p goldman, sachs & co. 85 broad street new york, new york 10004-2456 ortfolio margining risk disclosure statement


P
Goldman, Sachs & Co.
85 Broad Street
New York, New York
10004-2456
ortfolio Margining
Risk Disclosure Statement

Overview of Portfolio Margining
1. Portfolio margining is a margin methodology that sets margin
requirements for an account based on the greatest projected net loss
of all positions in a “security class” or “product group” as
determined by a model using multiple pricing scenarios. Pricing
scenarios for options are based on changes in inputs to a theoretical
pricing model, including the underlying price and volatility.
2. The goal of portfolio margining is to set levels of margin that
more precisely reflect actual net risk. The customer may benefit from
portfolio margining in that margin requirements that are calculated
based on net risk are generally lower than alternative “position” or
“strategy” based methodologies for determining margin requirements.
Lower margin requirements allow the customer more leverage in an
account.
Customers Eligible for Portfolio Margining
3. To be eligible for portfolio margining, customers (other than
broker-dealers or members of a national futures exchange) must be
approved for writing uncovered options. If a customer (other than a
broker-dealer or member of a national futures exchange) wishes to
trade in unlisted derivatives, the customer must have and maintain at
all times account equity of not less than five million dollars,
aggregated across all accounts under identical ownership at the
carrying broker-dealer and/or its United States regulated affiliated
broker-dealers or Futures Commission Merchants. This identical
ownership requirement excludes accounts held by the same customer in
different capacities (e.g., as a trustee and as an individual) and
accounts where ownership is overlapping but not identical (e.g.,
individual accounts and joint accounts). In addition to the
requirements of the self-regulatory organization rule, carrying
broker-dealers may have their own minimum equity requirement and
possibly other eligibility requirements.
Positions Eligible for a Portfolio Margin Account
4. All margin equity securities (as defined in Section 220.2 of
Regulation T of the Board of Governors of the Federal Reserve System),
warrants on margin equity securities or on eligible indices of equity
securities, equity-based or equity-index based listed options, and
security futures products (as defined in Section 3(a)(56) of the
Securities Exchange Act of 1934) are eligible to be margined in a
portfolio margin account. In addition, a customer that has an account
with equity of at least five million dollars may establish and
maintain positions in unlisted derivatives (e.g., OTC swaps, options)
on a margin equity security or an eligible index of equity securities
that can be priced by a theoretical pricing model approved by the
Securities and Exchange Commission (“SEC”).
Special Rules for Portfolio Margin Accounts
5. A portfolio margin account may be either a separate account or a
sub-account of a customer’s standard margin account. In the case of a
sub-account, equity in the standard account may be available to
satisfy any margin requirement in the portfolio margin sub-account
without transfer to the sub-account.
6. A portfolio margin account or sub-account will be subject to a
minimum margin requirement of $.375 for each listed option, unlisted
derivative and security futures product, multiplied by the contract’s
or instrument’s multiplier, carried long or short in the account.
Other eligible products are not subject to a minimum margin
requirement.
7. A margin deficiency in the portfolio margin account or sub-account,
regardless of whether due to new commitments or the effect of adverse
market movements on existing positions, must be met within three
business days. Failure to meet a portfolio margin deficiency by the
end of the third business day will result in a prohibition on entering
any new orders, with the exception of new orders that reduce the
margin requirement. Failure to meet a portfolio margin deficiency by
the end of the third business day will result in the prompt
liquidation of positions on the fourth business day, to the extent
necessary to eliminate the margin deficiency.
8. Any shortfall in aggregate equity across accounts, when required,
must be met within three business days. Failure to meet a minimum
equity deficiency by the end of the third business day will result in
a prohibition on entering any new orders, with the exception of new
orders that reduce the margin requirement, beginning on the fourth
business day and continuing until such time as the minimum equity
requirement is satisfied, or if applicable, all unlisted derivatives
are liquidated or transferred out of the portfolio margin account.
Special Risks of Portfolio Margin Accounts
9. Portfolio margining generally permits greater leverage in an
account, and greater leverage creates greater losses in the event of
adverse market movements.
