May 2017

OCC Becoming a Destination for the Best Talent

Craig Donohue, OCC Executive Chairman and CEO, discusses OCC's leadership enhancements in 2017.

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OCC Becoming a Destination for the Best Talent

As OCC continues its evolution from a market utility to an industry influencer, we are committed to strengthening our resiliency while also providing innovative and cost-effective solutions to our exchanges, clearing firms, and market participants.

To achieve this goal, we are constantly striving to attract and retain the best talent as well as develop a deep bench. In the first quarter of 2017, we made several enhancements to our Board of Directors and management team that we believe positions our company well for future success.

We added significant expertise to our Board of Directors with two new Member Directors; Andrej Bolkovic, CEO of ABN AMRO Clearing Chicago LLC, and Jamil Nazarali, Head of Execution Services at Citadel Securities. Adding Andre and Jamil supports OCC's objectives to sustain resiliency, foster innovation, and lead advocacy and educational efforts while driving industry growth and contributing to the reduction of systemic risk in the financial system.

In April, OCC announced that John P. Davidson, a long-time financial services executive with more than 35 years of industry experience, has joined the organization as President and Chief Operating Officer. John is a very forward-looking, results-oriented leader who will help OCC deliver on our responsibilities as a Systemically Important Financial Market Utility. With his extensive experience in clearinghouse risk management, operations, information technology management, enterprise risk management and compliance, John joined our team on May 8th, and he will help OCC better serve market participants in its role as the foundation for secure markets.

Also in April, David Ridgway joined our leadership team as Senior Vice President, Enterprise Risk Management, reporting to John Fennell, our Chief Risk Officer. David's experience at BNY Mellon, BlackRock and Barclay's will help OCC deliver a more mature risk-oriented culture to better serve market participants.

David Hoag succeeds Luke Moranda as Chief Information Officer. David, who started at OCC on May 1st, has nearly 25 years of information systems and development experience and will lead our information technology team to help ensure that OCC has the technology infrastructure in place to meet the needs of our clearing members while also meeting the heightened expectations of global regulators. Luke is taking on a new role at OCC as Senior Information Technology Advisor to the President and COO, with a focus on our future state information technology capabilities, including modernizing and improving our software development life cycle processes. I have great confidence in Luke's ability to deliver outstanding results in this new role given his background and experience.

We also welcomed Mark Morrison, formerly with State Street Corporation and several government defense and security agencies, as Senior Vice President and Chief Security Officer, a new position. Mark will report to John Fennell, effective May 29th.

We also promoted Adi Agrawal, OCC's former Chief Audit Executive, to a new role of Chief Business Transformation Officer. The purpose of Adi's team is to work with OCC's first line management to strengthen our existing business processes while implementing effective controls, with the goal of improving our compliance posture. Adi has the right background and experience to take on this new challenge, which includes successfully executing on our SEC Regulation SCI mandate.

We will only be as good as our people, and I am very pleased that OCC is attracting such talented individuals to join our equally talented colleagues in Chicago and Keller. The addition of John Davidson, David Ridgway, David Hoag, and Mark Morrison strengthens the breadth and depth of experience we already have in place, which we believe is necessary to enhance OCC's financial management and risk governance cultures so we can better serve market participants on behalf of the listed equity options and futures markets.

Craig

Craig's Signature

OCC Congratulates Jay Clayton on Confirmation as SEC Chairman

OCC congratulated Jay Clayton upon his confirmation by the U.S. Senate as Chairman of the U.S. Securities and Exchange Commission (SEC) on May 2, 2017.

Craig Donohue, OCC Executive Chairman and CEO, said, "OCC congratulates Jay Clayton on his confirmation as SEC Chairman, and we look forward to working with him and the Commission on the key issues related to ensuring continued confidence by investors and market participants in the financial markets and the broader economy.

"Risk permeates every aspect of the global economy. Centrally-cleared, exchange-traded derivatives markets provide a secure marketplace for investors seeking to manage those risks. OCC is committed to ensuring that these markets remain robust, and that the regulation of these markets fosters their important benefits of transparency, fairness and resilience without creating competitive disadvantages."


OCC Annual Report Focuses on Innovation, Resiliency and Excellence

OCC's online, interactive 2016 Annual Report, tells the story of how OCC continues to evolve from a market utility into an industry influencer that is more resilient, more efficient, and better positioned to serve market participants.

