May 2013 Newsletter

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Options Industry Conference Commemorates 40 Year Anniversary

The 31st Annual Options Industry Conference took place April 24-26 at the Green Valley Ranch in Henderson, Nevada. This year’s conference steered by CBOE and organized by OCC, also coincided with the 40th anniversary of the options industry. Nearly 500 professionals attended the event that brought together exchange leaders and industry representatives to celebrate the innovation, advancements and success of the industry. The program featured three days of events and panel discussions.

The conference kicked off on Wednesday, April 24, with the Exchange and Committee Updates where various speakers shared the latest initiatives from their organizations. OCC representatives Carolyn Mitchell (Business Development & Strategy), Alan Grigoletto (OIC) and Joe Corcoran (Government Relations) presented program updates.

OCC's Joe Corcoran presented the Washington, D.C. Update.
OCC’s Joe Corcoran presented the Washington, D.C. Update.

Thursday began with a presentation by Andy Nybo of Tabb Group on the state of the options industry. Nybo presented analysis of current trends in options volume, challenges the industry faces going forward and potential areas of growth. He also highlighted key areas that contributed to the growth of the industry over the past four decades.

Andy Nybo (TABB Group) addressed attendees with The State of the Listed Options Industry.
Andy Nybo (TABB Group) addressed attendees with The State of the Listed Options Industry.

Barron’s journalist Steve Sears moderated the first panel, which included a special discussion with members of the buy-side. During the session, panelists were given an opportunity to highlight several topics of interest pertaining to their options business. Up next was the Options Exchange Leaders panel moderated by Paul Jiganti of TD Ameritrade. New to this year’s exchange panel was Shelly Brown of MIAX Options Exchange, the latest addition to the growing list of U.S. options exchanges. Exchange leaders discussed the issues impacting the industry with emphasis on regulatory legislation, particularly the Camp proposal on the tax treatment derivatives.

Moderated by TD Ameritrade’s Paul Jiganti, the Options Exchange Leaders Panel consisted of (left to right) Shelly Brown (MIAX), Steve Crutchfield (NYSE), Jeromee Johnson (BATS), Gary Katz (ISE), Tony McCormick (BOX), Ed Provost (CBOE/C2) and Thomas Wittman (NASDAQ).
Moderated by TD Ameritrade’s Paul Jiganti, the Options Exchange Leaders Panel consisted of (left to right) Shelly Brown (MIAX), Steve Crutchfield (NYSE), Jeromee Johnson (BATS), Gary Katz (ISE), Tony McCormick (BOX), Ed Provost (CBOE/C2) and Thomas Wittman (NASDAQ).

Following the Exchange Leaders was keynote speaker Robert O’Neill, Team Leader, Naval Special Warfare Development Group. As one of the most highly regarded combat veterans in recent memory, O’Neill delivered a poignant and inspiring speech to a captive audience.

Institutional End-Users Perspective panelists included (left to right) Will Bartlett (Parallax Volatility Advisers), Ken Kwalik (Goldman Option Advisory Services), Kyle McClements (BlackRock Advisors), Thomas Coccaro (Bow Street) and Dennis Davitt (Harvest Volatility Advisers).
Institutional End-Users Perspective panelists included (left to right) Will Bartlett (Parallax Volatility Advisers), Ken Kwalik (Goldman Option Advisory Services), Kyle McClements (BlackRock Advisors), Thomas Coccaro (Bow Street) and Dennis Davitt (Harvest Volatility Advisers).

The 40th Anniversary of the Options Industry Gala Dinner took place Thursday evening and included the presentation of the Joseph W. Sullivan Options Industry Achievement Award. CBOE Chairman and CEO William Brodsky introduced Meyer "Sandy” Frucher, Vice Chairman of The NASDAQ OMX Group, as the 2013 recipient in recognition for his outstanding leadership and contributions to the U.S. options market.

Meyer “Sandy” Frucher (NASDAQ OMX) (left) received the Joseph W. Sullivan Award from William Brodsky (CBOE).
Meyer “Sandy” Frucher (NASDAQ OMX) (left) received the Joseph W. Sullivan Award from William Brodsky (CBOE).

Friday began with the Securities and Exchange Commission address from Heather Seidel followed by a panel discussion on trends in retail trading led by Christopher Larkin. The morning sessions concluded with the highly anticipated Restoring Investor Confidence panel moderated by Jim Kharouf of John Lothian News.

BATS Options and NASDAQ OMX co-sponsored Friday’s Voluntourism event. Now in its second year, more than 30 conference attendees spent the afternoon assisting Three Square Food Bank in its mission to provide food to the hungry people of Southern Nevada. The conference concluded with a memorable exchange dinner held at Chateau Paris overlooking the iconic Bellagio fountains.

Next year’s Annual Options Industry Conference is scheduled for April 30–May 2 in Austin, TX at the Hyatt Regency Lost Pines Resort and Spa.

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OCC Celebrates 40 Years of Clearing and Settlement Services

For 40 years, OCC has cost-effectively provided high-quality clearing and settlement services and sound risk management for the listed options market. Times have changed since 1973* when cleared contract volume totaled 1,119,245, versus 2012’s 4,003,871,308 contracts. Growth is not measured by volume alone. Today, the protections of our financial guarantee and central counterparty role extend beyond listed options to security futures, financial and commodity futures, securities lending and OTC equity derivatives (pending regulatory approval). OCC remains steadfast in providing a solid foundation for secure markets.

