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OCC Continues To Clear the Path for the Exchange-Listed Options Industry

Traders Magazine Online News, April 5, 2018

John D'Antona Jr.

The following was shared to Traders Magazine - written by Craig Donohue, OCC Executive Chairman and Chief Executive Officer in the company's blogsite.


In 2017 OCC achieved a number of key milestones that position our company for continued resiliency, innovation and growth while providing our exchange partners, clearing firms, and market participants with open access and reliable central counterparty services with operational excellence.

OCC total cleared volume in 2017 was over 4.3 billion contracts, up four percent from 2016 and the third-highest year ever in our history. Cleared exchange-listed options rose three percent to 4.1 billion contracts, and cleared futures contracts grew by 32 percent to 138 million contracts, representing an increasingly diversified product mix. OCC's stock loan transaction business continued to attract market participants with 2.3 million new loan transactions in 2017, up 22 percent from a year ago.

Enhancing OCC's resiliency as a Systemically Important Financial Market Utility (SIFMU) is critical to our continued ability to reduce systemic risk, increase market transparency, and provide capital and collateral efficiencies for the users of the U.S. exchange-listed options markets.

We continue to work to reduce systemic risk across the global financial markets, particularly supporting the efforts of the SEC to improve the registered clearing entities. The SEC's reaffirmation in 2016 of our capital plan allows OCC to continue to comply with domestic and global regulatory requirements on sufficient liquid net assets.

Our solid financial positioning earned OCC a reaffirmation by Standard & Poor's of our AA+/Stable rating. S&P said OCC "enjoys large economies of scale and has ample capacity to absorb up to 2.5 times the largest historical trading volumes per day with the current OCC systems...In our opinion, operational risk receives an appropriate level of attention and resources, and is well managed (including technology and recovery centers)."

In 2017 under the leadership of OCC President and Chief Operating Officer John Davidson, we initiated the process to evaluate options for replacing our 20-year old Encore clearing platform and related infrastructure with a modularized system that will use an OCC-specific data model and warehouse. Upon completion, this project will deliver a more nimble and self-controlled system that will provide our clearing firms and partner exchanges with additional capabilities.

OCC takes great pride in its leadership role of working with policymakers on behalf of our industry. Along with the U.S. Securities Markets Coalition, OCC has established a robust dialogue with Members of Congress and their staff to educate them on various tax and regulatory proposals that could negatively impact individual investors and market participants who use the U.S. exchange-listed options markets to help manage their financial risk.

As a result of such efforts, the Tax Cuts and Jobs Act, signed into law on December 22, 2017, did not include a mark-to-market provision for derivatives. This is an important accomplishment for the exchange-listed options industry, and we remain committed to engaging in thoughtful discussion with our nation's leaders, lawmakers and regulators on the many critical issues facing the industry in 2018, including bank capital and risk-weighted asset rules.

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