Craig s. donohue
executive chairman and chief executive officer


On behalf of the Board of Directors and my fellow colleagues at OCC, I am pleased to share with you our 2017 annual report. Over the past year, the team achieved a number of key milestones that position OCC for continued resiliency, innovation and growth while strengthening our role as an industry leader and market influencer.

OCC's total cleared volume in 2017 was more than 4.3 billion contracts, a four percent increase from 2016 and the third highest cleared contract volume ever in our 44-year history. Our cleared exchange-listed options volume rose three percent to 4.1 billion contracts, while cleared futures contracts increased 32 percent to 138 million contracts, representing our increasingly diversified product mix. Our stock loan transaction business continued to attract market participants, with 2.3 million new loan transactions in 2017, up 22 percent from the prior year.

These numbers illustrate how OCC continues to deliver on its key services for our participant exchanges, clearing firms and market participants, and underscore our critical role as the world’s largest equity derivatives clearing organization.

In this year’s report, you will see how OCC enhanced its resiliency, strengthened its governance structure, furthered its role as an industry advocate in Washington, D.C., and started planning for the next generation of clearing technology. This demonstrative progress builds upon the solid foundation we have laid over the past three years to shape a culture of innovation and collaboration devoted to ensuring confidence in the financial markets and the broader economy.

read more

You also will learn about OCC's ongoing mission to provide high quality and efficient clearing, settlement and risk management services to investors and market participants in our role as the foundation for secure markets. This year’s report presents commentary from four prominent OCC stakeholders and market participants: Bill Brodsky, Chairman of Cedar Street Asset Management and former Chairman and Chief Executive Officer of Cboe (Chicago Board Options Exchange); Brian Lamb, Chief Executive Officer of EquiLend Clearing Services; Walt Lukken, President and Chief Executive Officer of FIA (Futures Industry Association); and Steve Sears, former Editor and Senior Columnist for Barron’s.

Furthering Our Emphasis on Resiliency

Enhancing our resiliency as a Systemically Important Financial Market Utility (SIFMU) is critical to our 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.

As a SIFMU, OCC is working diligently to reduce systemic risk across the global financial markets. Notably, we continue to work with and support the efforts of the U.S. Securities and Exchange Commission (SEC) to improve the regulation of registered clearing entities. OCC’s capital plan reinforces our overarching goal to remain a world-class clearing service for the financial industry. The capital plan, in effect since September 2015, continues to comply with the domestic and global regulatory requirements on sufficient liquid net assets.

“OCC takes great pride in
its leadership role of working
with policymakers on behalf
of our industry.”

Our solid financial positioning earned OCC a reaffirmation of our AA+/Stable rating by Standard & Poor's (S&P) in December 2017. S&P noted that 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).”

Given that technology is at the core of everything we do at OCC, we remain focused on this critical element of the organization. Under the leadership of John Davidson, our President and Chief Operating Officer, in 2017 we initiated a 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 lower our costs while providing our clearing firms and participating exchanges with additional capabilities.

Strengthening Our Governance and Management

No matter how strong your technology, it takes people with experience and vision to ensure our clearing, settlement and risk management services are the best anywhere in the world.

Our Board of Directors was further strengthened in 2017 with the additions of Member Directors Andrej Bolkovic, CEO of ABN AMRO Clearing Chicago; Kurt Eckert, Partner and Head of Market Structure, Wolverine Trading; Rachelle Keller, Chief Operating Officer for Prime, Futures and Securities Services at Citi; and Stephen Luparello, Managing Director and General Counsel, Citadel Securities. It is notable that Rachelle is now the fourth woman on OCC’s Board of Directors, as we reinforce our disciplined commitment to foster governance by distinguished professionals who offer diverse perspectives and extraordinary industry expertise. In addition, the following directors were re-elected to the OCC Board of Directors in 2017: Mark Dehnert, Managing Director, Goldman Sachs; Richard Lindsay, Managing Director, Windham Capital Management; and Eric Noll, President and CEO, ConvergEx Group. Eric Noll was replaced as a member of the OCC Board of Directors in September by Rachelle Keller.

Our management structure continued to evolve with several key leadership hires and promotions, most notably John Davidson, who joined OCC as President and Chief Operating Officer with more than 35 years of experience in global financial services. In addition to John, we attracted elite talent from prominent organizations including David Hoag, a technology executive with nearly 25 years of information systems and development experience, in a new role as Chief Information Officer; David Ridgway, a former senior risk management executive with BNY Mellon, who joined OCC as Senior Vice President, Enterprise Risk Management; and Amy McCormick, formerly with the National Futures Association, named as First Vice President, Financial Risk Management.

While cybersecurity has always been a vital part of our technology roadmap, today's global cyber ecosystem dictates that we increase our endeavors to safeguard the integrity of cleared markets. To address this extremely complex objective, we created a new position dedicated to delivering an ambitious and long-term cybersecurity vision for OCC, and named Mark Morrison, formerly with State Street Corporation and several government defense and security agencies, as Chief Information Security Officer. Mark’s 35 years of experience and leadership have helped OCC integrate information security best practices into our service offerings while lowering systemic risks. Thanks to the dedicated focus of Mark and his team, we have made significant strides in our cybersecurity environment on an accelerated pace and will continue to invest in this area in 2018.