To help tell our story, OCC invited three knowledgeable and respected third parties who understand and use our services to talk about the value OCC brings to the marketplace:
     • Kapil Rathi, Senior Vice President of Options Business Strategy for Bats Global Markets,
     • JJ Kinahan, Chief Market Strategist and Managing Director of TD Ameritrade, and
     • Terry Savage, a syndicated personal financial columnist and a founding member of the Chicago Board Options Exchange.

These commentaries highlight to OCC's various audiences the value OCC brings to the broader economy by strengthening the integrity of the financial marketplace, educating investors on the risks and rewards of trading options, and providing risk management solutions to support safe and efficient markets.


OIC Updates and "The Next Great Investing Adventure"

The Options Industry Council (OIC), an industry cooperative funded by OCC and the U.S. options exchanges, has introduced several new educational initiatives this year. OIC's new digital advertising campaign, "The Next Great Investing Adventure”, supports OIC's mission of educating individual investors, financial advisors and the general public about the prudent and responsible use of exchange-listed equity options, with the goal of encouraging investors to learn how options can be used to help manage risk and meet their investment goals in different market conditions.

The digital campaign promotes OIC's online educational programs including webinars, podcasts and videos, with the goal to attract experienced self-directed investors as well as the next generation of investors with this updated digital focus through such offerings as the option strategy videos; Covered Call, Long Call, and Protective Put.

With new videos, webinars and podcasts slated for introduction over the next several months, plus compelling educational components on its website, OIC provides unbiased content, strategies and solutions necessary for investors to better comprehend and utilize the listed equity options market. The new digital campaign features various individuals depicted as bold, confident, and ready to commit to learning about exchange-listed equity options as they continue on their investment journey.

"Through this new campaign, we invite investors to discover the power and versatility that exchange-listed equity options provide as risk management solutions," said Mary Savoie, OIC Executive Director and First Vice President of Industry Services at OCC. "We want to enhance the learning experience for market participants and help the industry grow as we promote the benefits and risks of exchange-listed equity options to investors of various ages and experience levels."

On May 11th at the Options Industry Conference, OIC announced the publication of a new study, “How Financial Advisors Use and Think about Exchange-listed Options”, which found that approximately one-third of financial advisors (FAs) currently use exchange-listed options in 20 percent of client portfolios, and that usage is expected to increase by 30 percent in the next three years. The goal of the study, conducted by Cerulli Associates, a global research and consulting firm specializing in asset management and distribution trends worldwide, is to identify target audiences and educational strategies for the OIC that may lead to increased adoption of exchange-listed options strategies among FAs. Financial advisors can access the study on OptionsEducation.org.

In addition to the new digital campaign and FA study, OIC has a variety of free educational events coming up, including the OIC Online Summit on June 15th at 11 a.m. to 4: 30 p.m. CT. The theme of the Online Summit will be Exchange-Listed Options and Your Portfolio: Strategies for Income and Protection and will include a keynote address from Dr. Joanne Hill from Vest Financial entitled, Incorporating Exchange-Listed Options into Index and Portfolio Strategies, plus three other sessions: How Advisors Find Opportunities with Options to Enhance Portfolios, Tapping into the Power of Options for Income Generation, and Options Protection Strategies Every Investor Should Know.

More information is available at OptionsEducation.org.


Q&A with Joe Adamczyk, OCC's Chief Compliance Officer

Joe Adamczyk, OCC Senior Vice President and Chief Compliance Officer (CCO), joined OCC in 2015. Mr. Adamczyk shares his experience and role as OCC's CCO.

What are your primary tasks as OCC's CCO?

Joe Adamczyk headshotAs CCO, I lead OCC's compliance program, which includes accelerating the maturity of our compliance program and the culture of compliance at OCC, along with working with our regulators and advising OCC's Board of Directors and management team on compliance requirements and records management. Prior to being CCO, I worked on OCC's compliance and regulatory exam management as First Vice President and Deputy General Counsel.

How does compliance play a role in a Systemically Important Financial Market Utility (SIFMU) such as OCC?

Compliance plays an important role for OCC. We are working hard across the entire organization to accelerate the maturation of our compliance and risk and control environment in order to ensure confidence in the financial markets and the broader economy. I am focused on ensuring that the compliance function at OCC is a trusted partner and resource for the business by proactively addressing any potential compliance issues and developing comprehensive plans to help our company achieve regulatory compliance.

