Well, anyone can be sued...it's whether the case is summarily dismissed. But I digress. Also, had a thought in the interim that Fannie and Freddie are publicly traded but quasi governmental...all really a moot point because the above hypothetical is without precedent. If I was a betting man, I'd ask how large the bag they're left holding is. If it's a few contracts a few dollars ITM, your broker might pay and file it under customer consideration rather than risk litigation and regulatory action. If we're talking about millions and enough to mount a substantive defense, the question is a bit cloudy.
Your exercise notice might simply be rejected when your broker attempts to transmit it to the OCC and then they might simply send you a rejection notice. Again I would call Jim Binder at OCC. No option exchanges are involved in your assignment - it's pretty much between the sending/receiving brokerage house(s) and the OCC. No exchanges involved until the stock print and you can sue all of them,but you might want to review all the agreements in place. I suspect closing doesn't mean everyone goes home. Now if the closing is related to some damage to the infrastructure that could alter things. You send notice to your broker - they confirm it's valid and then transmit it to the OCC. Timing doesn't matter much as it all occurs after the close. The circuit courts have never looked kindly at overriding decisions made by the federally chartered SROs, but they have all been sued. In the case of the CBOE a really disgruntled member - unhappy with a regulatory decision - set fire to them.
That's the post I was trying to tease out of you! And SRO--that's the entity I was trying to remember. And here we go: http://lawreview.uchicago.edu/sites/lawreview.uchicago.edu/files/77-2-SRO Immunity-Nafday.pdf https://www.cato.org/blog/financial-regulators-are-not-above-constitution Yeah, but they also look really dimly on executive branch interference with contracts. And I'm not aware of any situation where it's come up before. And I suspect presenting the opportunity to test it in court is anathema to SROs and the SEC. But it's still a fun thought exercise to ask the hypothetical.
You may want to check the archive of OCC operational memos. I'll venture there is a memo that covers your situation.
Good points ! Why would you close the markets for 90 days ? It's always been in everyone's best interest to reopen markets as quickly as possible. IMHO even circuit-breakers disenfranchise one side of the trade. Fair and Orderly is the gold standard - if you can't maintain a FAO resolve your issues and get open as soon as is feasible. When they halt futures - they almost always leave the front options open for price discovery. Does removing discovery - as bad as it may be - instill confidence. You also have overseas surrogates for many products. I ran an options overlay in 87 and had my best quarter ever in the period following. In 89 when you had a similar market break it was shooting fish in a barrel. The SEC commissioners have a ton of emergency powers as well, but closing for an extended period serves what interest?
There isn't. My scenario (I didn't say this, but meant it) was for a restriction until and past expiration. The Characteristics and Risks disclosure is explicit the OCC nor SEC have ever done this. It's really a moot point for me, because I've been operating under the assumption I'm the one holding the bag in the event the exchanges are closed and I'm holding the options. I now know that's no entirely true and I've been pricing in a bit more risk than I needed (though that's negligible). Well, some powers only exist on paper until they're used and challenged in court. Also, here's the background from a fees hearing surrounding Spicer v CBOE (https://law.justia.com/cases/federal/district-courts/FSupp/844/1226/1523175/): TL;DR: Plaintiffs won $10m award against CBOE for CBOE's failure to disclose risks that were inherent to floor trading. 39% of which went to attorneys...
If you were an investor you got a postage stamp and a can of Pepsi. There was actually a small amount left in the class action settlement after the distribution. The CBOE and the plaintiff attorneys couldn't agree - at first - which University to gift the balance to. The dispute as to what to do with the balance carried on for weeks.
According to the jpg image @beerntrading posted earlier, it looks like even when trading is halted, exercising would still be permitted as long as the option was not expired DURING the market shutdown. It's just that everything would take place AFTER the exchange is opened. So the risk to the exerciser is that the exercising might not be profitable anymore cuz by the time when the option is exercised, the market price after the exchange is opened might be different from the price during the closure so if the market price has moved to/out of the favour of the holder depending on what the option is, the exercise might lose and it looks like the exercising is irrevocable.
I think the cash settlement would be easier as it's just an exchange of money and no physical delivery of any assets is involved. I think with cash settlement, the issue is the potential profitability from exercising, if I understood the .jpg image that @beerntrading posted earlier.