January 2012 Newsletter

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In This Issue

OCC Hits New Milestone in 2011 Clearing More Than 4.6 Billion Contracts

Options volume surpassed 4 billion contracts for the first time ever in 2011, marking the ninth consecutive record year for OCC cleared volume.

While options trading volume rose to record highs in 2011, OCC's futures and stock loan clearing continued to experience rapid growth. OCC ended the year with total cleared contract volume up 17 percent from 2010, with 4,600,955,949 cleared contracts in 2011.

Total options trading volume in 2011 reached 4,562,748,194 contracts, a 17 percent increase from 2010. Average daily options volume for the year was 18,106,144 million contracts, roughly 2.6 million contracts per day more than the daily average in 2010. Six of the 10 highest volume days were set in 2011, including first time options trading surpassed 40 million contracts on August 8, 2011.

OCC cleared futures and stock loan volume also saw significant growth last year. OCC futures clearing rose to its highest level to date with an annual total of 38,207,755 contracts, a 44 percent increase over 2010's volume. Transactions in OCC's stock loan program, including OTC and AQS, increased 42 percent from 2010, with 743,730 new loan transactions in 2011. Despite recent market volatility, which can lessen stock loan growth, OCC's stock loan program ended the year with an average daily notional value of $19,098,549,509.

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Tabb Study Reveals European Marketplace Volume

The Options Industry Council (OIC) commissioned the Tabb Group, a financial market research and strategic advisory firm, to conduct a study on the European marketplace for U.S. exchange-listed equity options. Findings were released in September 2011, and illustrate that an estimated 10 percent of total U.S. listed options volume originates from Europe, with contract volume having grown significantly.

"Although Europe has remained a significant source of U.S. options trading volume, European participation has shifted."

OIC first looked into European demand for U.S. listed options five years ago. Between the two studies, total annual options trading volume grew from 1.5 billion contracts in 2005, to 3.9 billion contracts in 2010. European holdings of U.S. equity-related securities total $1.3 trillion, equal to 46 percent of total foreign ownership of U.S. equities. Tabb expects demand for U.S. options to remain strong thanks to this broad exposure to U.S. equities by European institutional investors.

Although Europe has remained a significant source of U.S. options trading volume, European participation has shifted. Some European market participants physically moved their trading operation to the U.S. over the past five years in order to fully take advantage of co-location, deep liquidity levels, transparency and ease of access. This is one reason Tabb found the share of volume originating from Europe to fall from five years ago, despite the growth in volume. Domestic sources of U.S. options trading have grown rapidly in the last five years, particularly with an influx of new institutional participants, changing the proportion of business originating from Europe.

This study provides numerous insights into where U.S. options business can be developed further in Europe. OIC aims to support growth opportunities in Europe by continuing its efforts to raise awareness of options and increase investor's knowledge of how options can be used to help reach investment goals.

Download the Tabb Study here.

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OCC Risk Systems Not Shaken by Volatility

As growing economic concerns continue to drive volatility in financial markets, effective risk management becomes increasingly important. During the recent bout of market volatility, OCC's proven risk management approach was tested and performed as expected, allowing OCC to remain among the strongest clearing houses in the world has shown stability and leadership as its risk systems continue to weather the storm.

Following the downgrade of U.S. sovereign debt to AA+, S&P downgraded four major clearing houses/depositories to AA+, including OCC. As S&P noted in its release at the time, the downgrade of OCC and other major clearing houses was not the result of any company-specific event or concern about the soundness of a company's operations. The rating change has not negatively impacted OCC's operations or required any alterations to our risk systems.

In August, as volatility soared and options trading volume rose to record highs, OCC cleared one half billion contracts for the first time. As market turbulence persisted through the fall, OCC continued to meet its obligations to clearing members without additional measures or alterations to OCC's risk management framework.

"OCC continues to provide a secure foundation for the markets we serve."

OCC's long-standing, three-tiered approach to risk management includes rigorous, ongoing membership standards, prudent margin requirements and a substantial clearing fund. OCC's risk system, System for Theoretical Analysis and Numerical Simulation (STANS), allows OCC to calculate and collect required initial margin from the counterparties. STANS uses sophisticated econometric models to adjust margin requirements automatically to levels consistent with current or longer-run average market volatility.

The third line of defense against clearing member default is the clearing fund, which provides additional financial resources over and above margin requirements. This clearing fund is held entirely in cash and government securities and expands and contracts, and its size is tied to average daily margin requirements.

