Which method does the Options Clearing Corporation use in assigning exercise notices?

The Options Clearing Corporation (OCC) uses random selection as the method for assigning exercise notices. This approach ensures that each member firm holding long positions in options contracts has an equal chance of receiving the exercise notice, which helps maintain fairness and efficiency in the options market.

Random selection minimizes the potential for manipulation or favoritism that might occur if exercise notices were allocated based on other criteria, such as the size of the position or the order in which requests were made. The OCC's adherence to random assignment of exercise notices reinforces the integrity of the options marketplace and upholds fair trading practices.

Other methods, such as first-in, first-out or assignment based on the largest position, could create biases in the exercise process. Additionally, awarding exercise notices to the firm that first requests an exercise could disadvantage those who may not have the capacity to act quickly, undermining the objective of equitable access to exercise opportunities.