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New Fiduciary Rule Spares Options

Steve Sears of Barron's discusses the impact of the Labor Department's announced fiduciary rule on the listed options industry. The column includes commentary by OCC Executive Chairman Craig Donohue on the importance of continued education for investors who use the listed options markets.

» More from Barron's

It's better to have and not need

John Fennell, OCC's EVP of Financial Risk Management, discusses with Securities Lending Times updates to the credit facility OCC established with CalPERS, the largest U.S. pension fund, in 2015. The credit facility was created to increase OCC's liquidity resources as well as diversify them to include non-banks. This forward-thinking approach set the standard for the industry.

» Read the interview

OCC Lends a Hand: Stock Lending Business Growing With Clearing Services

Scot Warren, Executive Vice President, Business and Product Development, spoke with John Lothian News about the growth of OCC's stock loan program and the opportunities that lie ahead for securities lending for a CCP.

» More from John Lothian News

Nothing can be certain but delta and taxes

Joe Corcoran, OCC First Vice President, Government Relations, spoke with John Lothian News about Section 871(m) of the Internal Revenue Code and its potential negative impact on the use of exchange-listed options by overseas investors.

» More from John Lothian News

OCC Comments on SEC Fund use of Derivatives

OCC, on behalf of the U.S. Securities Markets Coalition, submitted a letter to the U.S. Securities and Exchange Commission (SEC) on the Commission's proposal regarding the use of derivatives by registered investment companies and business development companies. The letter outlines concerns by OCC and the Coalition that certain aspects of the proposal will limit the ability of funds to effectively use exchange-traded options.

» View the comment letter

Do your homework before embarking on an options journey

Gary Delany, OIC Director of European Marketing and Education, discusses six key components for options novices to consider before they begin trading options.

» More from Trading Floor

Options Greeks for Next Level Traders

Joe Burgoyne, OIC Director of Institutional and Retail Marketing, discusses the importance of options pricing models and two of the Greeks, delta and theta, that help calculate the theoretical value of an option.

» More from MoneyShow

Clearing up the differences in equity options markets

OIC's Gary Delany explains how having one clearinghouse for all listed equity options in the U.S. versus several in Europe impacts the fungibility of trades and what that means for the changes Europe is undergoing in regards to exchange traded equity options.

» Read more from Trading Floor

A New Twist on the Covered Call

Michael McFarlin, Marketing Analyst for OIC, gives insight into how investors can trade weekly covered calls for income generation.

» More from MoneyShow


OIC recently launched its online Video Series, which includes options webinars, the ETF Summit on Options and OIC's Quick Guide Gallery.

The latest OIC Webinars:

OIC's ETF Summit on Options:

OIC's Quick Guide Gallery:


Don’t miss OIC’s upcoming webinar:

Listen to the latest Wide World of Options Podcast:



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Interested in reading about what is happening with options volume? Click here for OCC's monthly volume press release.


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Scot Warren, Executive Editor
Executive Vice President,
Business and Product Development
(312) 322-6214

David Prosperi, Editor
FVP, Public Relations
(312) 322-4484

Angela Kotso
Senior PR Specialist
(312) 322-6267

Caroline Gillard
PR Specialist
(312) 322-4529

Users of Listed Options Benefit from Changes to DOL Fiduciary Rule

On April 6th, the Obama Administration unveiled the Department of Labor’s fiduciary rule, which is designed to transform the way the financial services industry delivers retirement savings advice. We are gratified that the final rule moved away from limiting the ability of investors to hold listed options in their retirement accounts. We are concerned that the final rule may limit the ability of brokers to provide education regarding listed options to self-directed investors. We will continue to study the rule, and if appropriate, continue to fight aggressively on behalf of the users of our markets.

OCC and the U.S. Securities Markets Coalition played a leadership role in educating the Labor Department and Members of Congress on the important role listed options play in retirement planning. We submitted comment letters to the Department and held numerous educational meetings with key Members of Congress on Capitol Hill and in Chicago on the potential negative impact for our industry if investors no longer were able to use listed options in their retirement accounts. We are very appreciative of the support of those Members of Congress who worked with us through this process.

We applaud the work of our industry partners who also engaged in a strong educational effort to ensure a positive outcome. We will continue to work with our partner exchanges, SIFMA, and other industry organizations to represent the best interests of our industry and market participants.

You can read our press release on the Labor Department fiduciary rule here.