What do you see as the biggest challenge facing CCOs in the financial services sector?

The biggest challenge facing CCOs in the financial services sector is continuing to keep abreast of evolving regulatory requirements and expectations and being able to continue to provide support and guidance to the business. That has many layers to it. It's a lot of work simply keeping track of all the new and revised regulations that continue to take effect. As we know, simply keeping track of those items is only the start. You have to develop a thorough understanding of what the requirements are and how they may be different from what was expected, or not expected, in the past. You then need to apply those changes to your own company and tailor your guidance to various stakeholders throughout - how does this change impact our operations team, how does it impact our risk management area, etc. There is a lot to work through and, of course, in a highly regulated environment the criticality of doing that well is heightened because there is the potential for scrutiny from regulators and elsewhere.

Where did you work before joining OCC?

Before joining OCC, I was Managing Director and Associate General Counsel at CME Group. There, I led CME's legal operations and external counsel in Europe, the Middle East and Africa, and Asia-Pacific regions. Before working at CME, I worked for the Chicago law firms of Jenner & Block LLP, and Freeman, Freeman and Salzman, P.C.

Where did you study?

I graduated with an MBA from The University of Chicago Booth School of Business and have my Juris Doctor from Loyola University Chicago School of Law. I earned my Bachelor of Science in Business Administration from DePaul University.

What do you like to do during your spare time?

I have four kids, so much of my free time is spent with them – coaching teams, going to their activities, and just general parenting, which I love. Beyond that, I enjoy getting outside and exercising.


Options Industry Conference 2017

The 35th Annual Options Industry Conference took place May 10-12 in Scottsdale, Arizona. About 400 attendees participated in the three-day conference, which was hosted by OCC and the New York Stock Exchange.

Numerous panel discussions covered various important topics that impact the listed options industry such as regulatory and legislative issues and the overall impact of the political environment on financial services, market structure, the customer experience, and the future of the industry.

Craig Donohue and Tom Reed

OIC 2017 kicked off with a fireside chat with OCC CEO Craig Donohue and Congressman Tom Reed (R-NY) about the outlook for Congressional action in 2017 and the most significant items on the Capitol Hill agenda. This was followed by a panel discussion moderated by Julie Bauer, OCC's head of government relations, who discussed the current legislative and regulatory dynamics and proposals impacting the listed options industry with other exchange and clearinghouse government relations representatives.

Cerulli Study

The Options Industry Council announced its first-ever collaboration with Cerulli Associates to provide the investing community with a new benchmark study on the current state of how and why financial advisors implement exchange-listed options in client investment portfolios. Cerulli Senior Analyst Emily Sweet presented key findings of the study which examines how top advisors are using options, why others are not, and opportunities for the industry to broaden adoption of their use.

ETF Panel

Options on ETFs comprise about 42 percent of the exchange-listed options volume, and seven of the Top 10 listed options symbols are on ETFs. During a panel discussion at the conference, options experts Parag Shah from BlackRock, Dave LaValle from State Street Global Investors, and Steven Oh from Van Eck, shared their insights on further improving the ETF option industry ecosystem, how they drive investor demand for options on ETFs, and how option market makers have improved their ability to quote options on ETFs by pricing the ETF basket in real time.

Millenial Panel

Another topic covered was the impact of millennials on the options industry. Moderated by Ian Rosen, CEO of StockTwits, this panel included Tony Zhang with OptionsPlay, Kristi Ross from tastytrade and Mary Ryan from TD Ameritrade. A recent survey revealed that 62 percent of millennials said they have investment accounts, but just nine percent of millennials said they consider themselves investors.

Craig Donohue and Steve Sears

Along with his fireside chat with Congressman Reed, OCC CEO Craig Donohue spoke with Steve Sears, senior editor and columnist with Barron's, on the evolution of the options industry and OCC's role as an important market utility and industry advocate.

Gina McFadden

This year, OCC was pleased to present the Joseph W. Sullivan Options Industry Achievement Award to Gina McFadden, a long-time leader in the U.S. listed equity options industry and retired OCC executive. Gina is the first woman to receive this award, which is given to individuals in recognition of outstanding contributions to the U.S. options industry.

