueller retired from Citicorp in 1989 where his
primary responsibilities were oversight of legal and regulatory affairs and
government relations. Mr. Angermueller serves in an "of counsel" capacity with

the international law firm, Shearman & Sterling, of which he was a partner prior
to joining Citicorp in 1973.

Michael Spencer, 41, has been a director of the Company since October
1995. Since 1986, he has been Chairman of Intercapital Group Limited. From 1983
to 1986, Mr. Spencer was a director and money broker at Fulton Prebon in London,
and from 1980 to 1983 was an Assistant Vice President and futures broker

<PAGE>

at Drexel Burnham Lambert in London. Mr. Spencer is a director of several U.S.
affiliates of Intercapital Group Limited and of Dart (USA) Inc.

Julian Childs, 47, has been a director of the Company since October
1995. He is currently Chief Operating Officer of Dow Jones Telerate Holdings,
Inc. ("Telerate"). From 1991 to 1995, Mr. Childs served as Executive Vice
President of Telerate, with responsibility for the Asia Pacific region, the
Americas and Europe/Gulf. Prior to that, Mr. Childs was Managing Director of
Telerate, responsible for all Asia Pacific operations of Dow Jones Telerate.

Peter Edge, 37, has been a director of the Company since October 1995.
He is currently Chief Executive Officer of EXCO plc. He began working for EXCO
plc in 1980 as a deposit broker. In 1989, he was appointed to the Board of
Directors of EXCO plc. In addition, Mr. Edge is Chairman of EXCO plc's money
markets products committee.

David Gelber, 48, has been a director of the Company since October
1995. He currently serves as Group Managing Director of Intercapital Group
Limited. For the twelve years prior to joining Intercapital Group Limited in
1994, Mr. Gelber held a variety of positions in the derivatives areas,
including, most recently, Chief Operating Officer of Midland Global Markets
(January 1993 to March 1994) and Global Manager-Swaps and Options at Hong Kong &
Shanghai Bank (March 1989 to December 1993). Additionally, Mr. Gelber served for
four years as a director of the International Swap Dealers Association (ISDA)
and was a member of the working group that compiled the Group of 30 report on
derivatives.

Michael L. Hein, 54, was elected a director of the Company in March
1994. Mr. Hein has been a managing director of CapMAC since its founding in
1987. Prior to joining CapMAC, Mr. Hein held several positions at
Citicorp/Citibank, most recently as a Vice President in the rate risk management

department of Citicorp Investment Bank.

Stephen K. Lynner, 45, was appointed president of the Company in March
1996 and elected a director in April 1996. He had previously served on the Board
of the Company from the Company's inception to October 1995. During that time he
served as president of RMJ Options Trading Corporation. From January 1985 to
April 1988, he was managing director of Security Pacific Options Services
Corporation. From September 1981 through December 1984, he was a trader with
Chemical Bank's Primary Dealer Group.

John Grebenstein, 44, has been a director of the Company since November
1995, with the title Executive Director. He is responsible for all repurchase
agreement related activities.

<PAGE>

From August 1994 until November 1995, he was a Vice President at Exco RMJ
Securties Corp., an IDB, responsible for new product development. From 1989
until August 1994, Mr. Grebenstein held various management positions at Garban
Ltd., also an IDB. Prior to that, Mr. Grebenstein was a Vice President in the
fixed income division of Nomura Securities International responsible for global
financing.

Ronald H. Buckner, CPA, 36, was hired in February 1994 and elected
controller in March 1994. In October 1995 he was elected chief financial
officer. From April 1990 to March 1994, Mr. Buckner was the director of
Financial Analysis for Panavision International, L.P., an international lessor
of motion picture film equipment and, prior to its reorganization, a
wholly-owned subsidiary of Warburg Pincus, L.P. From 1986 to 1990, Mr. Buckner
was chief financial officer and corporate controller for Retail Services, Inc.,
a publicly held national retail and real-estate development concern.

Declan Kelly, 35, has been Secretary of the Company since October 1995.
Since 1994, he has been a member of the Derivatives Product Group of
Intercapital Group Limited, with the title Head of Strategic Development. From
1987 to 1994, Mr. Kelly was the Head of Global Swaps and Derivatives at BNP
Capital Markets in London. For one year prior to that, Mr. Kelly was a trader in
the Swaps Group at Chase Manhattan Bank in London. He is qualified as a member
of the Institute of Chartered Accountants in Ireland.

Executive Compensation

The following table summarizes for each of the Company's last three
fiscal years, all compensation awarded to, earned by, or paid, 1) to the
Company's chief executive officer for services rendered in all capacities to the

Company, and 2) to all other executive officers of the Company whose total
annual salary and bonus exceed $100,000.

NAME AND OTHER ANNUAL
PRINCIPAL SALARY BONUS COMPENSATION
POSITION YEAR ($) ($) ($)
- -------- ---- --- --- ---
<S> <C> <C> <C> <C>
Barry E. Silverman (1) 1996 $138,000 $ 0 $ 0
President, 1995 138,000 a 24,543 0
Chief Executive Officer 1994 100,000 20,000 0

Ronald H. Buckner 1996 110,000 0 0
Chief Financial Officer, 1995 110,000 b 7,500 0
Controller 1994 48,125 0 0

<PAGE>

John Grebenstein 1996 200,000 c 0 0
Director, 1995 200,000 0 0
Executive Director

Stephen K. Lynner 1996 200,000 d 0 0
Director, President
</TABLE>

(1)Effective March 31, 1997, Mr. Silverman elected to leave the employ of the
Company.
a Salary became effective October 1, 1995. Mr. Silverman's salary for the
year was $109,500.
b Salary became effective October 1, 1995. Mr. Buckner's salary for the year
was $71,042.
c Salary became effective November 15, 1995. Mr. Grebenstein's salary for
the year was $33,333.
d Salary became effective October 1, 1995. Mr. Lynner's salary for the
year was $158,333.

Compensation of Directors

Effective June 1, 1996, Mr. Angermueller, the Companys non-executive
chairman was approved to receive a per annum retainer of $10,000 payable in four
equal installments, plus an additional $1,000 per meeting of the board of
directors. Mr. Angermueller was paid $10,500 in 1996. The Company does not pay

any remuneration to its other non-executive directors.

Principal Stockholders

The following table sets forth the number of shares of Common
Stock, the only class of capital stock of the Company, owned beneficially by
each of the Company's stockholders.