Craig DonohueMike McClain

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What Compliance Means for OCC

Richard Wallace OCCRichard Wallace, OCC Senior Vice President and Chief Compliance Officer, shares insight about the importance of compliance for OCC.

Why is compliance important for an organization like OCC?

Compliance is critically important to OCC, and we take that responsibility very seriously in our role as a foundation for secure markets. As a Systemically Important Financial Market Utility (SIFMU), OCC is responsible for promoting stability and market integrity by providing market participants with reliable clearing, settlement and risk management services. Adherence to our regulatory requirements is a vital part of making sure that all our guarantees will be fulfilled should a Clearing Member or other entity fail to honor its obligations to OCC. As Chief Compliance Officer, it is my job, along with my colleagues in Compliance and across our organization, to make sure this happens so we can help ensure confidence in the financial markets and the broader economy.

How has the compliance landscape changed?

The compliance landscape changes along with the pace of the global marketplace, and it is incumbent upon us to make sure we stay ahead of that pace. OCC has always focused on providing a critical layer of stability to the world’s financial markets, however the outside focus on our role grew in 2012 when OCC was designated as a SIFMU as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Compliance Department is building a strong compliance system to help us identify and catch problems at an earlier stage in the process. Compliance is also increasing its ability to provide advice on how to meet our obligations. In addition to a sturdy compliance system, we are building an enterprise-wide system that links together our compliance, audit and enterprise risk management needs.

How is OCC proactively maintaining compliance requirements?

In 2015, we launched an enterprise-wide plan that focuses on areas of the company that could use improvements in order to bring our compliance practices and standards to a level that is above what is required by regulators. OCC has a strong focus on risk, and we perform organized and systemic stress testing to ensure that our financial resources are adequate should a clearing member fail to honor their trade responsibilities.

How does OCC prepare for future and/or long-term compliance requirements?

OCC is continuously addressing its current and future compliance requirements. We are regulated by the SEC, the CFTC and the Federal Reserve, so keeping in constant communication with our regulators is key. Additionally, the stress testing that we have in place checks that we are meeting the margin requirements and financial resources that OCC needs to have on hand.

Is it true that OCC has rocket scientists that support the compliance team? What do they do?

Yes, we actually have computational astrophysicists that work for OCC. This group reports directly to John Grace, OCC’s Chief Risk Officer. Now my team may not be qualified to review their math calculations, but we can look at their documentation and how they justify what they do to make sure their work is very clear to our regulators.

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How OCC Manages Third Party Risk

Kirstin WellsKirstin Wells, OCC Vice President, Enterprise Risk Management, explains the importance of third-party risk management for OCC.

How would you describe third party risk management and your role with OCC?

OCC is one of the few designated financial market utilities that considers third-party risk in a broad context – typically people think of vendor risk when thinking of third-party risk. But at OCC we consider our third-party risk in five pillars – clearing members, settlement banks and liquidity providers, exchanges, other financial market utilities, and, of course, critical vendors. My role is to work with the first line business areas that are responsible for managing the risks they face from these entities and ensure that our policies and procedures consider relevant regulatory guidance related to third parties.

OCC was designated a Systemically Important Financial Market Utility by the Financial Stability Oversight Committee in 2012 under Dodd Frank. How has that impacted third party risk management at OCC and in the industry?

Systemically Important Financial Market Utilities (SIFMUs) are subject to Title VIII of Dodd-Frank, part of which requires supervisory agencies to promulgate risk management standards for SIFMUs that are based on the Principles for Financial Market Infrastructures (PFMI). Although the U.S. Securities and Exchange Commission (SEC) has not formally adopted these standards, we believe in due time they will. A key theme of the PFMI that is woven throughout the 24 Principles is the risks posed by interconnectedness. So as part of the design of a CCP, we rely on critical third-party relationships such as settlement banks, other custodians, and exchanges, to deliver our core clearing and settlement and risk management services. They also rely on us. We are an interconnected ecosystem, and we need to be carefully managing all the risks that we face from our third-parties – credit, operational, legal – while at the same time being mindful of the risks we posed to them.

Currently what are some of the challenges firms face with regard to third party risk? How does OCC help clearing firms meet these challenges?

Cyber risk is currently one of the most talked about risk issues facing financial services firms. Our clearing firms are front and center in the eyes of their primary regulators as to how they are identifying and managing cyber risks. Our clearing firms typically outsource certain back-office operations, so the firms need to have strategies in place for mitigating the cyber risks they bear from these outsourced vendors as well as other key third parties such as exchanges and even OCC. OCC assists our clearing members in this regard by providing information on how OCC manages cyber risks, so that the firms have a level of comfort about the security of their connection to OCC.

