5.2.2 Options Trading
Unlike the stock market, where a company decides to raise capital by issuing its own stock, securities issuers have nothing to do with the creation or execution of an option on their securities. The decision to list a security in the options market is the exclusive work of a committee of members of the Chicago Board Options Exchange and similar committees on the other options exchanges. These committees decide which securities qualify to be optioned without any input from the issuing company.
Once an options exchange has selected an equity security to be listed for options trading, it must notify the Options Clearing Corporation of its selection. The OCC will notify the submitting exchange(s) of its decision to issue and guarantee the security for trading.
Once a security is listed on an exchange, customers can place their orders with their brokers, who fill out order tickets and send them to the exchange. The conventional options exchanges operate in a similar way to the stock exchanges. A floor broker is assigned to execute the trade by auctioning the order in the presence of the market maker registered to trade that option. If no other floor broker is taking the other side of the trade at the desired price (premium), the market maker can complete the transaction from its own account.
Since 2000, when the International Securities Exchange registered as an automated options exchange, several electronic exchanges joined the party, including BATS, BOX, and Miami International. Like NASDAQ, they are a fully automated, negotiated market, where a computer does the w