NUMBER OF
SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE
BENEFICIAL OWNER OWNED(1) OWNERSHIP(1)

INCAP Netherlands
(Holdings) B.V.(1)......... 585,900 65.1%
c/o Intercapital
Group Limited
153 East 53rd Street
New York, NY 10022

Dow Jones Telerate
Holdings, Inc (2).......... 134,100 14.9%
200 Liberty Street
New York, NY 10281

<PAGE>

EXCO plc.................... 180,000 20.0%
Sherbourne House
119 Cannon Street
London EC4N 5AX
England
------- ------
900,000 100.0%

All officers and directors
as a group (10 individuals).. (3) (3)
=== ===

- ---------------

(1) INCAP Netherlands (Holdings) B.V. is a wholly-owned subsidiary of
Intercapital Group Limited, a U.K. company.

(2) Dow Jones Telerate Holdings, Inc. Is a direct, wholly-owned
subsidiary of Dow Jones & Company, Inc.

(3) Each of the stockholders of the Company is an affiliate of a director
of the Company. See "Directors and Executive Officers" above. As a
result, the directors and executive officers may be deemed, as a group,
to be the beneficial owners of all of the Company's Common Stock.

BUSINESS

The business of the Company consists of the clearance and
settlement of Repos and the issuance and clearance of put and call options
written on Treasury Securities which, prior to engaging in the clearance and
settlement of Repos in the fourth quarter of 1995, represented the Company's
sole business activity.

The Company's customer base is limited to large,
well-capitalized financial institutions active in the over-the-counter
marketplace. Transactions are effected directly between such institutions or
through the services of IDBs. Such transactions are submitted to and
subsequently cleared and settled by the Company. Pursuant to the Procedures
governing the operation of the Company's systems, there is only one (1) IDB for
Options, while multiple IDBs are permitted to submit trades for Repos. However,
the Company has submitted a proposed rule filing with the Commission to
authorize multiple IDBs for Options. The Clearing Bank provides services for
both Options and Repos.

The Company is the counterparty to all Repos and Options
cleared and settled through it. The Company assumes a reverse repurchase
agreement for every Participant effecting a repurchase agreement with the
Company and conversely, assumes a

<PAGE>

repurchase agreement for every Participant effecting a reverse repurchase
agreement. The Company assumes all obligations associated with each repurchase
and reverse repurchase agreement including receipt and payment of coupon
interest, substitutions of underlying collateral and repricing of matched
outstanding obligations. With respect to Options accepted for clearance, the
Company issues in book-entry form a Put or Call Option to the purchasing
Participant and simultaneously purchases a matching Put or Call Option, (as the
case may be) from the selling Participant, thereby ensuring that the Company's
Short Positions are at all times offset by corresponding Long Positions. The

Company undertakes performance of all obligations arising under these contracts
and, accordingly, the Company undertakes the settlement of premium obligations
and assumes the obligation to sell underlying Treasury Securities at the strike
price from the buyer of a Call Option upon the exercise of that Option and to
purchase underlying Treasury Securities at the strike price from the buyer of a
Put Option upon the exercise of that Option.

In addition to acting as issuer and undertaking the
performance of obligations relating to all transactions effected by Participants
with the Company, the Company performs the following functions. First, the
Company is responsible for admitting Participants. This responsibility entails
setting Participant admission criteria and determining whether applicants meet
such criteria. Second, the Company enforces its rules and Procedures. Third, the
Company sets Participant margin requirements, and Exposure limits. Fourth, in
accordance with its Procedures, the Company makes determinations concerning the
suspension of Participants and directs the liquidation of a suspended
Participant's position. Finally, the Company maintains a Credit Enhancement
Facility. See "DESCRIPTION OF THE OPTIONS BUSINESS - Credit Enhancement
Facility."

PROPERTIES

The Company leases its principal executive office space on the
33rd Floor of 525 Washington Blvd, in Jersey City, New Jersey. The leased
premises consist of approximately 5,348 square feet of office space and certain
leasehold improvements. The offices are leased under a lease which expires on
February 4, 2007. The lease agreement calls for the Company to make rental
payments totaling $1,551,000 over the next ten years.

LEGAL PROCEEDINGS

The Company has no pending legal proceedings.

INSURER

CapMAC is a New York-domiciled monoline stock insurance company

which engages only in the business of financial guarantee

<PAGE>

and surety insurance. CapMAC is licensed in 50 states in addition to the
District of Columbia, the Commonwealth of Puerto Rico and the territory of Guam.
CapMAC insures structured asset backed, corporate, municiple and other financial
obligations in the U.S. and international capital markets. CapMAC also provides
financial guarantee reinsurance for structured asset backed, corporate,
municipal and other financial obligations written by other major insurance
companies.

CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's), "AAA" by Standard & Poor's Corporation ("Standard &
Poor's"), "AAA" by Duff & Phelps Credit Rating Co.("Duff & Phelps") and "AAA" by
Nippon Investors Service Inc. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies.

CapMAC is wholly owned by CapMAC Holdings Inc. ("Holdings"), a
company that is owned by a group of institutional and other investors, including
CapMAC's management and employees.

Neither Holdings nor any of its stockholders is obligated to pay
any claims under any surety bond issued by CapMAC or any debts of CapMAC or to
make additional capital contributions.

CapMAC is regulated by the Superintendent of Insurance of the State
of New York. CapMAC is subject to regulation by the insurance departments of the
other jurisdictions in which it is licensed. CapMAC is subject to periodic
regulatory examinations by the same regulatory authorities.

CapMAC is bound by insurance laws and regulations regarding capital
transfers, limitations upon dividends, investment of assets, changes in control,
transactions with affiliates and consolidations and acquisitions. The amount of
exposure per risk that CapMAC may retain, after giving effect to reinsurance,
collateral or other security, is also regulated. Statutory and regulatory
accounting practices may prescribe appropriate rates at which premiums are
earned and the levels of reserves required. In addition, various insurance laws
restrict the incurrence of debt, regulate permissible investments of reserves,
capital and surplus, and govern the form of surety bonds.

CapMAC's obligations under the surety bonds may be reinsured. Such
reinsurance does not relieve CapMAC of any of its obligations under the Surety
Bonds.

The surety bonds are not covered by the property/casualty insurance
security fund specified in Article 76 of the New York Insurance Law.

<PAGE>

As at December 31, 1996, CapMAC had statutory qualified capital,
which consisted of statutory capital, unassigned surplus and contingency
reserves of approximately $260 million. Article 69 of the New York State
Insurance Law requires CapMAC to establish and maintain the contingency reserve,
which is available to cover claims under surety bonds issued by CapMAC.

In addition to its statutory qualified capital and other
reinsurance arrangements available to pay claims under its surety bonds, CapMAC
has a "stop-loss" reinsurance treaty with Mitsui Marine and Fire Insurance Co.,
Ltd,.("Mitsui") which indemnifies CapMAC for up to $50 million of incurred
losses above $100 million. Effective January 1, 1997 the stop-loss reinsurance
coverage increased to $75 million in excess of incurred losses above $150
million increasing annually based on increases in CapMAC's statutory qualified
capital. The new stop-loss reinsurance is provided by Mitsui, AXA Re Finance
S.A., and Munchener Ruckversicherungs-Gesellschaft.

