> (4) Counterparty risk. U.S. exchange-traded equity options are centrally cleared through the Options Clearing Corporation (the "OCC"). Whether the writer of a

> (4) Counterparty risk. U.S. exchange-traded equity options are centrally cleared through the Options Clearing Corporation (the "OCC"). Whether the writer of a contact pays up is irrelevant to the buyer - the OCC always pays everyone. I've always thought this is a pretty clever way of structuring a market. You have some entity at the top, who's responsible for making good on a certain type of contract. Since it has this responsibility, it will want to make sure that the companies that mediate the selling and buying of these contracts (brokers) are able to pay them, so they put whichever requirements in place needed to make sure that they are able to pay. Now these companies allow their customers to trade these contracts, and you can be sure that these companies will make sure that their customers can cover their obligations, cause if not, the company is forced to pay for the customer. This incentivizes the companies to make sure that their customers can pay. We could even imagine a fourth level, where customers sell contracts onto other people, and the customers would want to make sure that these other people are able to pay, or else it's the customers that risk losing money (not whoever buys the contract in the end). It just seems to me to be a nice way to build a well-functioning market: the incentives are in place for each participant to make sure they aren't exposed to excessive risk, or else their investors will lose their money and their employees their jobs.