Advocating For Our Industry

OCC takes great pride in its leadership role of working with policymakers on behalf of our industry. OCC and the U.S. Securities Markets Coalition have 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.

We are pleased that 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 in the bill. 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.

Our approach in Washington, D.C. is complemented by OCC’s industry influence as highlighted by our educational work through The Options Industry Council (OIC), whose contributions have been significant to the growth of the U.S. exchange-listed options markets. More than 222,812 individual options investors participated in OIC’s robust 2017 digital and live instructional programming while its team of professionals also delivered compelling unbiased options educational content to prominent industry partners, such as CFA Institute, Bloomberg, Blackrock, Morgan Stanley, Charles Schwab, E*Trade and ETF.com. In 2017, we took great pride in celebrating OIC’s 25th year of helping investors and market participants better understand the benefits and risks of exchange-listed options by providing them with free, unbiased educational content in order to promote responsible use of these risk management tools.

Closing Thoughts

We are proud of what OCC accomplished in 2017. Our collective efforts and teamwork have put OCC in a position to deliver more innovative products and services in the coming years. We remain committed to serving as the foundation for secure markets and in ensuring confidence in the financial markets and the broader economy. We will continue investing in solutions that enhance our resiliency and fortify our operational effectiveness as an independent risk manager. We will persist in proactive exploration of new business opportunities that complement our existing products and lower clearing and collateral costs for market participants.

Strengthening stakeholder relationships is paramount as we mature our leadership position in equity derivatives, futures, and securities lending. This stewardship allows OCC to further contribute to our industry’s growth, and most importantly, leads to the reduction of systemic risk in the global financial system.

 Craig S. Donohue

Craig S. Donohue
Executive Chairman and Chief Executive Officer






We are pleased to report that in 2017 OCC continued to offer world-class clearing, settlement and risk management services with operational excellence, while furthering our culture and technology transformation to better serve stakeholders and market participants.

We again saw volumes rise across each of our clearing lines of business. With the launch of MIAX PEARL in February, OCC now supports 15 U.S. equity options exchanges, three futures markets, and our industry-leading securities lending program. We invested in our people and added new capabilities, introduced new technologies and advanced our technology strategy aimed at creating greater efficiencies and lower costs for our participant exchanges, clearing firms and market participants. We are excited about the brand new office that our Dallas colleagues moved into last summer, and our soon-to-be new headquarters office in Chicago. Collectively, this focus emphasizes increased collaboration, interaction and innovation with our colleagues and market participants.

We are proud of our information technology team which has diligently worked on and supported our ENCORE clearing platform, that has served the industry well for more than 20 years. However, as we consider the evolving financial and regulatory landscape, we must ensure that OCC continues to serve market participants with industry-leading technology. Therefore, we have committed to replace ENCORE with new modular technology that provides more efficient and flexible solutions for our industry and market participants. We conducted a comprehensive requirements review of our current clearing operations with a thoughtful eye toward the future, and our team is energized by the monumental, multi-year task of transitioning to a new platform. This is one of the most exciting projects in OCC's history as the new platform will better meet the needs of our participant exchanges and clearing members.

read more

Technology initiatives extend to other areas of our business as OCC transforms to an increasingly nimble risk management organization. In 2017, we piloted our first public cloud project with a few core applications, and with the help of Appian, a low-code business process management platform, we improved several key processes such as onboarding members, our model development lifecycle, and implementing new products. This enables quicker updates and eliminates time-consuming manual practices across the organization.

“OCC’s continued transformation as
a market utility and industry influencer
reinforces our focus on building a
high-performance culture.”

Given our responsibility as a Systemically Important Financial Market Utility to safeguard the integrity of cleared markets, OCC proactively transformed its cybersecurity posture grounded in an intelligence-based methodology. This included implementation of critical controls and technologies required by the Securities and Exchange Commission's Regulation Systems Compliance and Integrity (Regulation SCI) rules, which monitor the security and capabilities of the U.S. securities market technology infrastructure. We also improved our cyber resilience, utilizing an Information Security Roadmap, which gives OCC a more holistic approach to protecting critical technology infrastructure.

2017 also realized significant investments in our risk management capabilities. We delivered an environment to support expanded stress testing and implemented a comprehensive risk management framework with standards documenting our risk models based on the requirements from The Office of The Comptroller of the Currency and the Federal Reserve Board. In addition, we bolstered our third-party risk management program, and renewed our $1 billion secured credit line agreement with the California Public Employees' Retirement System (CalPERS), the largest U.S. pension fund, for the third consecutive year. This action maintains OCC's access to credit facilities through an innovative approach as part of our $3 billion pool of diversified lenders.