CapMAC also has available a $150,000,000 standby corporate
liquidity facility (the "Liquidity Facility") provided by a syndicate of banks
rated A1+/P1 by Standard & Poor's and Moody's, respectively. The Liquidity
Facility is currently scheduled to expire in September, 1999 and may be extended
from time to time. Under the Liquidity Facility CapMAC will be able, subject to
satisfying certain conditions, to borrow funds from time to time in order to
enable it to fund any claim payments or payments made in settlement or
mitigation of claims payments under its surety bonds, including the Surety
Bond(s).

The following financial data is derived from audited financial
statements of CapMAC, prepared in accordance with generally accepted accounting
principles, for the period ended December 31, 1996. Copies of CapMAC's financial
statements prepared in accordance with statutory accounting standards, which
differ from generally accepted accounting principles, and filed with the
Insurance Department of the State of New York are available upon request. CapMAC
is located at 885 Third Avenue, New York, New York 10022, and its telephone
number is (212) 755-1155.

<PAGE>

(In millions of dollars)

<TABLE>
<CAPTION>
Year Ended
Income Statement December 31, 1996
---------------- -----------------
<S> <C>
Net Premiums Earned $ 40.6
Net Investment Income 17.0
Net Realized Capital Gains 0.2
Fees 0.1
Expenses 27.3
Income Taxes 8.6
Net Income 22.1

Balance Sheet December 31, 1996
------------- -----------------
Cash 0.4
Investment 314.7
Deferred Acquisition Costs 45.4
Other Assets 33.9
Total Assets 394.3
Unearned Premiums 68.3
Other Liabilities 36.6
Total Liabilities 104.8
Stockholders' Equity 289.5
Total Liabilities and
Stockholders' Equity 394.3
</TABLE>

<PAGE>

FEDERAL INCOME TAX CONSEQUENCES

Participants are expected to be dealers in securities, banks,
insurance companies, tax-exempt entities, regulated investment companies and
other entities that are subject to special federal income tax regimes. The
federal income tax consequences to any such Participant of acquiring, writing,
holding or disposing of Options will depend upon the particular circumstances of
such Participant. Participants should consult their own tax advisors with
respect to the federal, state, local and foreign tax consequences arising from
acquiring, writing, holding or disposing of the Options.

PLAN OF DISTRIBUTION

The Company issues Put and Call Options and interposes itself
in each transaction-acting as writer to each Purchasing Participant and as the
purchaser of a Matching Put or Matching Call from each Writing Participant. The

Options business is designed to facilitate the clearance of Put and Call Options
on Treasury Securities.

Participants processing Options transactions through the
Company are assessed clearing agency fees, in addition to any fines for the late
payment of margin or for other violations of the Procedures. There are no
commissions or fees payable in connection with the admission of Participants by
the Company.

LEGAL MATTERS

The legality of the Put and Call Options have been passed upon
for the Company by Morgan, Lewis & Bockius, 101 Park Avenue, New York, New York
10178, special counsel to the Company.

EXPERTS

The statement of financial condition of the Company as of
December 31, 1996, and the related statement of operations, changes in
stockholders' equity and cash flows for the year then ended included in this
prospectus have been audited by Deloitte &

<PAGE>

Touche LLP, independent auditors, as stated in their report appearing herein,
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing. Additionally, the
statement of financial condition of the Company as of December 31, 1995, and the
related statements of operations, changes in stockholders' equity and cash flows
for each of the years in the two-year period ended December 31, 1995 included in
this prospectus have been audited by KPMG Peat Marwick LLP, independent
auditors, as stated in their report also appearing herein, and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing. See "CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE."

MARKET FOR THE COMPANY's COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

The Company was originally capitalized by the sale of shares
of its Common Stock under an offering exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"). As a result,
there is no established trading market for the outstanding class of the
Company's Common Stock. As of April 25, 1997, 900,000 shares of the Company's
Common Stock were held by three stockholders. See "THE COMPANY - Principal
Stockholders." The Company has not entered into any arrangement or understanding
to issue options or warrants to acquire shares of the Company's Common Stock or
to register any shares of such Common Stock under the Securities Act. The
Company has paid no cash dividends since its formation and does not anticipate
the payment of dividends for the foreseeable future.

<PAGE>

SELECTED FINANCIAL DATA OF THE COMPANY

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:

Clearing Fees:

Repos $ 920,100 $ 337 $ -- $ -- $ --

Options 20,766 110,024 1,140,102 717,906 366,123

Interest income 280,220 343,604 289,663 261,620 305,014

Net Revenue 1,221,086 453,965 1,429,765 979,526 671,137

Operating expenses 3,242,670 1,517,561 959,120 831,663 745,043

Net income (loss) (2,021,584) (1,063,596) 470,645 147,863 (73,906)

YEAR-END BALANCES:

Total Assets 89,723,343 13,012,040 59,741,899 110,064,955 100,829,050

Margin payable 84,056,218 6,407,840 52,272,837 103,079,929 93,988,904

Long-term debt 800,000 -- -- -- --

Stockholders' Equity 4,329,987 6,351,571 7,415,167 6,944,522 6,796,659

PER COMMON SHARE DATA:

Income(loss) (2.24) (1.18) 0.52 0.16 (0.08)

Cash dividends declared -- -- -- -- --

Book value 4.81 7.06 8.24 7.72 7.55
</TABLE>

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The Company commenced operations on January 12, 1989 immediately
following the issuance of the Company's 17A Clearing Agency Order (the "Order")
by the Commission. Following the issuance of the Order, the Company commenced
solicitation of a number of qualified financial institutions as Participants. As
of December 31, 1996, 25 Participants were enrolled and authorized by the
Company for clearance and settlement of Repos transactions. Additionally, 36
Participants were enrolled and authorized by the Company for clearance and
settlement of Options transactions. This represents an increase in Repos
Participants of 16 and a decrease in Options Participants of 2 from December 31,
1995. This reflects the continued growth of the Company's Repos Participant base
and corresponding activity, and the removal of inactive Participants relative to
Options activity. While the success of the Repos product is still to be
determined, it has become the dominant business of the Company. The Company
continues to await approval from the Commission of a pending rule change filing
of its Procedures that will allow multiple IDBs to submit Options transactions
to the Company. Currently only one IDB is permitted to submit such transactions
directly to the Company for clearance. It is anticipated that once approved, the
Company's Options Business will increase.

