OCC

The OCC, short for the Options Clearing Corporation, is the clearinghouse that stands behind every listed options contract traded in the United States. When a trader buys or sells an option through a US exchange, the OCC becomes the buyer to every seller and the seller to every buyer, a role known as being the central counterparty. This structure means neither side of an options trade has to worry about whether the other party will actually deliver on the contract, because the OCC itself guarantees performance.

The OCC also handles the operational machinery behind options trading, including issuing every listed option contract, matching exercise notices with assignments, processing settlement when contracts are exercised or expire, and enforcing the margin requirements that clearing members must post to protect the system. It performs the same central clearing function for listed options that a futures clearinghouse performs for futures contracts, absorbing the risk that any single trader or broker defaults.

For an individual investor, the OCC operates invisibly in the background, but it is the reason options trading on US exchanges is considered reliable even though the two sides of any given trade are usually strangers to each other. Because contracts are standardized and cleared through the OCC rather than negotiated directly between two parties, options can be bought and sold freely on an exchange with a level of counterparty safety that a private, uncleared derivatives agreement would not have.