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Question

Difficulty: MediumDepositories, Clearing Corporations, and Settlement Entities

A retail investor exercises a listed call option contract to purchase shares of stock. Which entity acts as the central issuer and guarantor of the standardized option contract, ensuring financial performance even in the event of a clearing member default?

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

Answer

The Options Clearing Corporation (OCC) serves as the issuer and guarantor of standardized options contracts.
The Options Clearing Corporation (OCC) is the sole issuer and clearing organization for standard exchange-listed options contracts. By acting as the buyer to every seller and the seller to every buyer, the OCC guarantees the performance of option exercises regardless of member default.

Step-by-Step Solution

1
Identify the primary role requested in the scenario.
The scenario asks for the entity responsible for issuing options and guaranteeing contract performance upon exercise.
Understanding central clearinghouse roles is key to distinguishing clearing entities.
2
Evaluate the functional responsibilities of exchange entities.
The Options Clearing Corporation (OCC) clears, issues, and guarantees all exchange-listed option contracts, stepping between buyers and sellers via novation.
OCC novation eliminates counterparty risk for options market participants.

Key Concept

Options Clearing Corporation (OCC) roles and responsibilities
Estimated Time:1m 0s
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Topics

Depositories, Clearing Corporations, and Settlement Entities

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