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

By Craig Donohue, OCC Executive Chairman and Chief Executive Officer
March 27, 2018, 2018

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.

Our work in Washington, D.C. continues to be 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. In 2017, more than 222,000 individual options investors participated in OIC's robust digital and live instructional programming while its team of professionals also delivered compelling and unbiased educational content to numerous prominent industry partners, including the CFA Institute, Bloomberg, Blackrock, Morgan Stanley, Charles Schwab, E*Trade, and etf.com. We also take 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.

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 to invest 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.

To learn more about OCC's thought leadership on industry issues, visit OCC's Blog.


Category: Clearing Services, Industry Education, Market Efficiencies