What trends have you seen emerging with the development of third party risk framework? Are they regulatory or market driven in nature?

Third-party risk management is getting a lot of attention in the financial services industry these days due to scrutiny from regulators. Firms want to be sure that their reliance on third-parties does not create operational risks, that then turn into financial and reputational risks. For the most part the focus is on vendor relationships, but other firms such as OCC are taking a more expansive view by considering all critical third-party relationships and the risks that accompany being a critical node in a highly interconnected ecosystem.

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OCC Providing Insight on the Listed Options Industry to Market Participants in Europe

Gary DelanyGary Delany, OIC Director of European Marketing and Education, shares his insight as OCC’s representative abroad.

How did you begin working with OIC?

I’ve worked for OIC since 2009. Most of my professional career has been involved with options in some shape or form. I managed an options book when I first worked in the markets. I then worked for one of OIC’s member exchanges in London for 12 years, heading up their European options marketing. After a spell as marketing director at a technology vendor, the opportunity with OIC came up. I enjoy the variety in the role as well as interacting with a wide range of people.

What are the most important or popular educational topics in regards to the European options market?

When I first started in the markets, options were seen by some commentators as dangerous speculative tools. I’m pleased to say that attitude is now very rare, but there can still be surprising gaps in peoples’ knowledge. The main strategies that European investors are interested in are similar to those found in the US: protective puts, call writing to enhance return, and spreads or collars to protect a portfolio. There’s good interest as well in index options, which offer a more generic level of exposure or protection, as well as in volatility products. It's also worth noting that there is a steadily rising appetite for compelling online educational content about options, which people can access when they need it, at a time to suit them. This creates a powerful educational opportunity for OIC and the industry.

What are the main differences between the U.S. listed options market and the European options market?

The European equity option market is highly fragmented. There are many equity option exchanges but they lack the shared benefit of a single clearing house, in contrast to the OCC-based model for exchange traded equity options in the U.S., which is often cited as the ‘ideal’ structure. Lack of a shared clearing house in Europe has two significant consequences. Firstly, it makes it more expensive in capital terms for participating firms, as margin cannot be offset and has to be maintained in two separate locations. It also reduces liquidity as there is less opportunity for market makers. There is also, I think, a psychological difference in investor mentality. In the U.S. I believe there is a longer tradition of self-directed equity investment, which lends itself more readily to the use of options. In Europe, the average retail investor is more likely to use a mutual fund or a structured product. Although these investment vehicles may involve options, it is a less direct relationship that exists between someone holding an equity and then trading the option.

What is on OIC’s radar in Europe for 2016?

In common with the rest of the world, the European financial landscape is changing as post-2008 regulation is implemented. We are also going through a period of change and possible consolidation among the existing major European exchanges. That is the background to what OIC is doing. In day to day terms, OIC will be seeking to establish further educational partnerships with brokers and professional organizations in Europe. And we’ll of course be continuing with our outreach to our core market, discussing the opportunities offered in the liquid U.S. listed equity option markets and the virtues of a unifying clearing house, all with the goal of driving industry growth.

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OCC Hosts Options Greeks Webinar and Panel Discussion with Industry Professionals

OIC Webinar

To further support industry education efforts to promote increased and responsible use of listed options, OCC, through the work of OIC, hosted two webinars in March about the value of options Greeks to investors and users of the listed options markets. The first webinar, “5 Options Greeks for Next-Level Traders”, was held on March 15 and focused on understanding the value of the Greeks and how they can benefit investors and traders. The second webinar was a panel discussion on March 22, with OIC’s Joe Burgoyne and Ed Modla, who discussed some of the mechanics behind an option’s pricing.

The webinars had over 1,400 registrants and 558 attendees, including 211 first-time participants to OIC webinars, with an additional 290 on-demand requests. You can access the March 15 webinar here.

OIC is planning its next online summit on Tuesday, June 21. Called Market Volatility and the Election, it will feature presentations from Sam Stovall of S&P Capital IQ as well as Jeff Hirsch of Stock Trader’s Almanac. In addition, instructors from OIC will lead options-strategy sessions to help you learn how manage market volatility with options – especially in a tumultuous election year. More information and registration for this summit can be found on OIC's registration page.