For the year ended December 31, 1996, the Company cleared
approximately $2.9 trillion notional amount of matched Repos and issued 1,970
matched option contracts to Participants. On December 31, 1996, Participant's
cash and cash equivalents held for margin by the Company was $84,056,218. During
1996, the requirements of the Company for cash and cash equivalents held for
margin fluctuated from a high of $122 million to a low of $6 million due to
Participants' clearing activity.

For the years ended December 31, 1996 and 1995, the Company reported
total revenue of $1,221,086 and $453,965 respectively, reflecting an increase of
approximately 169% in 1996. This increase included an approximate 752% increase
in clearing fees to $940,866 from $110,361 in 1996 and 1995, respectively. Repos
clearing fees increased to $920,100 in 1996 from $337 in 1995, reflecting the
continued growth of the Repos business. Options clearing fees fell from $110,024
in 1995 to $20,766 in 1996. On April 17, 1996, the original and sole IDB for
Options trades submitted to the Company for clearance and settlement exited the
business. This action followed the departure of several of the IDB's experienced
options traders which occurred in September 1994. Although a new IDB
relationship was immediately established, the success of the Options business is
dependent on the ability of the Company to utilize multiple IDBs pursuant to a
pending rule change filing of its Procedures submitted to the

<PAGE>

Commission as mentioned above. Investment income of $280,220 in 1996 decreased
18% from $343,604 in 1995 as a result of lower available funds for investment.

Clearing expenses are comprised, principally, of fees payable to the
providers of the Company's CEF as well as fees charged by the Company's Clearing
Bank. The cost of the CEF does not vary significantly with the levels of
clearing activity or Participant enrollment, however, in October, 1995 the cost
of the CEF increased as a result of the Company's decision to enhance the CEF
from $100 million to $250 million to support the provision of clearing services
for Repos. The increased CEF resulted in a corresponding increase in cost of
approximately 80% in 1996 to $925,000 versus $515,208 in 1995 due primarily to
the maintenance of the increased facility for the entire year in 1996 versus
only four months of 1995. In November, 1995, the Company began utilizing a new
Clearing Bank. The terms of this new banking relationship call for fees
sensitive to the levels of clearing activity. In 1996, the Company incurred bank
charges of $191,793 versus $4,027 in 1995. This increase is due to the growth in
the Repos business.

Professional fees decreased approximately 5% to $435,677 in
1996 versus $457,413 in 1995. In 1995, the Company incurred significant costs to
effectuate regulatory rule filings with the Commission as the Company sought
approval for its Repos clearing activity. Additionally, in 1995, costs were
incurred during the transition of the Company's change of ownership, its
purchase of system hardware and software and several related contractual changes
that were effected during the year. These costs were not incurred in 1996.
However, the decrease in such professional fees were mitigated as the Company
has embarked on the development of several new products and has incurred
significant expense relative to other regulatory rule filings with the
Commission. In 1996 employee compensation and benefits increased by
approximately 187% to $1,127,891 versus $393,472 in 1995 as a result of an
increase in staffing. Occupancy costs increased approximately 407% to $124,171
from $24,500 in 1996 and 1995, respectively, as a consequence of an over
five-fold increase in the square footage of the Company's leased office space.
Depreciation increased approximately 358% from $27,072 in 1995 to $124,030 in
1996. This increase reflects the purchase by the Company of systems hardware and
software in October, 1995. Other expenses increased approximately 199% in 1996
to $286,905 from $95,869 in 1995. The increase reflects the additional costs to
the Company of supporting its Repos business.

For the year ended December 31, 1995, the Company cleared
approximately $2.4 billion notional of matched Repos, its first year of such
activity, and issued 3,945 matched option contracts to Participants. For the
years ended December 31, 1995

<PAGE>

and 1994, the Company reported total revenue of $453,965 and $1,429,765
respectively, reflecting a decrease of approximately 68% in 1995. This decrease
included an approximate 90% decrease in clearing fees to $110,361 from
$1,140,102 in 1995 and 1994, respectively, reflecting the continued effect of
several experienced options traders leaving the employ of the sole IDB
submitting Options trades for clearance to the Company. Such departures occurred
in September 1994. Additionally, clearing fees generated on the Repos business
were negligible in the Company's first year of such operation, generating $337.
On August 3, 1995 this IDB agreed to waive its exclusivity rights with respect
to the submission of Options trades to the Company. This waiver allowed the
Company to seek other IDBs to offer its Options clearing services and to
initiate the required rule change filing with the Commission as mentioned above.
Investment income of $343,604 and $289,663 in 1995 and 1994, respectively,
increased approximately 19% principally as a result of higher interest rates in
1995.

In October, 1995 the Company increased the CEF to $250 million from
$100 million to support the provision of clearing services for Repos. This
increase represents the only change in the CEF throughout 1995 and 1994. The
increase in clearing expenses of approximately 30% in 1995 to $519,235 versus
$400,000 in 1994 was due primarily to the increased CEF. Professional fees
increased approximately 165% to $457,413 in 1995 versus $172,169 in 1994. This
increase primarily reflects the costs to the Company to effectuate regulatory
rule filings with the Commission as the Company sought approval for its Repos
clearing business. Additionally, costs were incurred during the transition of
its change of ownership, the purchase of the Company's system hardware and
software, and several related contractual changes that were effected during the
year. In 1995 employee compensation and benefits increased by approximately 30%
to $393,472 versus $303,257 in 1994 as a result of an increase in staffing.

Liquidity and Capital Resources

The Company's liquidity is currently derived from two sources:
Liquidity for the clearance of Repos is provided through the Participants'
performance of their Repos agreements and, to the extent required, a liquidity
facility in the amount of $250 million provided by the Bank of New York. All
other liquidity needs are met through the Company's capital resources of
approximately $4.3 million obtained from the issuance of its Common Stock in
1989. Due to start up costs incurred during the introduction of Repos clearing
services, the Company's capital has been reduced. On September 30, 1996, the
Company received $800,000 of proceeds from the issuance of two (2) subordinated
notes: Intercapital Group Limited, in the amount of $651,000; and Dow Jones
Telerate

<PAGE>

Holdings, Inc., in the amount of $149,000. On February 20, 1997, an additional
subordinated note was issued and proceeds received by the Company in the amount
of $651,000 from Intercapital Group Limited. The Company expects that its
existing capital resources and subordinated debt proceeds will be sufficient to
meet its capital and liquidity requirements for the foreseeable future.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

On November 4, 1996, the firm of KPMG Peat Marwick was
dismissed as the principal accountant to audit the Company's financial
statements. Reports on the financial statements of the Company by KPMG Peat
Marwick LLP for the years ending December 31, 1995 and 1994, respectively, did
not contain any adverse opinion or disclaimer of opinion, and were not qualified
or modified as to uncertainty, audit scope, or accounting principles. The
decision to change accountants was approved by the Company's Board of Directors.
During the years ending December 31, 1995 and 1994, respectively, and for the
subsequent interim period, January 1, 1996 through November 4, 1996, there were
no disagreements with KPMG Peat Marwick LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.

