A Transaction on an OptionA Transaction on an OptionExchangeExchange
Buyer’s Broker’sFloor Broker
Buyer’s Broker’sClearing FirmBuyer’s Broker’sClearing FirmSeller’s Broker’sFloor Broker
1a 1bBuyer and seller instruct their respective brokers to conduct an option transaction.2a 2bBuyer’s and seller’s brokers request their firm’s floor brokers execute the transaction.3Both floor brokers meet in the pit on the floor of the options exchange and agree on a price.4Information on the trade is reported to the clearinghouse.5a 5bBoth floor brokers report the price obtained to the buyer’s and seller’s brokers.6a 6bBuyer’s and seller’s brokers report the price obtained to the buyer and seller.7a 7bBuyer deposits premium with buyer’s broker. Seller deposits margin with seller’s broker.8a 8bBuyer’s and seller’s brokers deposit premium and margin with their clearing firms.9a 9bBuyer’s and seller’s brokers’ clearing firms deposit premium and margin with clearinghouse.
2b5b1b6b7bNote: Eitherbuyer or seller(or both) couldbe a floor trader,eliminating thebroker and floorbroker.