January 2019

OCC's Leadership Enhancements

A note from Craig Donohue about upcoming changes to OCC's leadership.

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OCC's Leadership Enhancements

By Craig Donohue, Executive Chairman and Chief Executive Officer

When I joined OCC in 2014 as Executive Chairman, the company was confronting an evolving regulatory environment that was placing increased demands on clearinghouses, given their systemic importance to the financial system. At that time, OCC's most important priority was solidifying our financial stability for the company's operations. Since then, we have dramatically enhanced our financial resources and expanded our bank and CalPERS liquidity facilities We have strengthened our resiliency through our new clearing fund methodology, which allowed OCC to return more than $3 billion to our clearing firms, and we became the first SEC-regulated SIFMU to gain regulatory approval for our Recovery Tools and Recovery Wind-down plan.

In addition, we have been working to remediate previous compliance shortcomings and assessing our need to comply with new and evolving regulatory requirements. We also are making significant investments in technology to replace our core clearing and risk management systems. We are further developing new stress and back-testing capabilities and strengthening our cyber security programs. All of this has been accomplished while clearing industry record-level volumes of more than 5 billion contracts in 2018 and expanding OCC’s futures and securities lending services.

In 2016 at the request of the OCC Board of Directors, I took on the combined role of Executive Chairman and Chief Executive Officer to drive progress toward our goals and to assemble an accomplished leadership team capable of ensuring that we maintain the technological and operational capabilities needed to serve our stakeholders well into the future.

John Davidson and Scot Warren have been at the forefront of OCC's recent successes, and they are managing an impressive senior leadership team that is working to drive the change OCC needs to better serve our participating exchanges, clearing firms and market users. They have been particularly instrumental in leading our efforts to develop and invest in our new core clearing and risk management systems, as well as in overseeing our enhanced governance processes, remediation programs, and process and control efforts.

Given the critical role that John and Scot have played in helping us achieve these results, and the importance of leveraging their skills and experience as we continue to enhance our operational and technology capabilities, the OCC Board of Directors has unanimously accepted my recommendation to promote John to Chief Executive Officer and Scot to Executive Vice President and Chief Operating Officer. These changes will become effective upon receipt of regulatory approval of by-law and rule changes necessary to effectuate this structure.

As CEO, John will report to OCC's Board of Directors, and will have responsibility for our information technology, financial risk management, corporate risk management, legal and compliance functions. Scot will report to John, and will have oversight for OCC's operations, project management, business process optimization functions, finance, business development, and human resources. As Executive Chairman, I will shift my attention back to facilitating Board leadership and management oversight on behalf of the Board of Directors. I also will continue to focus on strategic issues and OCC's industry leadership role, including our legislative and regulatory policy engagement in Washington, DC.

I am very proud of the progress and momentum that the entire OCC team has provided to our stakeholders, and I believe that significant opportunity exists if we as an industry continue to work together to clear the path for new growth opportunities for the U.S. exchange-listed options and futures markets.

OCC Surpasses 5 Billion Contracts Cleared, Sets Annual Volume Records

OCC set new annual cleared contract volume records for the U.S. exchange-listed options and futures industry in 2018. OCC cleared 5.24 billion total contracts and 5.14 billion options contracts, surpassing the previous records set in 2011, of 4.60 billion total contracts and 4.56 billion options contracts. Compared to 2017, OCC had a 21.1 percent increase in total contracts cleared and a 22.6 percent increase in options contracts cleared.

"The efficient clearance and settlement of more than five billion contracts is a remarkable achievement for the U.S. equity options and futures industry and OCC and is representative of the work OCC does in serving our participating exchanges, clearing firms and market users. I am very proud of the OCC team's ability to promote stability and market integrity through effective and efficient clearance, settlement and risk management services to the users of these important financial markets," said John Davidson, OCC President and Chief Operating Officer.

OCC also cleared a record 567,833,544 total contracts in October, the highest monthly total since OCC's founding in 1973. Additionally, the fourth-highest single-day volume in OCC's history was on October 11 at 37,989,245 contracts.

October 2018 is the second time OCC's total monthly cleared volume surpassed a half billion contracts in one month, with the previous record set in August 2011, at just over 550 million contracts.