"In the 40 years since the founding of OCC we have witnessed remarkable evolution in the options industry,” said OCC President, Chief Operating Officer and Treasurer Mike Cahill. “As we celebrate OCC’s successful first 40 years our goal is to continue to deliver world-class risk management, clearance and settlement services and support and grow the markets we serve for years to come.”

Click here to watch a celebratory look back on 40 years.

OCC Commemorates 40 years

* - 173 trading days

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From the Hill

Recruiting candidates for elected office is as old as our political system itself. In fact, George Washington is widely known as being reluctant to become our first President. He even colorfully wrote in a 1789 letter, “…my movements to the chair of Government will be accompanied with feelings not unlike those of a culprit who is going to the place of his execution…” Knowing how it all turned out, it is interesting to observe the apprehension with which Washington held his election as our country’s first President.

These days we are not short of potential leaders, but with such a divided electorate and varied constituencies within the parties themselves, how are our leaders able to lead? That very question was directed to President Obama. After the Senate defeat of the gun control measure backed by the President, Jonathan Karl of ABC News asked  him if, he “had the juice” to get the rest of his agenda through this Congress.

President Obama responded defensively, paraphrasing Mark Twain by stating that rumors of his demise have been exaggerated. He continued by saying, “Well, if you put it that way, Jonathan, maybe I should just pack up and go home. Golly.” With just four months down and 44 months to go, observers are already wondering if the President can continue to be effective at his job.

All that said, the great thing about Congress and our political system in general is that new ideas and advocates for them are constantly emerging. New HFSC Chairman Jeb Hensarling (R-TX) has dedicated most of his first few months as Chairman to housing finance, holding many hearings on what the proper role of government in the housing industry should be. It is expected that his Committee will introduce and mark up a comprehensive bill reforming the housing finance industry sometime in the next few months.

Meanwhile, House Ways and Means Committee Chairman Dave Camp (R-MI) plans on using his remaining months as Chairman to attempt to reform the tax code. To that end, the U.S. Securities Markets Coalition, led by OCC, submitted its comment letter to the Committee on April 22, 2013, and has continued to communicate with relevant members and staff of the Ways and Means Committee. While it is still unknown at this time when Chairman Camp will introduce formal legislation to reform the tax code and pass a bill out of his Committee, he has publicly stated that his goal is to pass a bill out of his Committee by the end of the year.

Since he decided not to run for re-election in 2014, Senate Finance Chairman Max Baucus (D-MT) is free to work on his own version of tax reform without having to worry about offending sensitive constituencies. Even with his new found freedom, Chairman Baucus still has not released draft proposals on tax reform. The Coalition plans to engage with Senate staff about our concerns with the Camp draft proposal in an effort to ensure that similar language is not included in Chairman Baucus’ tax reform proposal.

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Expiration Friday to Launch in June

OCC is currently in the final stages of transitioning the Standard Monthly Expiration processing from Saturday morning to Friday evening starting with the June 2013 Standard Monthly Expiration. This project was undertaken with the goal of benefiting both clearing members and exchanges including:

  • Migrating clearing members toward real-time trade date reconciliation and position balancing.

  • Coordinating all product expiration types (Standard, Quarterly, Weekly and Daily) to one repeatable expiration process.

  • Aligning the United States with the European markets with expiration processing.

  • Increasing installation and maintenance scheduling flexibility.

  • Reducing clearing member staffing costs for expiration processing.  

Leading up to this change in June, OCC has offered clearing members the opportunity to participate in four separate industry-wide tests and continues to facilitate individual requests for testing. If you have any questions regarding Expiration Friday, please email expfriday@theocc.com

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Changes Made to Clearing Fund Allocation Formula

OCC received regulatory approval to change the formula used to determine clearing members’ contribution requirements to OCC’s Clearing Fund. Currently, clearing members contribute an amount equal to their proportionate share of open interest, subject to a $150,000 minimum. The new formula will incorporate a blended funding allocation with open interest accounting for 50% of the allocation, total risk margin accounting for 35% and contract volume accounting for 15%.

Phase I will result in the implementation of an interim formula of (Open Interest 75% / Total Risk Margin 17.5% / Volume 7.5%). Phase II will account for full migration of the change. It is expected that Phase I will be implemented in conjunction with the November 1, 2013, Clearing Fund Status Report. Phase II will be implemented on May 1, 2014. OCC will provide members with reports indicating the impact of both phases beginning September 1, 2013. Prior to that date, please contact your Financial Surveillance representative if you have questions.

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OCC Board of Directors Welcomes New Members

Three additions to OCC's Board of Directors for 2013 are Felix B. Davidson, President, TD Ameritrade Clearing, Inc. and Managing Director of Operations; Raymond J. Di Sanza, Senior Vice President of Operational Services for Charles Schwab & Co., Inc.; and Craig C. Messinger, Executive Vice President and Head of Trading and Trading Risk at The Bank of New York Mellon.

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Clearing News & Resources


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

 
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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.