As noted elsewhere in this report, in February 2019 the SEC disapproved OCC’s capital plan. It is important
to note that this disapproval relates specifically to the capital provided by OCC’s shareholders in 2015 and
the agreement to provide additional funds to OCC if necessary to cover operational risks. The decision does
not affect our financial resources available to protect against a clearing member default. Those resources
remain over $8.5 billion, in addition to margin collateral holdings at OCC. Today, OCC maintains sufficient
capital above its capital base target of $247 million, reflecting the ability to adequately fund our business
operations and to have the financial capacity to absorb unexpected operational losses.
As a result of the SEC’s actions, in February 2019 S&P placed OCC on a Credit Watch Negative with respect
to its AA+ rating and will evaluate OCC in three months to review progress toward the development of a plan
to help ensure that it remains adequately capitalized at all times and in compliance with all applicable
regulations. While the S&P report said, “We continue to view OCC as a highly creditworthy and trusted
central risk manager,” this action by S&P serves as a reminder of OCC’s need to take immediate action
on this important matter.
At the start of 2018, we were preparing to strengthen our compliance, our internal controls and our financial
standing, all of which we did. As cleared volume levels exceeded our expectations, our resources
expanded, placing us in position to accelerate certain components of the work we have been doing to
prepare OCC for the future. This includes our uncompromising focus on operational excellence and on
delivering greater capital efficiencies to our clearing firms.
As we look ahead to 2019, OCC continues to be in an incredibly strong position to perform its functions as a
SIFMU. In our role as a central counterparty, we must ensure that the relationships we have are backed by
mutual faith and trust, yet these relationships also must be supported by financial integrity. In the past year,
we built on OCC’s already firm position as the foundation for secure markets.
Investors, regulators and clearing firms demand stability and market integrity from a company like OCC.
Whether markets are calm or volatile, participants must be able to rely on OCC, without exception. In 2018,
we fulfilled the fiduciary responsibility we have to the users of these markets. We did not waver. We were
decisive, prudent and efficient, just as we will continue to be in 2019 and beyond.