"OCC cleared record volume in October, providing high-quality and efficient clearance and settlement of exchange-traded options and futures as we continue to work to meet the heightened regulatory requirements expected of us as a Systemically Important Financial Market Utility. This achievement is a tribute to the hard work of many people across OCC and a demonstration of our commitment to serve as the foundation for secure markets," said Davidson.

For further details on the record-breaking month, please see our press release.

For details about our record-setting year, please see our press release.

OIC Thought Leadership: What's It Like Traveling the Country, Talking Options?

The Options Industry Council (OIC), an industry resource managed by OCC, provides trustworthy education to investors and market participants about the benefits and risks of using exchange-listed options to help manage their investments.

OIC Thought Leadership: What's It Like Traveling the Country, Talking Options?
OIC's Eric Cott moderating a panel on "Options Strategies to Protect Clients' Capital Gains," at an ALTS conference in Las Vegas.

OIC employs several experts who travel across the country meeting with financial advisors, institutional investors, retail investors and college students, helping them understand options as an investment tool.

Joseph Burgoyne, Director of Institutional and Retail Marketing for OIC, acknowledges that the travel required to conduct these educational efforts can be substantial. "We do travel frequently but it's not too often I feel like I’m living out of my suitcase and that's important. Managing our schedules is key from the outset. We’ve been doing this long enough to know our limits and we are fortunate to be able to represent this dynamic industry across the U.S., which is very energizing," said Burgoyne.

Burgoyne says there's a love of the job that comes along with the work. "I am always thinking about how this firm or that firm can benefit from the educational resources we offer, fully funded by OCC," he said. "When working with a firm, it’s invigorating when however many months down the road, we see these educational seeds we planted sprout."

There's also a great deal of variety in the job. Burgoyne regularly speaks with people ranging from retail investors to those at brokerage firms to money managers. He also does simulcasts and webinars and develops content for the OIC's "Wide World of Options podcast". "I don't have to worry about getting bored," he said.

Each of the experts on the OIC business development team has a different role. Eric Cott, Director of Financial Advisor Education, helps financial advisors and professionals better understand options so they can accurately describe the tools to their clients. Recently, Cott came to Chicago for the FIA Expo 2018 to drum up awareness of options as an investment opportunity. During the expo, he made an appearance on Options Insider Radio, hosted by Mark Longo, and was interviewed by Jill Malandrino on the Nasdaq streaming program #TradeTalks.

Cott also spent substantial time networking with conference attendees. "Options strategies are attractive to Financial Advisors and Registered Investment Advisors because of the way they can offer solutions and allow them to be a differentiator. OIC under its FA program has commissioned several quantitative studies over the years on this, and I have seen firsthand this exact feedback from advisors in the field," said Cott.

OIC experts can also represent the public face of options trading in environments that target retail investors. Ed Modla, Manager of Investor Services at OCC, recently appeared at The Money Show in Dallas, speaking on "Building the Infamous Iron Condor" and on "Strategies for a Sideways Market" in front of an audience of more than 200 individual investors.

"The highlight of every show is introducing investors to the educational material offered by OIC," said Modla. "Specifically, when an investor comes by our booth, he or she compliments our live presentation, and asks how we can help them get started using options. These are perfect opportunities to showcase OIC, grow our audience, and capitalize on our mission of being ambassadors for the industry.

"Also, the Dallas event was a chance to network with industry colleagues in addition to beginning new relationships. I was able to connect with several firms including one which offers an options newsletter and another that provides a live trading platform. These connections deepen our footprint within the industry and can also lead to closer relationships where we provide education for their audience."

As the OIC experts can attest, oftentimes sharing knowledge with potential investors, bonding with colleagues and building relationships with the financial media is satisfying and, it's all in a day's work.

John Fennell Discusses Market Innovation and Managing Industry Risk

In a conversation with The Hehmeyer Blog, a digital blog produced by Hehmeyer Trading and Investments, John Fennell, OCC's Executive Vice President and Chief Risk Officer, talked about OCC’s role in supporting market innovation and managing industry risk.

