OCC Receives SEC Approval of New Capital Management Policy

January 27, 2020
Chicago -

OCC, the world's largest equity derivatives clearing organization, today announced that it received regulatory approval of its new capital management policy by the U.S. Securities and Exchange Commission (SEC).

"We appreciate the work by the SEC Commissioners and staff to approve our new capital management policy," said Scot Warren, Chief Operating Officer. "We also greatly benefited from the feedback we received from our clearing member firms and other market participants. This policy will ensure OCC maintains appropriate financial resources to continue providing critical services to our participating exchanges, clearing member firms, and their customers in the unlikely event of a material operational loss."

Craig Donohue, OCC Executive Chairman, added, "We are pleased that the SEC has granted final approval of OCC's capital management policy. Capitalization sufficient to withstand a material operational loss is a critical component of OCC's role as a Systemically Important Financial Market Utility to reduce systemic risk, increase market transparency, and provide capital and operational efficiencies for the participants in the U.S. exchange-listed options, futures and securities lending markets."

OCC's new capital management policy addresses these core elements:

  • Provides OCC's approach to determining clearing fees inclusive of an operating margin based on the variance in daily volume;
  • Identifies the considerations made in determining OCC's level of target capital on an annual basis;
  • Describes how OCC will monitor its capital levels to identify whether OCC's capital has fallen or is in danger of falling below defined thresholds triggering further action; and
  • Establishes a replenishment plan for accessing additional capital should OCC's equity capital fall below those defined thresholds.

If OCC's capital is above 110 percent of its target plus approved capital for infrastructure needs, tools such as a fee holiday or clearing fee reduction may be used to lower or waive clearing fees to return to the 110 percent level plus approved capital needs.

In the event of a clearing member default, the amount of equity capital above 110 percent of the target capital requirement will be available to offset the loss after utilizing the margin and clearing fund contributions of the default clearing member, i.e., provide "skin-in-the-game." Additionally, OCC will contribute the funds held under its Executive Deferred Compensation Plan (EDCP), to the extent such funds are deposited on or after January 1, 2020 and in excess of amounts necessary to pay for benefits vested under the EDCP at such time, on a pro rata basis with clearing member fund contributions.

OCC CFO Amy Shelly noted, "We believe the inclusion of the EDCP funds is appropriate to strengthen the alignment between OCC's management and our clearing member firms to maintain the necessary level of pre-funded financial resources."

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