Additionally, OIC recently launched its online video series, which includes its ETF Summit on Options, Quick Guide videos, Options Glossary Illustrated and OIC Webinar Series. These videos can be viewed on OIC's Video Series page.

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34th Annual Options Industry Conference

The 2016 Options Industry Conference will be held on May 11-13 at the Terranea Resort in California. Mary Savoie, OIC’s Executive Director, and Molly McGregor, Senior Vice President Communications, Marketing and Government Relations for the ISE Exchange, provide information on what to expect from OIC 2016.

What is the role of the conference?

Mary: The conference provides a forum to discuss important issues facing our industry and for attendees to work together on how best to grow the marketplace and serve the needs of our market participants.

Molly: The most important element of the conference is connection. This event brings together leaders from all areas of the options industry to build and strengthen business relationships, discuss the opportunities and challenges our industry currently faces, and, ultimately, look ahead to the drivers that will influence the options industry in the future.

How important is it for the industry?

Mary: It is the premier industry gathering and a unique opportunity where industry leaders, including competitors and clients, can share ideas and work together to ensure that the options market continues to grow and evolve in a manner that benefits investors.

Molly: The conference is in its 34th year and that longevity underscores the importance, and impact, this event continues to have. We expect to have fantastic turnout again this year, with over 450 participants.

How does it help the educational goals of the industry?

Mary: The sessions are designed to be informative and encourage an exchange of ideas that can be applied on both an organizational as well as an industry level. (Note: this conference does not provide investor education, though there have been sessions in past years that focus on investor education from a business development angle) Attendees have an opportunity to learn from subject matter experts in a variety of areas including regulations, market structure and technology trends.

Molly: A few years ago, the OIC created a companion event to the main conference, which is exclusively for Financial Advisors. This has been a valuable tool for engaging this segment of the industry, educating them about the options product, and encouraging greater adoption.

Key topics to be discussed?

Mary: There will be conversations on the outlook in Washington, D.C., market structure, as well as a forward look at technology and the business and regulatory environment.

Molly: In addition to annual favorites such as the Exchange Leaders panel, we have added breakout sessions dedicated to emerging issues in technology and in regulation. Given that it is an election year, we also included both a panel and a keynote speaker who will give us an inside view of Congressional and Presidential politics, and potential impacts on the economy.

Expected highlights?

Mary: The exchange leaders’ panel is always very popular. While market structure is not a new topic, the conference is taking a novel approach this year with a market structure debate that is sure to be very engaging. Another first for the conference is a 5k charity run with proceeds going to Autism Speaks. Individuals will be able to set up their own fundraising teams.

Molly: The entire ISE team is excited for the Charity 5K Run/Walk benefitting Autism Speaks, which will take place on Friday afternoon. ISE’s CEO and President, Gary Katz, has a personal connection to Autism Speaks through his son, Dylan, and he has pledged to match all individual funds raised. If anyone is on the fence about joining this event, please sign up! The course is on a beautiful bluff overlooking the Pacific and all fitness levels are welcome. After the 5K, we will have the opportunity to celebrate together and close out the conference at Friday’s offsite dinner at a nearby vineyard. I hope that everyone attending the conference will consider staying for these two special events – and of course, also for our Friday keynote speaker comedian Tom Arnold!

OIC 2016

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OCC Executives Representing at Industry Events

OCC continues to be well-represented at industry events, with its executives attending a variety of conferences throughout March and April. Mike McClain, OCC’s President and Chief Operating Officer, joined other industry leaders during an exchange leader panel discussion at the World Federation of Exchanges Annual Conference in Malaysia. Scot Warren, Executive Vice President, Business and Product Development, discussed OCC’s stock loan program at the Finadium Conference in New York. Gary Delany, OIC’s Director of European Marketing and Education, moderated a panel on the use of listed options at the Futures & Options World Conference in Amsterdam.

OIC's Gary Delany moderates a panel at FOW Amsterdam.

In May, Craig Donohue, OCC Executive Chairman, is speaking at the Doctoroff Business Leadership program at the University of Chicago. Scot Warren will be moderating the Options Industry Leaders Panel at the Options Industry Conference in California, and Luke Moranda, OCC's Chief Technology Officer, will be speaking at the NASDAQ Technology of the Future Conference in Stockholm. Jim Hall, OCC’s Director of Government Relations, will moderate the Washington Outlook panel discussion at the Options Industry Conference. Kirstin Wells, OCC Vice President, Enterprise Risk Management, and Dan Busby, OCC First Vice President, Business Operations and Controls, will be speaking at the SIFMA 2016 Operations Conference in Miami. In June, Kim McGarry, OCC Senior Vice President and Chief Financial Officer, will be attending the Wall Street Journal CFO Network meeting in Washington, D.C.