He was asked about the challenges the derivatives industry faces stemming from the 2008 financial crisis, noting "We have seen a lot of great regulation to protect against future crisis' but we have also seen unintended consequences. For example, bank capital requirements related to derivatives transactions have proved punitive." Fennell noted that OCC regularly speaks to regulators on behalf of the U.S. options industry on this issue and has seen proposed rules coming from the Federal Reserve that, if approved, would work to ensure sufficient capital is in place.

Fennell told Hehmeyer that he believes that CCPs have a responsibility to provide stability and certainty to new asset classes, such as crypto currencies. "It is important for OCC to support new asset classes like crypto and ensure we can provide confidence, both financially and operationally, in a manner comparable to existing products we clear. When we were preparing to clear bitcoin, we looked at price volatility and if our risk models were robust enough to sufficiently predict potential risks," he said. "We did a lot of back-testing on our margin models to make sure we could manage the price volatility."

When it comes to cyber threats, Fennell said, "At the top of the list for all CROs is cyber risk." He cautioned that as an industry banks and CCPs are interconnected; a threat to one can weaken all. As a result, the entire financial eco-system works together to combat cyber risk. "Industry groups, market participants and the government must work together on this subject to combat cyber risk and develop a strong financial eco-system," said Fennell.

OCC Serves as Industry Advocate at 34th Annual FIA Expo

At the 2018 FIA Expo on October 16-18, OCC served as an industry advocate, providing thought leadership and education on exchanged-traded options.

OCC President and COO John Davidson spoke on a well-attended panel of clearing leaders, "A Clear Way Forward," where he noted the importance of striking a balance between the survivor pay model and defaulter pay model in developing a risk management plan. He also stated that OCC margin has had 99.93 percent coverage since the new methodology was implemented.

OCC Executive Vice President and CRO John Fennell spoke on the "Preparing CCPs for a New Regulatory Reality" panel, pointing out that the Current Exposure Method poses a challenge in terms of the heightened cost of capital for liquidity providers and market makers in the options space.

Both OCC executives appeared on Nasdaq #TradeTalks with Jill Malandrino, a program that focuses on trading trends and market structure. John Davidson gave a regulatory update on OCC's new Financial Safeguards Framework, while John Fennell talked about the challenges of managing liquidity as a central counterparty.

Eric Cott, Director of Financial Advisor Education at OIC, also appeared on Nasdaq #TradeTalks, speaking about the growing interest in options education by financial advisors as financial markets become more volatile.

In additional to the prominent speaking opportunities, OCC hosted an exhibit booth featuring educational information on the recent uptick in options trading volume and data on OCC’s new Financial Safeguards Framework.

OCC Supports the Work of i.c.stars and Metrocrest

OCC colleagues in the Chicago and Dallas offices raised funds in 2018 to support OCC's charities; i.c.stars in Chicago and Metrocrest Services in Dallas. Each charity aligns with OCC's charitable mission of assisting people and communities at risk. As part of the program, OCC matched dollar-for-dollar employee contributions to the selected charities.


i.c.stars is a workforce development non-profit based in Chicago that identifies, trains and jump-starts careers for low-income young adults who demonstrate extraordinary potential for success in the business world, and who have the opportunity to positively impact their communities.

OCC Chicago colleagues celebrated i.c.stars with a Charity Week, which included a variety of fun and educational activities. The highlight of the week was a luncheon with Sandee Kastrul, founder and president of i.c.stars, who took colleagues through the two-year process of training and supporting the students. Additional activities included a Jeans Week, informational booths, and a competitive "Bags" tournament. At the Chicago Town Hall in December, OCC presented i.c.stars with a charitable donation of $50,000.


Metrocrest Services is a Dallas-based charity focused on assisting families, individuals and senior adults who are coping with crisis situations, and who need help stabilizing their lives, or who require support to live independently. Metrocrest's assistance includes rent and utility bill aid, financial and budgeting assistance, and food donations.

In Dallas, colleagues embraced their love for BBQ to give back to Metrocrest by hosting a "Grill Friday" and Jeans Week in Peʐa Park. At the Dallas Town Hall in December, OCC presented Metrocrest with a charitable donation of $45,000.

Metrocrest Check
OCC's Araceli Mirelez (far left) and Mike Hansen (second from right) present Metrocrest Services with a check on Dec 18, 2018.

Editorial Team