Clearing and Settlement of Derivatives

Options processing 95

Exercise and assignment procedures

Having established which options are in-the-money and therefore

ready for possible exercise or assignment, the decision of the trader

or client is sought (Figure 5.7). There may be standing instructions

to exercise all in-the-money series but care must be taken with client

positions for the reasons given above.

It is good practice to have procedures that require option exercises

to be checked before submission and for an automatic daily check for

any assignments. Late notification of assignment to a trader or client

is not only embarrassing, but could be costly if other