Exchange Updates

Next year's Options Industry Conference will be held at Amelia Island in Florida. Visit the 2018 Options Industry Conference website for more information.


From Capitol Hill

DC

From Capitol Hill

With the Trump Administration and House Republicans focused for most of March and April on health care and tax reform, the Senate Banking Committee voted to confirm the nomination of Jay Clayton to be the Chairman of the Securities and Exchange Commission (SEC) and the House Financial Services Committee debated and passed the Financial CHOICE Act out of their committee, which would reform significant parts of the Dodd-Frank Act. In addition, the SEC adopted a rule to shorten the standard settlement cycle for most broker-dealer securities transactions. Finally, the U.S. Department of Labor announced a 60-day extension of the applicability dates of the fiduciary rule.

SEC

On May 2nd, the United States Senate voted 61-37 to confirm Jay Clayton to be chairman of the SEC, with eight Democrats and independent Senator Angus King (ME) joining the Republicans to confirm Mr. Clayton. In the Senate Banking Committee debate leading up to the Senate floor vote, several Democrats argued that Mr. Clayton's close ties to Wall Street banking firms would create too many conflicts of interest and would lead to weaker Wall Street oversight by the SEC. Although Mr. Clayton has identified himself as an independent, he is expected to align himself with the Republican members of the Commission. It is anticipated that Mr. Clayton will focus on seeking ways to ease regulatory burdens that might hinder companies from raising capital and participating in the initial public offering process.

It is anticipated that President Trump will appoint additional SEC commissioners in the coming weeks. Kara Stein's term at the SEC expires in June, though she can continue to serve until December 2018.

SEC Adopts T+2 Settlement Cycle

On March 22, the SEC voted unanimously to shorten, by one business day, the standard settlement cycle for securities transactions. Since 1993, the standard cycle for stocks and bonds transactions has been T+3 (three business days). The SEC's action will shorten the settlement process to T+2 (two business days). Industry stakeholders have advocated for a shortened settlement cycle for several years, arguing that the shortened time cycle will decrease counterparty risk and align the U.S. markets with other foreign markets. The new rule becomes effective on September 5.

Potential Dodd-Frank Changes

The House Financial Services Committee recently debated and passed “A Legislative Proposal to Create Hope and Opportunity for Investors, Consumers, and Entrepreneurs,” also known as the Financial CHOICE Act. The measure passed the committee along party lines with a vote of 34 Republicans in favor and 26 Democrats opposed. The debate in the committee focused on issues such as reforming the Consumer Financial Protection Bureau (CFPB), the repeal of the DOL's fiduciary rule, and the SEC's internal operations. Originally introduced in September of 2016 by committee chairman Jeb Hensarling (R-TX), the Financial CHOICE Act was originally debated and passed by the Financial Services Committee in the previous Congress, but was never considered by the full House of Representatives.

The Financial CHOICE Act would reform significant parts of the Dodd-Frank Act. It would repeal of Titles I, II and VIII of the Act. Title VIII is the provision under which OCC was designated a systemically important financial market utility (“SIFMU”) by the Financial Stability Oversight Council. We understand that with the Financial Services Committee having passed the CHOICE Act, the bill may now be considered on the House floor for a vote in the coming weeks.

U.S. Department of Labor

The U.S. Department of Labor (DOL) has announced a 60-day extension of the applicability date of the fiduciary rule. The new applicability date is June 9, 2017. The announcement follows a presidential memorandum from the Trump Administration on February 3, 2017, which directed the department to examine the fiduciary rule to ensure that it does not adversely affect the ability of Americans to gain access to retirement information and financial advice.

This extension applies to final rules issued by the DOL in 2016 regarding a fiduciary standard for retirement accounts. Under the fiduciary definition, if an advisor or service provider to an ERISA plan or IRA makes recommendations as to the management of securities that constitute assets of such a plan, and if other conditions are satisfied, the adviser or service provider will be considered a fiduciary with respect to such plan or IRA. In its original format, the proposal would have prohibited the use of listed options by self-directed individual investors in their IRA accounts. Through the efforts of OCC and the U.S. Securities Markets Coalition and concerned market participants submitting comments, the final rules were amended to continue to allow individual investors to use listed options in their IRA and other retirement accounts.


Editorial Team