How Is Novation Handled in the Context of an Options Clearing Corporation (OCC)? ▴ Learn

How Is Novation Handled in the Context of an Options Clearing Corporation (OCC)?

The Options Clearing Corporation (OCC) acts as the CCP for listed options contracts. When an option trade is executed on an exchange, the OCC steps in as the obligor to both the buyer (holder) and the seller (writer).

The OCC guarantees that the holder can exercise their right and that the writer will fulfill their obligation, effectively using novation to eliminate counterparty risk.

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