what is OCC/equity derivatives clearing?


I’ve been trying to figure it out and it’s clearly not my aptitude.

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When you want to buy or sell an options contract, there needs to be a middleman that will match you with the person you’re buying it from or selling it to, and who will facilitate that transaction (make sure you get an options contract that will be fulfilled should you want to execute it, and make sure the seller gets their premium). So in the US, that is the OCC: when you buy or sell a contract, you’re really buying it from or selling it to the OCC, and the OCC will buy or sell the other end to the other party of the transaction. This way if the other party goes bankrupt, your option is still good and will be honored and the OCC will eat the loss.

For example: I want to sell 5 apples. So I go to the market, and the market buys my 5 apples from me and gives me money for it, and then the market sells those 5 apples to another customer.