Index options have slightly different exercise and assignment procedures compared to equity options. Firstly, while equity options are american-styled, index options can be either american-styled or european-styled. Secondly, unlike equity options where the underlying stocks have to change hands during settlement, index options are generally cash-settled whereby only cash is required to be transferred to settle the differences.
American style options allow the holder to exercise anytime before expiration while european style options can only be exercise during a certain predetermined exercise period, usually at the end of the option's lifespan.
On receiving an exercise notice, the Options Clearing Corporation (OCC) will, in accordance to established procedures, assign it to one or more Clearing Members who have short positions in the same series. In turn, the Clearing Members wil assign it to one of their customers.
Upon assignment, the index option writer has the obligation to pay the settlement amount in cash. Settlement usually occur on the next business day after the exercise.
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