General Securities Representative (Series 7) Practice Exam

Who is responsible for clearing options trades once contracts are written?

1. The brokerage firm

2. The OCC

3. The Securities and Exchange Commission

4. FINRA

The correct answer is: The OCC

The responsibility for clearing options trades once contracts are written falls to the Options Clearing Corporation (OCC). The OCC acts as the central clearinghouse for options transactions, which means it facilitates the finalization of trades between buyers and sellers. This involves the processing of exercise and assignment, ensuring that the terms of the contract are met by the involved parties. By acting as a guarantor, the OCC helps decrease the counterparty risk associated with options trading. Essentially, once an options trade is made, the OCC steps in to solidify the transaction, holding the obligations of the buyer and seller until the trade is resolved, whether through exercise of the options or through subsequent trading. This central clearing mechanism streamlines the trading process, enhances liquidity, and provides stability to the options market. The other options, such as brokerage firms, the Securities and Exchange Commission (SEC), and FINRA, play different roles in the securities and options markets. Brokerage firms are primarily responsible for executing trades for their clients, while the SEC oversees and regulates the securities industry to protect investors. FINRA, a self-regulatory organization, oversees brokerage firms and their agents but does not involve itself in the actual clearing of trades, which is exclusively handled by the OCC.