On November 4, 1996, the firm of Deloitte & Touche LLP was
engaged as principal accountant to audit the Company's financial statements.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On September 30, 1996, for proceeds received, the Company
issued subordinated notes to Intercapital Group Limited, an affiliate of a
shareholder, for $651,000, and Dow Jones Telerate Holdings, Inc., a shareholder,
for $149,000. These amounts are payable on demand after September 30, 1997 and
bear interest payable at a rate equal to LIBOR for three month deposits of U.S.
dollars. At December 31, 1996, LIBOR was 5.625%. On February 20, 1997, the
Company issued an additional subordinate note to Intercapital Group Limited for
$651,000 under similar terms.

<PAGE>

Index to Financial Statements

<TABLE>
<S> <C>
Financial Statements Page

Independent Auditors' Reports

Deloitte & Touche LLP F-2
KPMG Peat Marwick LLP F-3

Statements of Financial Condition at December 31, 1996 F-4
and 1995

Statements of Operations, years ended December 31, 1996, F-5
1995 and 1994.

Statements of Cash Flows, years ended December 31, 1996, 1995 and 1994. F-6

Statements of Changes in Stockholders' Equity, years ended December 31,
1996, 1995 and 1994. F-7

Notes to Financial Statements F-8
</TABLE>

F-1

<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Delta Clearing Corp.:

We have audited the accompanying statement of financial condition of Delta
Clearing Corp. (the "Company") as of December 31, 1996, and the related
statements of operations, changes in cash flows and stockholders' equity for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1996 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.

Deloitte & Touche LLP

March 15, 1997
New York, New York

F-2

<PAGE>
Independent Auditors' Report

Board of Directors
Delta Clearing Corp.:

We have audited the accompanying statement of financial condition of Delta
Clearing Corp. as of December 31, 1995, and the related statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the two-year period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delta Clearing Corp. as of
December 31, 1995, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.

KPMG Peat Marwick LLP

March 15, 1996

F-3

<PAGE>

DELTA CLEARING CORP.

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
- -----------------------------------------------------------------------------------------------------------------------------------

ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,670,883 $ 559,802
Margin accounts of participants (Note 2) 84,056,218 6,407,840
Investments in U.S. Treasury securities,
at amortized cost (Note 3) 3,369,715 5,679,022
Prepaid expenses and other current assets 290,515 71,355
----------- -----------
Total current assets 89,387,331 12,718,019

OFFICE FURNITURE AND EQUIPMENT-At cost, net of
accumulated depreciation of $188,857 and $64,827 for
1996 and 1995, respectively 309,150 267,159

OTHER ASSETS 26,862 26,862
----------- -----------
TOTAL ASSETS $89,723,343 $13,012,040
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Margin payable (Note 2) $84,056,218 $ 6,407,840
Accounts payable and accrued expenses 480,845 252,629
Deferred revenue (Note 1) 56,293 --
----------- -----------
Total current liabilities 84,593,356 6,660,469
----------- -----------
SUBORDINATED BORROWINGS 800,000 --
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 1,000,000 shares authorized,
900,000 shares outstanding 9,000 9,000
Additional paid-in capital 8,991,000 8,991,000
Accumulated deficit (4,670,013) (2,648,429)
----------- -----------
Total stockholders' equity 4,329,987 6,351,571
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $89,723,343 $13,012,040
=========== ===========
</TABLE>

See Notes to Financial Statements.

F-4

<PAGE>

DELTA CLEARING CORP.

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1996 1995 1994

REVENUES:

Clearing fees:

Repurchase and reverse repurchase
agreements $ 920,100 $ 337 $ --
Options 20,766 110,024 1,140,102
Investment income 280,220 343,604 289,663
----------- ----------- ----------
Total revenues 1,221,086 453,965 1,429,765
----------- ----------- ----------

EXPENSES:

Clearing expenses 1,132,768 519,235 400,000
Employee compensation and benefits 1,127,891 393,472 303,257
Professional fees 435,677 457,413 172,169
Depreciation 124,030 27,072 8,064
Occupancy 124,171 24,500 12,000
Interest expense 11,228 -- --
Other 286,905 95,869 63,630
----------- ----------- ----------
Total expenses 3,242,670 1,517,561 959,120
----------- ----------- ----------

NET (LOSS) INCOME $(2,021,584) $(1,063,596) $ 470,645
=========== =========== ==========

NET (LOSS) INCOME PER SHARE OF
COMMON STOCK $ (2.24) $ (1.18) $ 0.52
=========== =========== ==========

See Notes to Financial Statements.

F-5

<PAGE>

DELTA CLEARING CORP.

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(2,021,584) $(1,063,596) $ 470,645
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating acitivities:
Accretion of interest on investments in
U.S. Treasury securities (220,676) (211,923) (19,417)
Depreciation 124,030 27,072 8,064
(Increase) decrease in prepaid expenses and
other current assets (219,160) (66,873) 46,558
Increase in deferred revenue 56,293 -- --
Increase in accounts payable and
accrued expenses 228,216 198,733 13,391
----------- ----------- -----------

Net cash (used in) provided by operating activities (2,052,881) (1,116,587) 519,241
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Purchases of U.S. Treasury securities (6,388,017) (8,728,480) (3,174,521)
Maturities of U.S. Treasury securities 8,918,000 10,260,000 2,800,000
Purchase of office furniture and equipment (166,021) (264,583) (31,422)
----------- ----------- -----------

Net cash provided by (used in) investing activities 2,363,962 1,266,937 (405,943)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subordinated debt 800,000 -- --
----------- ----------- -----------

NET INCREASE IN CASH 1,111,081 150,350 113,298

CASH, BEGINNING OF YEAR 559,802 409,452 296,154
----------- ----------- -----------

CASH, END OF YEAR $ 1,670,883 $ 559,802 $ 409,452
=========== =========== ===========

SUPPLEMENTAL CASH FLOWS DISCLOSURES:

Interest paid $ 11,228 $ -- $ --
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.

F-6

<PAGE>

DELTA CLEARING CORP.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------

Common
Stock Additional
($.01 Paid-in Accumulated
Par Value Capital Deficit Total

BALANCE, DECEMBER 31, 1993 $9,000 $8,991,000 $(2,055,478) $6,944,522
Net income - - 470,645 470,645
------- ---------- ----------- ----------

BALANCE, DECEMBER 31, 1994 9,000 8,991,000 (1,584,833) 7,415,167
Net loss - - (1,063,596) (1,063,596)
------- ---------- ----------- ----------

BALANCE, DECEMBER 31, 1995 9,000 8,991,000 (2,648,429) 6,351,571
Net loss - - (2,021,584) (2,021,584)
------- ---------- ----------- ----------

BALANCE, DECEMBER 31, 1996 $9,000 $8,991,000 $(4,670,013) $4,329,987
======= ========= =========== ==========

See Notes to Financial Statements.

