The OCC or the Options Clearing Corporation has 3 major functions.It acts as the issuer, guarantor and the clearing entity of all exchange-traded equity options in the U.S.
The OCC is the clearing entity and the Issuer
After the trades are executed at the option exchanges, the option exchanges send these option trades to the OCC. Here, the OCC will process the trades. After that, the OCC will officially issue these option contracts. In this way, the OCC functions as an issuer of all exchange-traded equity option contracts in the U.S.
As the option contracts are process and issued, it no longer matters who the counterparty to the contract is. The link between option buyer/holder and writer is decoupled. This occurs through a legally binding process.
OCC as the guarantor
Once this occurs, the OCC or the Options Clearing Corporation takes the role of a guarantor. All exchange traded equity option contracts are guaranteed by the OCC. That simply means that the OCC is in charge of satisfying all obligations that arise from the sale and purchase of option contracts. In this way, there is no connection between the option buyer and the option writer. All option buyers or writers are free to close their positions without having any effect on the original party on the opposite side of the trade.