Corporate events & settlement
What is the process for over-the-counter (OTC) institutional options customization?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
OTC institutional options customization involves negotiating bespoke strikes, expirations, underlyings, or settlement terms directly between counterparties, typically banks and large funds, outside exchange-listed standardized contracts.
How it works
These agreements are documented under ISDA master agreements, carry direct counterparty credit risk, and are used for hedges that listed markets cannot replicate, such as exotic barriers or non-standard expiration dates.
An example
A corporation hedging a specific foreign currency receivable might negotiate an OTC FX option expiring on its exact invoice due date rather than a standard listed expiration.
Risk & limitations
OTC contracts lack OCC's central clearing guarantee, exposing both parties to counterparty default risk unless collateralized under ISDA credit support annexes.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.