F-7

<PAGE>

DELTA CLEARING CORP.

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Operations - Delta Clearing Corp. (the "Company"), a
clearing agency, registered pursuant to Section 17A under the Securities
Exchange Act of 1934, as amended, is a majority-owned subsidiary of INCAP
Netherlands (Holdings), B.V., which is a wholly owned subsidiary of
Intercapital Group Limited. Shares in the Company are also held by Dow Jones
Telerate Holdings, Inc. and Exco, plc. The Company was sold by DOTS, Inc.
and other minority shareholders to the current shareholders effective
October 18, 1995.

The Company is engaged in the clearance and settlement of transactions
involving U.S. Treasury securities sold under agreement to repurchase
("Repos") and securities purchased under agreement to resell ("Reverse
repos"). The Company began to offer these services during the fourth quarter
of 1995. The Company also issues and clears put and call options written on
U.S. Treasury securities. The Company, accordingly, acts solely as an
intermediary in principal transactions, running a "matched book".

The Company's customer base ("Participants") is limited to large,
well-capitalized financial institutions active in the over-the-counter
marketplace. Transactions are effected directly between such institutions or
through the services of specialized inter-dealer brokers ("IDBs"). IDBs
operate and maintain computer-supported communications facilities which
display and report transactions between and among the Company's
Participants. Such transactions are submitted to and subsequently cleared
and settled by the Company.

Clearing fee income - Clearing fee income is generated through the clearance
and settlement of transactions involving Repos, Reverse repos, and put and
call options. The Company recognizes income on all trades as earned. The
Company defers the recognition of revenue for the balance of term Repo and
Reverse Repo trades not yet elapsed.

Investment Income - Investment income is generated through interest earned
on the Company's investments in U.S. Treasury securities and other overnight
investment placement.

Clearing Expenses - Clearing expenses include the costs of issuance of a
surety bond provided by Capital Markets Assurance Corporation. During 1995,
to support the provision of clearing services for Repos and Reverse repos,
the Company increased coverage under the bond from $100 million to $250
million. The cost of the bond is being amortized over the respective
coverage period.

Depreciation - Depreciation is provided over the estimated service lives of
office furniture and equipment using the straight-line method for financial

reporting and accelerated depreciation methods for tax purposes.

Investment Securities - Investment securities consist of U.S. Treasury
securities. The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities ("SFAS No. 115") at January 1, 1994. Under SFAS No. 115,
the Company is required to classify its debt and equity securities in one of
three

F-8

<PAGE>

categories: trading, available-for-sale, or held-to-maturity. Pursuant to
SFAS No. 115, the Company has classified its investments as held-to-maturity
securities, as it has the ability and intent to hold the securities until
maturity. These securities are recorded at amortized cost, adjusted for the
accretion of discounts.

Income Taxes - The Company accounts for income taxes pursuant to the
provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("SFAS No. 109"). Under SFAS No. 109, income
taxes are accounted for using the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Reclassification - Certain amounts in the financial statements have been
reclassified for conformity with the current year presentation.

2. MARGIN ACCOUNTS OF PARTICIPANTS

Participants are required to deposit margin daily, in the form of cash or
U.S. Treasury securities, to secure the obligations of such Participants
arising under the Repos, Reverse repos, or options written by them. Margin
for each Participant is calculated daily to take into account any adverse
movement in the market price of underlying U.S. Treasury securities during
the business day, and an estimate (based upon historical market data) of the
most severe adverse movement in the market price of such U.S. Treasury
securities which reasonably could be anticipated to occur over the course of

the next succeeding business day. In addition, a Participant may be required
to deposit additional margin on an intra-day basis at any time such action
is deemed necessary and advisable under the circumstances to protect the
Company or the public.

Participant margin balances consisting of cash are invested in overnight
Repos or other overnight investment placement. To the extent cash is
invested in overnight Repos, the delivery of collateral consisting of U.S.
Treasury securities is required. Amounts earned on invested margin balances
are allocated among the Participants, less a fee charged by the Company for
investment services.

F-9

<PAGE>

3. INVESTMENTS IN U.S. TREASURY SECURITIES

Investments in U.S. Treasury securities are recorded at amortized cost and
consisted of the following at December 31, 1996 and 1995:

Name of Issuer Maturity Amortized Market
and Title of Securities Amount Cost Value Maturity

1996:
U.S. Treasury bills $3,435,000 $3,369,715 $3,371,603 1997
---------- ---------- ----------
$3,435,000 $3,369,715 $3,371,603
========== ========== ==========

1995:

U.S. Treasury note $ 500,000 $ 500,179 $ 499,690 1996
U.S. Treasury bills 5,300,000 5,178,843 5,187,799 1996
--------- --------- ---------

$5,800,000 $5,679,022 $5,687,489
========== ========== ==========

4. INCOME TAXES

At December 31, 1996, the Company had a net operating loss carryforward for
Federal income tax purposes of approximately $2,590,000. The tax loss
carryforward is available for offset of future taxable income through the
year 2011. Net operating loss carryforwards were utilized to offset the
provision for income taxes as of December 31, 1994. Deminimus taxes paid to
state and local authorities have been included within other expenses.

As of December 31, 1996 and 1995, net deferred tax assets, arising
principally from net operating loss carryforwards, have been reduced to
zero, offset by valuation allowances for the same amounts.

Through October 18, 1995, the Company filed consolidated Federal income tax
returns with its former parent, DOTS, Inc., and affiliated companies. The

tax benefit of the Company's net operating losses was absorbed by income
from other members of the DOTS, Inc. consolidated group prior to the sale of
the Company on October 18, 1995. As of October 19, 1995, the Company files
its own Federal income tax return. Additionally, the Company continues to
file separate state and local income tax returns for which net operating
loss carryforwards exist.

F-10

<PAGE>

5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET CREDIT RISK

The Company may be exposed to off-balance-sheet credit risk in the event a
Participant fails to fulfill its contracted obligations and its margin on
deposit is insufficient. To control this risk, the Company collects, on a
daily or intra-day basis, margin from Participants who enter into Repos or
Reverse repos or write option contracts which is deemed sufficient to cover
adverse movements in the value of these positions. To further control this
risk, the Company enforces compliance with its clearing agency procedures
(the "Procedures"), which mandate regulatory and internal guidelines,
control maximum system exposure and establish Participant capital adequacy
standards and exposure limits.

