Legal regulation of the option contract
In the stock market
Option contract is an agreement gives holder the right to buy or sell an underlying asset, at a specified price , at a certain date or during a specified time period, in return premium paid to writer(issuer) -who gives the option to holder – of the contract .
This option is different form traditional options in terms, objectives , its content and its impact on the contract. The idea of an option contract on the philosophy that the expectations of the parties to the contract (Holder and writer) will be different to the price movements in the stock market, Holder of call option expected to rise in the price of an underlying asset- stock- he will conclude a call option , while Holder of put option is expected drop the price of an underlying asset. While writer-issuer- expects a decline in prices in an assets, so he will issued call option in the hope of getting Premier, While the expectation of rising prices he will issued put option .
Option contract is not binding for holder who loses premium ,if he dose not use the right option, while it is a binding to writer (issued) in the case of the use option .
This contract has specific characteristics , general and special ones. The general characteristics represented as a contract Consensual ,synallagmatique binding for both sides and contract netting to the presence versus option. The special characteristics represented as a securities , contracts of time successive , probability and standardizes.
The option contract is not one type, it is in terms of the method of use, either call option , put option or combination option . It is an underlying asset either the stock option or financial derivatives. Finally it in terms of the expiration date either American option or European option or capped option .
Jurisprudence differed in adapting the option contract, some of them tried to adjust it within the probabilistic contracts, while some have tried to adapt contracts within the primaries, but the air conditioning -which we hold- is independently option which meaning that a separate contract can not be subsumed within a civil contract ,because of it is characteristics and has a commercial character.
0pcion contract have three pillars. Consensual , which must verify the existence and authenticity .Object , which is the right option with a personal nature .Cause of hedging and speculating on the price differences, that the law requires it to be legitimate and present At the same time, otherwise the contract became null and void.
In addition to these pillars have to be conditions that do not enter into an option contract without it, some of which relates both parties of the option contract. While other require concluded in a regulated market by a licensed broker, finally the conditions relating to the contract option as securities, of the requirement to align the elements of an option contract. Other related stocks that missed option .
There are three stages conclude this contract, the first stage of issuing orders, the second announced, The Last, implementation by transfer option to holder.
The option contract like any other contract arranges commitments on both sides of the contract. Holder is committed to pay premium to get option, while writer is committed to provide guarantees represented by underlying asset –stock- , as well as other collateral called cover or margin. There are others commitments decided by the law to prevent illegal practices that may cause instability of the transactions in the market, which is not to manipulate prices , a commitment to the performance of the tax.
Legal centers arising from an option contract through clearing by clearing house , order to ensure a clearing and settlement in the required manner.
It should be remembered that the procedures clearing and settlement does not take place only after the use of the option by holder, which must check the terms, which is to be the use of the option through the deadline or when solutions, be in accordance with the specific procedures , finally, that the use of the option shall be final and non-fragmented.
When the emergence of any disputes relating to a contract option, the laws allowed mediated arbitration , which differed in determining nature of algebraic and optional.