OCC, the world's largest equity derivatives clearing organization, today released the following statement from Executive Chairman and Chief Executive Officer Craig Donohue regarding the U.S. Securities and Exchange Commission's decision on covered clearing agency rules.
"We are pleased the SEC has approved the clearing agency rules, as this was an important priority for OCC and the U.S. listed options industry. It also is a critical step toward an equivalency agreement between the SEC and the European Commission that will allow central counterparties such as OCC who are subject to SEC regulation to be eligible for recognition by the European Securities and Markets Authority and for attaining qualified central counterparty status for purposes of European capital regulation.
Recognition of U.S. central counterparties subject to the SEC's jurisdiction is important for OCC and market participants. It would allow European Union banks and their bank affiliates' exposure to those CCPs to be subject to a lower risk weight in calculating their regulatory capital. Without such recognition, a CCP cannot admit firms established in the EU to membership. It cannot clear for trading venues established in the EU nor can it clear products subject to the clearing mandate for market participants established in the EU. OCC's EU affiliate clearing members' risk weighted asset exposures to OCC would increase to over $75 billion from approximately $924 million, requiring them to maintain additional capital of approximately $5.25 billion.
Ultimately, the imposition of punitive capital charges on OCC's EU-bank affiliate clearing members will trickle down to exchanges and market participants and would adversely impact the entire marketplace. For example, if certain of these EU-bank affiliates could no longer serve as an OCC clearing member, other OCC market-making clearing members would not be able to absorb the impacted market makers. Liquidity provisions in the options markets could be significantly impacted, resulting in increased spreads, greater volatility, and higher trading costs for investors."