Additionally, the Company has obtained a credit enhancement facility,
composed of a $250 million surety bond issued by Capital Markets Assurance
Corporation (with maximum coverage of any Participant equal to $30 million),
to secure payment of the obligations owed to the Company by a Participant in
the event of a failure by a Participant in connection with any financial
deficiency associated with the liquidation of a Participant account with
regard to such Participant's default. The credit enhancement facility
provides an added measure of protection for the Company and is not a
requirement under Section 17A of the Securities Exchange Act of 1934. Under
the credit enhancement facility agreement, the Company is required to
maintain a net worth (excess of all assets over all liabilities, excluding
up to $2 million of subordinated notes issued to shareholders of the
Company) of $5 million. Under the terms of the Procedures, each Participant
account is a party to the credit facility and the Company is the
beneficiary. Accordingly, any reimbursement obligation arising as a
consequence of a draw under the credit enhancement facility becomes the
obligation of the individual defaulting Participant. The credit enhancement
facility expires on January 27, 2000.

The Company is not subject to market risk with respect to Repos or Reverse
repos issued or purchased or sold option contacts.

At December 31, 1996 and 1995, the Company had a matched book of Repos and
Reverse repos with notional amounts of $13,935 million and $126 million
respectively. At December 31, 1996 and 1995, the Company had issued
outstanding matched put and call options on U.S. Government securities with
notional amounts of $100 million and $75 million, respectively.

6. COMMITMENTS

On October 18, 1995, the Company purchased various software and hardware
relating to the operation of its clearing business (the "Platform") from
Exco RMJ Trading (a subsidiary of Exco, plc.) for $250,000. This amount is
included in office furniture and equipment on the statements of financial
condition. As additional compensation for its purchase of the Platform and
in consideration for an agreement from Exco RMJ Trading not to compete with
the Company, the Company agreed to pay 20% of its pre-tax operating income
(exclusive of interest income) for five full fiscal years from the date of
purchase and certain other amounts up to an additional maximum price of
$2.25 million.

F-11

<PAGE>

In December 1995, the Company entered into a real estate lease agreement.
The lease agreement became effective on April 5, 1996. Future minimum rental
commitments required under this lease are presented below:

Minimum
Rental
Year Commitments
---- -----------
1997 $ 143,000
1998 143,000
1999 143,000
2000 143,000
2001 143,000
Thereafter 836,000
----------
$1,551,000
==========

The Company incurred rent expense of $119,000, $21,000, and $9,000 for the
years ended December 31, 1996, 1995, and 1994, respectively.

7. RELATED PARTY TRANSACTIONS

In 1996, the Company paid management consulting fees of $32,000 to
Intercapital Group Limited. During the years ended 1995 and 1994 the Company
paid occupancy expenses of $7,000 and, $12,000, respectively, to Exco RMJ
Securities Corp. and management fees of $9,000 and $12,000, respectively, to
Cawsl Corp, a majority shareholder of DOTS, Inc.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

Substantially all financial instruments on the Company's balance sheet are
carried at fair value or at amounts which approximate fair value.

F-12

<PAGE>

9. SUBORDINATED BORROWINGS:

At December 31, 1996, the Company had subordinated borrowings with
affiliates as follows:

Affiliate Amount Outstanding
--------- ------------------
Intercapital Group Limited $651,000
Dow Jones Telerate Holdings, Inc. 149,000
--------
$800,000
========

These amounts are payable on demand after September 30, 1997, and bear
interest payable equal to the London Interbank Offered Rate ("LIBOR") for
three month deposits of U.S. dollars. At December 31, 1996, LIBOR was
5.625%.

10. SUBSEQUENT EVENTS:

On February 20, 1997, the Company obtained additional subordinated
borrowings of $651,000 from Intercapital Group Limited.

******

F-13

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

<TABLE>
<CAPTION>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<S> <C>
3(a) - Amended Certificate of Incorporation of the
Company. *
(b) - By-laws of the Company. *
4(a) - Form of Participation Agreement. *
(b) - Procedures. *
(c) - Summary of Amendments to Procedures dated
March 3, 1993. *
5 - Opinion and consent of Morgan, Lewis &
Bockius, special counsel for the Company. *
10(a) - [omitted]
10(b) - Insurance Agreement including Surety Bond. *
(b-1) - Amendment to Insurance Agreement.
[incorporated by reference to Form 10-K for
the fiscal year ended December 31, 1989,
Exhibit 7]. *
(b-2) - Amendment Number 2 to the Insurance Agreement
[incorporated by reference to Form 10-K for
the fiscal year ended December 31, 1990,
Exhibit 10(b-1)]. *
(b-3) - Amendment Number 3 to Insurance Agreement
[incorporated by reference to Form 10-K for
the fiscal year ended December 31, 1991,
Exhibit 10(b-1)]. *
(b-4) - Special Amendment to Surety Bond. *
(b-5) - Amended and Restated Insurance Agreement
including Surety Bond. *
(b-6) - Amendment to Insurance Agreement dated
October 13, 1992. *
(b-7) - Amendment to Surety Bond dated October 13,
1993. [incorporated by reference to Form 10-K
for the fiscal year ended December 31, 1993,
Exhibit 10(b-1)] *
(b-8) - Amended and Restated Insurance Agreement
including Surety Bond dated as of June 1,
1992 [incorporated by reference to Form 10-K
for the fiscal year ended December 31, 1994,
Exhibit 10(b-1)]. *
(b-9) - Amendment to Surety Bond dated October 13,
1994. [incorporated by reference to Form 10-K
for the fiscal year ended December 31, 1994,
Exhibit 10(b-2)] *
(b-10) - Second Insurance Agreement including Surety
Bond dated as of October 24, 1995

[incorporated by reference to Form 10-K for
the fiscal year ended December 31, 1995,
Exhibit 10(b-3)]. *
(b-11) - First Amendment to Second Insurance Agreement
dated as of September 25, 1996 [incorporated
by reference to Form 10-K for the fiscal year
ended December 31, 1996, Exhibit 10(b-4)]. *

II-1
<PAGE>

(b-12) - Amendment to Surety Bond dated October 14,
1996. [incorporated by reference to Form 10-K
for the fiscal year ended December 31, 1996,
Exhibit 10(b-5)] *
10(c) - Form of Amended and Restated Operating and
Brokerage Services Agreement Relating to the
Over-the-Counter Options Trading System, by
and among An IDB Securities Corp., An IDB
Options Trading Corp., Delta Government
Options Corp., SPC Securities Services Corp.
and Security Pacific National Trust Company
(New York). *
(c-1) Letter, dated February 3, 1994, amending ce
rtain terms of the Amended and Restated
Operating and Brokerage Services Agreement
referred to in(c) above. *
10(d)- Stock Purchase Agreement dated September 15,
1995 by and among Intercapital Group Limited
and DOTS, Inc., SMG Options Corp. And Delta
Government Options Corp. [incorporated by
reference to Form 10-K for the fiscal year
ended December 31, 1995, Exhibit 10(d)]. *
23 - Consent of Deloitte & Touche LLP (contained
in Part II of Registration Statement). **
Consent of KPMG Peat Marwick LLP (contained
in Part II of Registration Statement). **
Consent of Morgan, Lewis & Bockius is
included in the opinion referred to in
Item 5 above. *
24 - Powers of Attorney of directors and officers
of the Company. *
</TABLE>

- ------------------
* Previously filed.
** Filed herewith.