Breaking new ground to promote product innovation is central to our role. In 2017, we supported the launch of 125 new derivatives products ranging from Bitcoin index futures to energy products. On December 10, we became the first clearinghouse to clear Bitcoin futures when Cboe Global Markets launched their new product. OCC played a critical role in the preparation and launch with an in-depth financial risk management analysis and back-testing regimen. We performed a comprehensive study of the various risks associated with this contract, including volatile periods in late 2013 and early 2014. We thoroughly tested our System for Theoretical Analysis and Numerical Simulations (STANS) margining methodology, which has proven very capable of handling the price volatility and other characteristics in underlying Bitcoin markets.

Supporting new innovative products also was reflected in our ongoing investment in securities lending technology. In May, we launched our partnership with EquiLend Clearing Services (ECS), a global securities finance trading platform and technology firm. This partnership brings greater access to clearing in the securities finance marketplace. By utilizing ECS’s platform and gateway, OCC facilitates all matched trades and lifecycle events for processing in the Market Loan Program on behalf of ECS and other loan markets. We believe such partnerships will help OCC continue to meet the growing needs of customers in this sector and propel our growth in the securities lending space. In 2017, our securities lending business grew 22 percent, following a gain of 37 percent in 2016.

The ongoing transformation of our culture and work environment featured the relocation of our colleagues in Texas to a 46,000-square-foot office in the Cypress Waters community in Dallas-Fort Worth area. The modern interior design was built to accommodate our current staff, and the open layout strengthens the team-oriented, collaborative approach we accelerated among our technology support, operations and data center teams. The results have exceeded our expectations of providing a great workspace for our colleagues and we expect to see a positive impact on productivity and colleague retention.

Following the successful Dallas office move, we are on track to move our Chicago colleagues to a new headquarters at 125 S. Franklin Street in May 2018. Applying the open office layout and collaborative design will enrich communication across OCC and continue to ensure confidence in the financial markets and broader economy.

OCC’s continued transformation as a market utility and industry influencer reinforces our focus on building a high-performance culture by attracting and retaining top leadership and skilled talent in Chicago, Dallas and Washington, D.C. In September we recognized the breadth of our team by promoting 10 OCC executives to our leadership team; individuals who delivered strong results and demonstrated an ability to take on additional roles. We also hired more than 80 new colleagues, bolstering our expertise in areas such as risk management, information technology and compliance.

OCC is well prepared for transformational change in 2018 and beyond. We are committed to providing high quality and efficient clearing, settlement and risk management services with focus on four key areas: modernizing our technology infrastructure, elevating our financial risk management capabilities, enhancing information security and furthering product innovation. With new offices, an enhanced management and leadership team, and a new technology clearing platform on the way, OCC will continue to meet the regulatory requirements before us while weighing new business opportunities to better serve market participants.

We have the team, plan and vision to enhance these realities in the coming year and fortify our position as the foundation for secure markets.


John P. Davidson
President and Chief Operating Officer


Scot E. Warren
Chief Administrative Officer




As a customer-driven organization, OCC began 2017 with its Board of Directors’ approval of a budget with no change to the clearing fee and ended the year with a strong financial position to support its commitment of delivering world-class risk-management, clearance and settlement services.

With OCC’s 2017 budget based on volume averaging 16.4 million cleared contracts daily, our positive performance was influenced by several actions. This includes strategic growth across our business lines resulting in average record volume of 17.4 million contracts cleared daily and three Federal Reserve Bank rate increases driving our investment and interest income. These instances allowed OCC to address marketplace demands with a high-level of operational excellence without the need to increase its capital.

As the first major U.S. derivatives clearinghouse to diversify its credit facilities through a non-bank organization, in 2017, OCC renewed its $1 billion pre-funded commitment repurchase agreement with CalPERS. We believe committed liquidity facilities are a critical resource to central counterparties like OCC, ensuring sufficient capacity to fund timely payment obligations to clearing members, reducing systemic risk, and promoting the uninterrupted flow of financial markets.

We are very proud of the fact that in 2017, Standard & Poor’s Corporation reaffirmed our AA+/Stable rating as recognition for our commitment to strengthen the OCC’s financial safeguards framework and conformity to international standards. Throughout the year, OCC continued to carefully monitor its monthly expenses, revenues, business risk buffer and cleared contract volume to drive its investment in modernizing key processes as prudent stewards of the marketplace. This allowed OCC’s further implementation of Oracle’s finance and accounting solutions, streamlining our HR administration processes via Workday, advancing usage of Appian to automate manual procedures, and the launch of endeavors to replace our clearing system which has been in place for two decades.

Looking forward, the comprehensive tax reform passed in late 2017 allows OCC and its stakeholders to benefit from the corporate federal tax rate reduction from 35 percent to 21 percent. This will help OCC, in 2018, further its investment in technology supporting operational excellence and business efficiencies to promote resiliency in the organization and its systems. Notably, in the first quarter of 2018, we will begin to pass interest on funds held at the Federal Reserve back to our Clearing Members.

Collectively, these efforts will help ensure our mission of instilling confidence in the financial markets and the broader economy as OCC continues to best serve industry participants and the greater public interest.


Amy C. Shelly
Chief Financial Officer