Abstract/Summary

A stock market option contract is an agreement between an option holder and an option writer concerning the purchase or sale of specific assets, granting the option holder the right to choose (optional right). The parties involved in this contract are the clearing members and the clearinghouse. Investors wishing to transact in the stock market enter into multiple agreements with clearing members, who are authorised to trade on the stock market and submit all investor offers to other clearing members. Option contracts are formed by matching offers and acceptances, either electronically or face-to-face. The clearinghouse matches these offers, functioning as the option holder to the writer while simultaneously acting as the option writer to the holder. Option contracts provide the holder with the right to choose whether to purchase or sell the specified assets. If the holder exercises this right, the writer is obligated to comply, with no discretionary right of refusal. Conversely, the holder may choose not to exercise this right. In exchange for the risk assumed by the writer, the holder must pay an option premium. This paper analyses option contracts from a legal perspective, providing a critique of the operational framework within the stock market. It uncovers potential systemic flaws and regulatory gaps in stock market operations that threaten transparency, fairness, and investor protection.