II-2

<PAGE>

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

1. To file, during any period in which offers or sales are being
made, a post-effective amendment to the registration statement:

(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the registration statement;

(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.

2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of such
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, such
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.

II-3

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant, Delta Clearing Corp., has duly caused this amendment to
its registration statement to be signed on its behalf by the
undersigned thereunto duly authorized on April 25, 1997.

DELTA CLEARING CORP.

By: Stephen K. Lynner \s\
----------------------------
Stephen K. Lynner
President

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THIS AMENDMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATE INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>

Stephen K. Lynner \s\
- ------------------------- DIRECTOR AND PRESIDENT April 25, 1997
Stephen K. Lynner

Hans Angermueller \s\
- ------------------------- DIRECTOR AND CHAIRMAN April 25, 1997
Hans Angermueller OF THE BOARD

Michael Spencer \s\
- ------------------------- DIRECTOR April 25, 1997
Michael Spencer

Julian Childs \s\
- ------------------------- DIRECTOR April 25, 1997
Julian Childs

- ------------------------- DIRECTOR April 25, 1997
Peter Edge

David Gelber \s\
- ------------------------- DIRECTOR April 25, 1997
David Gelber

John Grebenstein \s\
- ------------------------- DIRECTOR AND April 25, 1997
John Grebenstein EXECUTIVE DIRECTOR

Michael L. Hein \s\
- ------------------------- DIRECTOR April 25, 1997
Michael L. Hein

II-4

<PAGE>

Ronald H. Buckner \s\
- ------------------------- CHIEF FINANCIAL OFFICER April 25, 1997
Ronald H. Buckner AND CONTROLLER

Declan Kelly \s\
- ------------------------- SECRETARY April 25, 1997
Declan Kelly
</TABLE>

II-5

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
<S> <C>

3(a) - Amended Certificate of Incorporation of the Company. *
(b) - By-laws of the Company. *
4(a) - Form of Participation Agreement. *
(b) - Procedures. *
(c) - Summary of Amendments to Procedures dated
March 3, 1993. *
5 - Opinion and consent of Morgan, Lewis & Bockius,
special counsel for the Company. *
10(a) - [omitted]
10(b) - Insurance Agreement including Surety Bond. *
(b-1) - Amendment to Insurance Agreement. [incorporated by
reference to Form 10-K for the fiscal year ended
December 31, 1989, Exhibit 7]. *
(b-2) - Amendment Number 2 to the Insurance Agreement
[incorporated by reference to Form 10-K for the
fiscal year ended December 31, 1990, Exhibit 10(b-1)]. *
(b-3) - Amendment Number 3 to Insurance Agreement
[incorporated by reference to Form 10-K for the
fiscal year ended December 31, 1991, Exhibit 10(b-1)]. *
(b-4) - Special Amendment to Surety Bond. *
(b-5) - Amended and Restated Insurance Agreement including
Surety Bond. *
(b-6) - Amendment to Insurance Agreement dated October 13,
1992. *
(b-7) - Amendment to Surety Bond dated October 13, 1993.
[incorporated by reference to Form 10-K for the
fiscal year ended December 31, 1993, Exhibit 10(b-1)] *
(b-8) - Amended and Restated Insurance Agreement including
Surety Bond dated as of June 1, 1992 [incorporated
by reference to Form 10-K for the fiscal year ended
December 31, 1994, Exhibit 10(b-1)]. *
(b-9) - Amendment to Surety Bond dated October 13, 1994.
[incorporated by reference to Form 10-K for the
fiscal year ended December 31, 1994, Exhibit 10(b-2)] *
(b-10)- Second Insurance Agreement including Surety Bond
dated as of October 24, 1995 [incorporated by
reference to Form 10-K for the fiscal year ended
December 31, 1995, Exhibit 10(b-3)]. *
(b-11)- First Amendment to Second Insurance Agreement dated
as of September 25, 1996 [incorporated by reference
to Form 10-K for the fiscal year ended
December 31, 1996, Exhibit 10(b-4)]. *
(b-12)- Amendment to Surety Bond dated October 14, 1996.
[incorporated by reference to Form 10-K for the

fiscal year ended December 31, 1996, Exhibit 10(b-5)] *
10(c) - Form of Amended and Restated Operating and Brokerage
Services Agreement Relating to the Over-the-Counter
Options Trading System, by and among An IDB Securities
Corp., An IDB Options Trading Corp., Delta Government
Options Corp., SPC Securities Services Corp. and
Security Pacific National Trust Company (New York). *

II-6

<PAGE>

(c-1) - Letter, dated February 3, 1994, amending certain terms
of the Amended and Restated Operating and Brokerage
Services Agreement referred to in 10(c) above. *
23 - Consent of Deloitte & Touche LLP. II-8
Consent of KPMG Peat Marwick LLP. II-9
Consent of Morgan, Lewis & Bockius is included in the
opinion referred to in Item 5 above. *
24 - Powers of Attorney of directors and officers of the
Company. *
</TABLE>

------------------
* Previously filed.
** Filed herewith.

II-7

<PAGE>

EXHIBIT 23

INDEPENDENT AUDITORS CONSENT

We consent to the use in this Post-Effective Amendment No. 7 to
Registration Statement No. 33-21409 of Delta Clearing Corp. of our
report dated March 15, 1997 appearing in the Prospectus, which is a
part of such Registration Statement, and reference to us under the
heading "Experts" in such Prospectus.

/s/ DELOITTE & TOUCHE LLP

May 5, 1997
New York, New York

II-8

<PAGE>

EXHIBIT 23

Consent of Independent Auditors

Board of Directors
Delta Clearing Corp.:

We consent to the use of our report dated March 15, 1996, relating to the
statement of financial condition of Delta Clearing Corp. as of December
31, 1995 and the related statements of operations, changes in
stockholders' equity and cash flows for each of the years in the two-year
period ended December 31, 1995, included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.

/s/ KPMG PEAT MARWICK LLP

New York, New York
May 5, 1997

II-9