OCC Responds to CFTC Request for Comment on Trading and Clearing of Derivatives on a 24/7 Basis
The Options Clearing Corporation (“OCC”) appreciates the opportunity to submit this letter in response to the Commodity Futures Trading Commission’s (“CFTC”) Request for Comment on Trading and Clearing Derivatives on a 24/7 Basis.
By way of background, OCC was founded in 1973 and is the world’s largest equity derivatives clearing organization. OCC operates as a central counterparty (“CCP”) under the jurisdiction of both the Securities and Exchange Commission (“SEC”) and the CFTC. As a registered clearing agency under the SEC’s jurisdiction, OCC is the sole clearing agency for equity options listed on national securities exchanges. As a registered Subpart C DCO under the CFTC’s jurisdiction, OCC clears and settles transactions in futures and options on futures. OCC also provides central counterparty clearing and settlement services for securities lending transactions. OCC has been designated by the Financial Stability Oversight Council as a systemically important financial market utility (“SIFMU”) under Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). As a SIFMU, OCC is subject to prudential regulation by the Federal Reserve Board. OCC is recognized by the European Securities and Markets Authority as a Tier 1 third country CCP under Article 25 of the European Market Infrastructure Regulation. OCC operates as a market utility and is owned by five options exchanges.
General Comments
There has been a recent increase in discussions about 24/7 trading. As a matter of regular course, OCC has offered clearing services for certain index options and index futures available for trading during extended trading hours (“ETH”) since 2015. OCC encourages continued discussion among market participants, regulators, and service providers about the challenges related to and solutions for moving to 24/7 trading.
OCC generally views “regular trading hours” to mean 8:30 a.m. Central Time to 3:15 p.m. Central Time. For purposes of this letter, OCC will refer to any time periods where trading occurs outside of regular trading hours as “ETH”. Currently, the hours during which exchanges make products available for trading during ETH vary by product and exchange.
For purposes of this letter, OCC will address the CFTC’s questions under the assumption that 24/7 trading means that all products OCC currently clears and settles during regular trading hours would be available for trading, and therefore, clearance and settlement, at all other times of the day without any period when markets are closed. OCC is also operating under the assumption that the entire current regulatory structure, including but not limited to real-time and pre-trade monitoring by exchanges, would be applied to and adopted for trading at all hours of the day. Deviations from the existing regulatory structure would require additional changes and considerations.
In OCC’s view, moving to 24/7 clearance and settlement creates challenges that will take time to address. These challenges include, among other things: risk management considerations, i.e., risk monitoring and margining positions throughout a 24-hour period; participants’ ability to access products to hedge derivatives transactions; timing around daily settlement, which currently only occurs once a day in the morning; bank availability and access to Clearing Members funds; exercise and assignment timing considerations; impacts from corporate actions; and operational and risk management processes, support/staffing, and infrastructure. Below, OCC discusses its current approach to clearing and settling transactions during ETH and provides feedback on the broader concepts raised in the CFTC’s questions.