March 2012 Newsletter

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In This Issue

Industry Insight: James Brown, Executive Vice President and General Counsel

James Brown is OCC’s Executive Vice President and General Counsel. He succeeded Bill Navin in the position after Bill retired in February of this year. Brown recently sat down with OCC News to discuss his transition into the role, plans for the department and more.

You and Bill Navin were former partners and you have done financing work for OCC for years. How has this made for a smooth transition into your new role?

Because of the financing work and working with Bill at Schiff Hardin (where Bill was previously OCC’s outside counsel), I was already familiar with many people here at OCC. Many of us have been working together for 20-plus years. These same people are very familiar with how I work, and when Bill and I talked about this possibility, he spoke with them about me coming into this role. They seemed to like the idea and that I wasn’t an unknown. Bill and I overlapped for one month, working together, and I saw how he worked in this role, which made for a natural transition.

What are the impacts of the Dodd-Frank reform, particularly on OCC?

The regulatory environment is continuing to evolve. The expectation is that under Dodd-Frank, OCC will be designated as a systemically important financial market utility. If this occurs, OCC will have another regulator, the Federal Reserve Board. We are already subject to regulation by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). The other effect is that under Dodd-Frank, rule makings are occupying the SEC and its staff full time. When we come in with regulatory filings, it is difficult to get to the top of the pile. This presents a challenge, but fortunately, OCC has good working relationships with the regulators built on years of doing the right thing.

What are the goals and growth plans for the Compliance department, and how does this new area relate to Legal’s work?

We hired a new VP of Compliance, Carole Bovard, who will work with Jean Cawley (Chief Compliance Officer) so that Jean can transition some of her activities over to her. The Chief Compliance Officer reports directly to Chairman and CEO, Wayne Luthringshausen, and not to me. The appointment of a Chief Compliance Officer is required by Dodd-Frank, and will help OCC to meet increased regulatory demands that call for more documentation of OCC’s processes. We need to have a coordinated effort internally to deal with inquiries from the CFTC and SEC (and, in all likelihood, soon the Fed). OCC has always had a compliance function to assure that policies and procedures were followed, but now there is an even greater effort to document what we do. It’s our job to make sure that increased regulation doesn’t burden the industry unduly or negatively affect OCC’s ability to protect the financial stability of an industry that has complex trading firms.

What do you see as some of the challenges in your new role, and how do you hope to overcome them?

First, I have never held an in-house counsel position before, only serving as an outside attorney. I am enjoying that change quite a bit. Second, I am here to work closely with the business units to make sure that folks are aware of the “new normal” that Dodd-Frank and its aftermath will bring. That said, I don’t intend to interfere with the everyday business of the company.

"My hope is that if you demonstrate that you can provide input without interfering with the business units, staff will be more receptive to including your legal input in their work."

Lawyers sometimes have a reputation for getting in the way, so the challenge will be to make sure things are being done in a legally correct manner without becoming a bottleneck or a naysayer. My style is fairly open, so my hope is that folks will feel free to let me know if Legal is getting in the way so that we can make adjustments.

OCC has expanded its business developments to include securities lending and OTC equity index options clearing. What kinds of changes do you anticipate OCC will experience from these new ventures?

We now have systems in place that are robust and capable of clearing more than exchange-traded options. Taking these systems and expanding them to other products, particularly those that involve equity securities, is a natural outgrowth. When people think of OCC, the goal is for us to be a one-stop-shop for equity derivatives. Most of the risks associated with new products like OTC equity index options are not different than what our systems can currently manage. It will be incumbent on Legal, working with the business units, to convince the regulators that these ventures therefore will not present a problem.

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OCC Debuts Portfolio Margin Calculator

OCC is currently engaged in a large-scale, multi-phased project called ENCORE Prices, which seeks to re-engineer OCC’s pricing and risk management systems, including the addition of new functionality. Nearing the end of its first phase, the project is comprised of three stand-alone modules. One of these modules, Portfolio Margin Calculator (PMC), provides an enhanced external application used to calculate margin requirements using the TIMS margin methodology. This methodology supports the Customer Portfolio Margin (CPM) and Risk Based Haircut (RBH) regulatory programs.

PMC was made available to external users on February 10, 2012. The application is available to the general public through for performing margin calculations for the most recent business date. Users can upload a position file to the calculator and add positions manually through filtering tools. The application supports the addition of stock records for equity products not included on the theoretical files, as well as the inclusion of stock baskets. (Only equities that are deliverable upon the exercise of an option product are included in theoretical files, though all equity securities are CPM/RBH eligible.) The submitted positions may be exported in either flat file (ASCII) or csv format for use at a later time.

