The '34 SEC Act grants the President the power to shut down stock exchanges for no more than 90 days. How are options that expire during that kind of a closure handled?
Don't know. I know this happened... To prevent a stock market meltdown, the New York Stock Exchange (NYSE) and the Nasdaq did not open for trading on Tuesday morning, September 11, 2001. When American Airlines Flight 11 crashed into the North Tower of the World Trade Center at 8:46 a.m. and American Airlines Flight 175 hit the South Tower at 9:03 a.m., it was obvious that American was under attack. (For more, read Terrorism's Effects On Wall Street.) The assumption that a coordinated terrorist assault by Islamic radicals had targeted some of the country's most iconic structures and institutions was confirmed sometime later that morning when a plane hit the Pentagon, and a fourth hijacked plane bound for Washington, D.C., was brought down by passengers in Shanksville, PA. Market Reaction Anticipating market chaos, panic selling and a disastrous loss of value in the wake of the attacks, the NYSE and the Nasdaq remained closed until September 17, the longest shutdown since 1933. Moreover, many trading, brokerage, and other financial firms had offices in the World Trade Center and were unable to function in the wake of the tragic loss of life and collapse of both towers. On the first day of NYSE trading after 9/11, the market fell 684 points, a 7.1% decline, setting a record for the biggest loss in exchange history for one trading day. At the close of trading that Friday, ending a week that saw the biggest losses in NYSE history, the Dow Jones was down almost 1,370 points, representing a loss of over 14%. The Standard and Poor's (S&P) index lost 11.6%. An estimated $1.4 trillion in value was lost in those five days of trading.
So what happened to the Options that were set to expire during the closure of these exchanges? How did OCC handle them? They just expired uneventfully?
I've often wondered what happens when someone has a stroke (heart attack), and is in the hospital? It will take a while for their power of attorney (if they have one) to clear out their trades. If they die, it will take awhile for the estate to get the brokerage to change over the names and the accounts. Always have that exit strategy in place!!
They reopened the exchanges by expiration back then. No weeklies of unusual expirations back then. There are a number of remedies outlined in the risk disclosure document, but a lot would depend on what,if anything you could get open. No one ever reads the option risk disclosure document - everybody would be reading it that week.
I think the options that would expire during the closure of the exchange would still expire uneventfully. You won't be able to close your position of the option or buy new options during the closure that's for sure. But I think a more interesting question is what if you want to exercise your options if you are a holder of options? Is your exercise request going to be honoured even though the exchanges are closed? And if you have written options, are you going to be assigned? I guess the best people to ask these questions to is the OCC. They are the ones who handle all the transactions regarding Options, unless someone else know. @Robert Morse ?
Often Good Friday falls on the April expiration and they treat Thursday as the close. If it was closed for a sept 11th event, my guess is that they would let the options expire and there would be a ton of contrary intents.
Nothing on the President's powers, force majeure, or even insolvency. https://www.theocc.com/components/docs/riskstoc.pdf Searches for options during 9/11 only talk about put buying before the event. 3 months and less expiries don't look low systemic risk during these types of scenarios.
It's a contract. The rights of the holder and obligations of the writer survive closures and halts. I'm not aware of anything specific in the contract language that the rights are contingent upon an open and functioning market. But I am aware of people who were assigned or exercised after Sept 11 with some socks that went ex-div during that week. Just one of the many exciting risks you take on when you write options. And imagine how tough this question is if you're holding a spread so you're unsure if your short leg has been assigned (and you thought your risk was limited!)