Risk management is the heart of central counterparty clearing. As financial markets have increased in size and complexity over time, OCC continues to provide a secure foundation for the markets we serve.

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2011 Year-in-Review from The Hill

2011 began with the swearing in of the new members of Congress and the beginning of the 112th Congress. The new Republican House majority quickly got to work, holding many oversight hearings on legislation previously enacted by their Democratic colleagues. Oversight of the implementation of Dodd-Frank was a priority of the House Financial Services Committee, with its members regularly quizzing the heads of the Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC) and other agencies about whether the rules they were implementing squared with congressional intent.

After the one-year anniversary of Dodd-Frank in July, it became evident that fully implementing the hundreds of required rulemakings would take longer than the 360 days Congress gave the agencies to do so. The CFTC and SEC continued to hold open meetings to discuss and vote on proposed rules, while Republicans became concerned that the sheer volume of rules made it difficult for stakeholders to participate in the rulemaking process. Those in the Democratic-controlled Senate Banking Committee did not share the concerns of their Republican counterparts, so efforts to slow down the rulemaking process were rebuffed.

Fall brought with it the "Super Committee" that was tasked with reducing the federal deficit by at least $1.5 trillion over the next 10 years. If the committee could not complete its task, an unappealing combination of defense and entitlement cuts would automatically occur. While the pressure was high for the members of the committee to complete a deal, in November they admitted defeat, saying that the differences between the Republican and Democratic members could not be bridged.

The year wrapped up with the bankruptcy of MF Global. House and Senate Agriculture Committees, along with the Senate Banking and House Financial Services Committees, spent the remainder of 2011 investigating the actions of MF Global and the impact its default had on the thousands of customers who saw their investments in agriculture derivatives products evaporate.

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OCC Cares

Each year, OCC identifies two charities that can benefit from the company's community outreach efforts. In 2011, employees at the Chicago and Keller offices worked to raise money for the organizations.

Chicago—OCC's Chicago office selected the Humanitarian Service Project (HSP) as its 2011 charity, which seeks to alleviate the pain and suffering that poverty brings to seniors and children living in DuPage and Kane Counties, Illinois. Along with numerous fundraising events held by OCC that supported HSP and yielded a contribution of $27,659.76, employees and interns volunteered at the organization to sort fresh produce that was delivered to low-income seniors the following day as part of their monthly grocery delivery. With the money raised in 2011, 26 low-income seniors in the HSP Senior program are now sponsored.

Keller—OCC employees in the Keller office supported the Spina Bifida Association of North Texas (SBANT) in 2011. More than $12,000 was raised in support of the organization that is committed to promoting the prevention of spina bifida and enhancing the lives of those affected. In addition to donating funds, employees volunteered at the Walk-N-Roll, SBANT's largest annual fundraiser, where OCC turned over a check for $8,000. Another highlight included supporting the 2011 SBANT Holiday Party at the Frontiers of Flight Museum. Funds raised will go toward camps that the SBANT hosts throughout the year for those living with spina bifida and their families.

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Mark Your Calendar

March 13-16, 2012

FIA 37th International Futures Industry Conference, Boca Raton Resort & Club

Click here to receive more information regarding Boca 2012.


May 3-5, 2012

The 30th Annual Options Industry Conference, The Roosevelt, New Orleans

Early-bird registration ends January 27! Click here to receive information, email updates and the latest news about the 2012 Conference.


Clearing News & Resources

OCC Board of Directors Welcomes Two New Members

Two additions to the OCC Board of Directors in 2011, are Edward T. Tilly, Chicago Board Options Exchange, Incorporated President and Chief Operating Officer, and Thomas Callahan, Executive Vice President and Chief Executive Officer of NYSE Liffe U.S.


ENCORE Homepage

Take a look at the updated ENCORE Homepage. All ENCORE functions are available from one view, without expanding links.


Real-Time Replay

Clearing members can now resend real-time trade messages for the current business day thanks to an added enhancement. This functionality allows users to request messages based on a certain time or expiring positions. Questions? Contact memberservices@theocc.com.


New E&A Screens

On December 9, 2011, OCC updated the Exercise and Assignment screens within ENCORE. The E&A screens utilize new architecture and offer enhanced functionality.


OCC News Archive

Click here for prior issues.

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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.