10. Because the maximum time limit for meeting a margin deficiency is
shorter than in a standard margin account, there is increased risk
that a customer’s portfolio margin account will be liquidated
involuntarily, possibly causing losses to the customer.
11. Because portfolio margin requirements are determined using
sophisticated mathematical calculations and theoretical values that
must be calculated from market data, it may be more difficult for
customers to predict the size of future margin deficiencies in a
portfolio margin account. This is particularly true in the case of
customers who do not have access to specialized software necessary to
make such calculations or who do not receive theoretical values
calculated and distributed periodically by an approved vendor of
theoretical values.
12. Trading of margin equity securities, warrants on margin equity
securities or on eligible indices of equity securities, listed
options, unlisted derivatives on margin equity securities or an
eligible index of equity securities, and security futures products in
a portfolio margin account is generally subject to all the risks of
trading those same products in a standard securities margin account.
Customers should be thoroughly familiar with the risk disclosure
materials applicable to those products, including the booklets
entitled “Characteristics and Risks of Standardized Options” and
“Security Futures Risk Disclosure Statement”. Because this disclosure
statement does not disclose the risks and other significant aspects of
trading in security futures and options, customers should review those
materials carefully before trading these products in a portfolio
margin account.
13. Customers should consult with their tax advisers to be certain
that they are familiar with the tax treatment of transactions in
margin equity securities, warrants on margin equity securities or on
eligible indices of equity securities, listed options, unlisted
derivatives on margin equity securities or an eligible index of equity
securities, and security futures products, including tax consequences
of trading strategies involving both security futures and option
contracts.
14. The descriptions in this disclosure statement relating to
eligibility requirements for portfolio margin accounts, and minimum
equity and margin requirements for those accounts, are minimums
imposed under the self-regulatory organization rules. Time frames
within which margin and equity deficiencies must be met are maximums
imposed under the self-regulatory organization rules. Broker-dealers
may impose their own more stringent requirements.
15. Customers should bear in mind that the discrepancies in the cash
flow characteristics of security futures and certain options are still
present even when those products are carried together in a portfolio
margin account. In addition, discrepancies in the cash flow
characteristics of certain unlisted derivatives may also be present
when those products are carried in a portfolio margin account. Both
security futures and options contracts are generally marked to the
market at least once each business day. Similarly, certain unlisted
derivatives may also be marked to the market on a daily basis.
However, there may be incongruity between the marking to the market of
each eligible product in that marks may take place with different
frequency and at different times within the day. For example, when a
security futures contract is marked to the market, the gain or loss is
immediately credited to or debited from, respectively, the customer’s
account in cash. While a change in the value of a long option contract
may increase or decrease the equity in the account, the gain or loss
is not realized until the option is liquidated, exercised, or
assigned. Accordingly, a customer may be required to deposit cash in
the account in order to meet a variation payment on a security futures
contract even though the customer is in a hedged position and has
experienced a corresponding (but yet unrealized) gain on an option.
Alternatively, a customer who is in a hedged position and would
otherwise be entitled to receive a variation payment on a security
futures contract may find that the cash is required to be held in the
account as margin collateral on an offsetting option position.
The general provisions governing portfolio margining (including
definitions used in this document) are set forth in NYSE Rule 431(g),
which can be accessed on the NYSE’s website located at www.nyse.com.
BY SIGNING BELOW YOU AFFIRM THAT YOU HAVE READ AND UNDERSTOOD THE
PORTFOLIO MARGINING RISK DISCLOSURE STATEMENT AND ACKNOWLEDGE AND
AGREE THAT You WILL maintain with Goldman, Sachs & Co. a minimum net
equity equal to or exceeding the amount notified to you from time to
time by Goldman, Sachs & Co.
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For Goldman, Sachs & Co. use only
GSS Risk Approval:
Print Name of Risk Officer: _______________________
Signature :______________________________
Date: ______________________________
March 2008 PM-1

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