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Difficulty: MediumDepositories, Clearing Corporations, and Settlement Entities

An investor purchases listed call options on a publicly traded stock through a broker-dealer. Unlike corporate securities issued directly by publicly traded companies, standardized exchange-traded options contracts require a central clearing entity to issue and guarantee contract performance. Which entity serves as the sole issuer and guarantor for all exchange-listed options contracts in the U.S. securities market?

  1. Options Clearing Corporation (OCC)Answer
  2. B
    Depository Trust Company (DTC)
  3. C
    Securities and Exchange Commission (SEC)
  4. D
    Executing broker-dealer

Answer

The Options Clearing Corporation (OCC) is the sole issuer and guarantor of all exchange-listed option contracts.
The Options Clearing Corporation (OCC) is the clearinghouse for all U.S. exchange-listed options. It acts as the buyer to every seller and seller to every buyer, guaranteeing contract performance and standardizing option terms across exchanges.

Step-by-Step Solution

1
Identify the market function described in the scenario.
The scenario describes the central issuing, clearing, and performance guarantee of standardized exchange-listed options contracts.
Exchange-listed options are standardized derivatives requiring a central counterparty to clear trades and guarantee exercise/assignment obligations.
2
Match the market function to the appropriate post-trade entity.
The Options Clearing Corporation (OCC) functions as the central counterparty, issuer, and guarantor for listed options.
DTC handles equity/bond custody, the SEC regulates the market, and broker-dealers act as intermediaries for customer trades.

Key Concept

Role of the Options Clearing Corporation (OCC) in options issuance and guarantee
Estimated Time:1m 0s
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Topics

Depositories, Clearing Corporations, and Settlement Entities

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