For more information on OCC executives, click here.

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From Capitol Hill

Capitol Hill

On April 6th the Obama Administration unveiled the Department of Labor’s final version of its fiduciary rule. We are very pleased to report that under the final rule, investors will be able to continue to use listed options as part of their IRA and 401(k) accounts. This is a big win for the U.S. Securities Markets Coalition and the listed options industry, considering that the initial fiduciary proposal prohibited listed options from being held by investors in their retirement accounts.

OCC and the Coalition played a leadership role in educating the Labor Department and Members of Congress on the importance of role listed options in retirement planning. OCC submitted two comment letters to the Department and worked on Coalition testimony for a Department hearing on the proposal. Coalition members also held numerous meetings with key Members of Congress on Capitol Hill and in Chicago to educate those Members and their staff on the potential negative impact on market participants and our industry if investors were no longer were able to use listed options in their retirement accounts. As a result, we were successful in having five Congressional letters sent to the Secretary of Labor on this issue, including a letter signed by 44 House Republicans and another letter signed by eight Senate Democrats. We continue to study the rule, as we remain concerned that it may limit the ability of brokers to provide education regarding listed options to self-directed investors. If appropriate, we will continue to fight aggressively on behalf of investors who use listed options in their retirement accounts.

OCC, on behalf of the Coalition, on March 25th submitted a comment letter to the Securities and Exchange Commission (SEC) on its proposal regarding the use of derivatives by funds. One of the recommendations submitted by OCC and the Coalition is that the proposal should exclude covered calls from the definition of “Derivatives Transaction”, or in the alternative, the definition of “exposure” should exclude exposure with respect to covered calls. We will continue to monitor this issue and update you on any activity. A copy of the letter can be found here.

On March 3rd, the Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Securities, Insurance and Investment held a hearing on regulatory reforms to improve equity market structure. At the hearing, the subcommittee members voiced their frustration to the SEC regarding the lack of action on various market structure initiatives such as the Consolidated Audit Trail (CAT), the Tick Size Pilot Project, and a potential Maker-Taker Pilot Project. The Senators were concerned at the length of time each of these initiatives were taking to gain approval at the SEC. The SEC’s witness, Stephen Luparello, Director, Division of Trading and Markets, sympathized with the subcommittee’s impatience and said the agency’s market-structure advisory committee would release recommendations for how the Commission could implement a “maker-taker” pilot program by late April, which most of the Subcommittee agreed would lead to better investor protection.

On March 15th, the Senate Banking Committee held a hearing on the nominations of Ms. Lisa M. Fairfax and Ms. Hester Maria Peirce, to be SEC Commissioners. Ms. Fairfax, the Democratic nominee, is a law professor at the George Washington University Law School and is a former member of the Committee on Corporate Laws of the Business Law Section of the American Bar Association. Ms. Peirce, the Republican nominee, is a senior research fellow at the Mercatus Center at George Mason University and Director of the Financial Markets Working Group. Before joining Mercatus, Peirce served on the staff of Senator Richard Shelby (R-AL) on the Senate Banking Committee. Much of the hearing focused on public company disclosure issues. Senators Schumer (D-NY), Menendez (D-NJ), Warren (D-MA) and Merkley (D-OR) questioned both nominees on whether they would implement a new rule on corporate political spending that would mandate public companies to publicly disclose political contributions to their investors. Both nominees declined to take a position on this issue. Senator Schumer, a supporter of corporate political spending disclosures, said he was not satisfied with their answers and was leaning toward opposing both nominees.

While the Committee had originally scheduled a vote on the SEC nominees for Wednesday, April 6th, consideration was postponed after bipartisan opposition to the nominees was expressed, complicating what many expected to be a simple vote on the candidates. We understand that Senators Schumer, Menendez, Merkley and Warren had problems with the SEC nominees because they would not take a position on the potential SEC political campaign spending rule noted above. The vote has yet to be rescheduled.

We will continue to update you on key issues impacting the listed options industry.

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The information contained in this newsletter is for general information purposes only. Although every attempt is made to ensure the accuracy of the information, OCC assumes no responsibility for any errors or omissions. All materials pertaining to rules and specifications are made subject to and are superseded by the By-Laws and Rules of OCC.