January 2013 Newsletter

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In This Issue

OCC Cleared Volume Surpasses 4 Billion Contracts for Second Consecutive Year

OCC’s cleared contract volume reached 4,042,175,801 contracts in 2012, a 12 percent decline from the 2011 record volume of 4,600,955,949 contracts. Despite this decline, 2012 marked the second highest year for OCC cleared contract volume to date and the second consecutive year OCC cleared volume has surpassed 4 billion contracts. Last year also brought OCC’s cleared futures volume and stock loan activity to its highest levels.

Total options trading volume for 2012 came in at 4,003,871,308 contracts, down 12 percent from 2011’s record-shattering volume of 4,562,748,194 contracts. This marks the second highest volume year for options trading to date and the second time in history that exchange-listed options volume hit 4 billion contracts in a single year.

Also reaching record highs in 2012 was OCC cleared futures and stock loan volume. OCC's annual cleared futures volume totaled 38,304,493 contracts in 2012, passing 2011's volume of 38,207,755 contracts, and setting a new record. OCC’s annual stock loan activity was up 31 percent from 2011 with 973,384 new loan transactions in 2012. The stock loan program ended the year with an average daily loan value of $35,891,601,372.

Based on Futures Industry Association data, OCC cleared 57 percent of all U.S. listed derivatives contracts in 2012.

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Customer Account Gross Margining Requirement Change

OCC, along with the other Derivatives Clearing Organizations (DCO), received an extension from the Commodity Futures Trading Commission (CFTC) Rule 39.13(g)(8)(i) requiring gross margining from November 8, 2012 until the close of business January 14, 2013.

As of January 14, OCC now calculates actual margin requirements for customer segregated futures accounts incorporating the data provided on the customer gross margin file. OCC processed these files in a parallel mode for a few months prior to the go-live date so that clearing members could see the impact of the new methodology on their margin requirement.

The CFTC rule requires a DCO to calculate initial margin requirements for customer positions so that the margin requirements are equal to the sum of requirements calculated for each individual customer account. DCOs are prohibited from netting positions of different customers against one another or allowing any risk offset between customer accounts. These rules only apply to positions carried in a CFTC-regulated segregated futures account.

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Mini Options to Launch March 18

Mini options are set to begin trading on March 18, 2013. Mini options will represent a deliverable of 10 shares of an underlying security, whereas standard contracts represent a deliverable of 100 shares. The exchanges propose to initially list and trade mini options contracts overlying five securities for which the standard contract overlying the same security exhibits significant liquidity; specifically SPDR S&P 500 (SPY), Apple, Inc. (AAPL), SPDR Gold Trust (GLD), Google Inc.

(GOOG), and Amazon.com Inc. (AMZN). OCC will clear mini options as standard contracts, which will be reflected in the CFI tag on DDS messages. Mini options will be handled like standard contracts within OCC’s ENCORE clearing system and clearing members can submit instructions to spread mini options against standard options.

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MIAX Options Exchange Joins OCC

The Miami International Securities Exchange, LLC (MIAX) became an OCC participant exchange, effective December 7. The launch of MIAX Options Exchange by Miami International Securities Exchange, LLC now brings the total number of options markets in the U.S. to 11.

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OCC Sets Expiration Friday Test Dates

OCC is transitioning the standard monthly expiration processing from Saturday morning to Friday evening, beginning in June 2013. As part of this industry-wide change OCC will offer clearing members testing opportunities, with the two primary testing objectives being to: 1) test a large volume of exercise and assignment activity, and 2) test an exercise and assignment activity file containing expiring and non-expiring contracts.

OCC will offer testing in our external test environment:

  • February 15
  • February 23
  • April 19
  • April 27
  • May 17 (if needed)
  • June 1 (if needed)

The tests will simulate an Expiration Friday, which consists of trading activity, post-trade activity, exercises for non-expiring products, Ex by Ex processing, DDS output, ENCORE reports and early bundles. Any firm who wants to participate must establish connectivity to the external testing environment. Contact your clearing member representative or the Member Services help desk at 800.544.6091.

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From the Hill

After working through the holidays and even on New Year’s Day, the 112th Session of Congress limped to an end just minutes before the 113rd Session began on January 3, 2013. Of course, Congress was in Washington working to avoid the so-called “fiscal cliff,” and a temporary deal was passed by the House on January 1, just 22 hours after it passed the Senate.

In addition to permanently extending the Bush-era tax cuts for all individuals earning up to $400,000 per year, the legislation puts off for two months the “sequester” that was to occur on January 1. Now Congress has just two months to come up with a solution that is palatable to both parties or the roughly $110 billion in automatic spending cuts to both domestic and defense programs that were included in the original sequester legislation will become effective. It remains to be seen whether or even if Congress will deal with the sequester issue before March 1.

Because they believed the legislation did not do enough to reduce spending, fewer than half of the House Republicans voted for the fiscal cliff bill. In all, only 85 Republicans voted for it, joining with 172 of their Democratic colleagues to pass the bill by a vote of 257-167. The House had far less support for the bill than their Senate counterparts, who passed the same legislation by a vote of 89-8.

"But, like opening day of the baseball season, hope springs eternal among the new-elected Senators and Representatives."

Many Democrats were also unhappy with the bill, saying that President Obama caved on the tax issue by raising the tax increase threshold from $250,000 to $400,000. They also do not seem to be interested in entitlement or spending reform, instead wishing to raise more revenue by increasing taxes on the “wealthy” in order to pay for, and in some cases expand, existing government programs while also making an effort to reduce the deficit. This is, of course, in direct conflict with Republicans’ desires to both reduce taxes and spending on government programs and entitlements.

These contrary policy priorities combined with a Democratic-led Senate and a Republican-led House will surely create some fireworks during the 113rd Congress. But, like opening day of the baseball season, hope springs eternal among the new-elected Senators and Representatives, who are eager to get to work on all the problems facing our country.

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2012 OCC Charity Efforts Culminate in Success

Each year, OCC identifies two charities that can benefit from the company's community outreach efforts. In 2012, employees at the Chicago and Keller offices worked to raise money for the organizations.

Chicago - OCC's Chicago office selected the Ronald McDonald House as its 2012 charity, which seeks to create, find and support programs that directly improve the health and well-being of children. Numerous fundraising events held by OCC–tournament bean bag toss, egg hunt and mini iPad raffle to name a few—supported the Ronald McDonald House and yielded a contribution of $41,972. With the money raised, OCC purchased bed and bath linens for the entire house and outstanding kitchen essentials from the house's wish list. The funds were also applied to the cost of sponsoring family stays at the house.

Keller - OCC employees in the Keller office supported Meals on Wheels of Tarrant County in 2012. More than $13,000 was raised in support of the organization that is committed to promoting the dignity and independence of older adults, persons with disabilities and other homebound individuals by delivering nutritious meals and supplying needed services. Employees collected funds from an ice cream sale, pet food drive and bake sale, among other events. Funds raised will sponsor 10 people in need with meals for an entire year.

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Clearing News & Resources

Early Bird Registration Extended for 2013 Options Industry Conference

Register by February 1, 2013 to take advantage of the early bird discount for the 2013 Options Industry Conference. The event takes place April 24-26 at the Green Valley Ranch in Henderson, Nevada. Sponsorship and Exhibitor opportunities are still available!

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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.