"PMC can be used by firms who seek to understand their margin requirement and by external parties to validate the accuracy of their internal calculations."

After positions are submitted to the calculation engine, the application displays the margin requirement and supporting detail in a Results screen. Results can be viewed at the account, portfolio/product group, class group and position detail level. Report screen content can be exported in either csv or pdf format.

PMC is a valuable resource for firms seeking to understand their margin requirement, and can be used by external parties to validate the accuracy of their internal calculations. Send questions regarding the tool, supported functionality or assistance in interpreting calculation results to

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Options Industry Conference Heads to New Orleans, LA

The 30th Annual Options Industry Conference, taking place May 3-5, 2012, at The Roosevelt Hotel in New Orleans, is the preeminent event for derivatives professionals. The conference brings engaging panelists and speakers together to address the most important issues facing the industry. Keynote speakers include Charlie Cook of The Cook Political Report, Professor Peter Ricchiuti of Tulane University, and John Hague, National Director of the Alternative Investments and Brokerage Industry groups for McGladrey & Pullen, LLP. Attendees will enjoy a host of networking events, activities and a visit to the world-renowned New Orleans Jazz and Heritage Festival. To register or read more about this event, click here. The conference will be held in conjunction with the inaugural Wealth Advisors Summit, running May 3-4, 2012. The Wealth Advisors Summit is an exclusive event for top investment professionals from the financial advisory profession.

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From The Hill

Congress usually does not vote on contentious issues during election years because members do not want to face an angry or divided electorate when they go home to campaign for re-election. This year, Congress will likely follow that same pattern, passing just the minimum amount of legislation necessary to keep the government functioning. The Dodd-Frank Act is one such hot topic that will not be modified by Congress this year. The Republican-controlled House has passed several bills to alter the Act because of opposition to it among members, but the Democratic-controlled Senate does not intend to consider any Dodd-Frank-related legislation.

It is expected that, instead of modifying Dodd-Frank, the two chambers will hold oversight hearings on its implementation to ensure that the regulatory agencies are operating within congressional intent. Both the CFTC and SEC have been busy holding hearings on their proposed Dodd-Frank rulemakings, but the CFTC has taken a much more aggressive approach. We at OCC have spent a lot of time trying to determine how the rules will impact our operations as both a DCO and clearing agency. When necessary, OCC submits formal comment letters to the agencies explaining how the proposed rules would impact, both positively and negatively, our company. 2012 is sure to be a busy year following the actions of our regulators.

While Congress may not be passing any legislation to change Dodd-Frank, the regulatory issues that were created or modified by the Act, including clearing and clearinghouses, ensure that Dodd-Frank implementation will remain an important issue in Congress for years to come. To that end, in January, OIC held its yearly Washington educational event. Before audiences of several dozen congressional and SEC staff, the panelists discussed new developments in the options industry and how the industry has been affected by Dodd-Frank implementation. The event was a great success, with both staff and panelists gaining insight from the open discussion.

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OCC Kicks Off 2012 Charity Drives

Each year, OCC identifies two charities that can benefit from the company's community outreach efforts.

OCC selected the Ronald McDonald House as Chicago's 2012 charity project. The Ronald McDonald House, an organization that provides a “home-away-from-home” for families to stay close by their hospitalized child at little or no cost, is moving from its current Lincoln Park location to downtown near Children’s Memorial Hospital. The new building, which will function as the world’s largest Ronald McDonald House, is slated to open in June. OCC’s hope is to raise enough funds to help supply linens, pillows, towels and rugs for the 86 bedrooms and bathrooms.

Meals on Wheels of Tarrant County was chosen as the Keller Business Office’s 2012 charity. The organization seeks to promote the dignity and independence of homebound senior citizens and people with disabilities by delivering nutritious meals and providing or coordinating needed services. OCC’s goal is to raise enough money to sponsor 10 people in need with meals for an entire year. There will also be opportunities to volunteer with the organization throughout the year.

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Mark Your Calendar

May 1-4, 2012

Securities Industry and Financial Markets Association (SIFMA ) 39th Annual Operations Conference and Exhibit at the Westin Kierland in Scottsdale, Arizona. Learn more here.


May 3-5, 2012

The 30th Annual Options Industry Conference, The Roosevelt, New Orleans. Click here to receive information, email updates and the latest news about the 2012 Conference.


Clearing News & Resources

Volume Update

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


2011 Annual Report

The 2011 OCC Annual Report is now available online. This year’s theme, “Managing Risk,” features the many challenges OCC faced and met successfully in 2011.


Comment Letters

OCC comment letters are now available on its website.



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.