OCC

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OCC
Occ-logo-2.gif
Founded 1973
Headquarters Chicago
Key People Craig Donohue, Executive Chairman and CEO
Products Clearing services
Website www.optionsclearing.com


OCC (formerly The Options Clearing Corporation), founded in 1973, is the world's largest equity derivatives clearing organization. OCC processes trades for all 15 U.S. options exchanges and for some futures markets. It has about 115 clearing members that include the biggest U.S. broker-dealers, futures commission merchants and non-U.S. securities firms.[1] In 2016, the OCC cleared more than 4.1 billion contracts.[2]

OCC is dedicated to promoting stability and financial integrity in the marketplaces by focusing on sound risk management principles. By acting as guarantor, OCC ensures that the obligations of the contracts it clears are fulfilled.[3]

In March of 2011, the organization revised its name and brand identity from The Options Clearing Corporation to OCC to reflect its more diverse suite of clearing solutions.

Although OCC began as a clearinghouse for listed equity options, the company has evolved to clear a multitude of products. OCC operates under the jurisdiction of both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Under its SEC jurisdiction, OCC clears transactions for put and call options on common stocks and other equity issues, stock indexes, foreign currencies, interest rate composites and single-stock futures (which are dually regulated by the SEC and CFTC) in the U.S.

As a registered Derivatives Clearing Organization (DCO) under CFTC jurisdiction, OCC also provides clearing and settlement services for transactions in futures and options on futures. Additionally, OCC provides central counterparty clearing and settlement services for two securities lending market structures, OCC's OTC Stock Loan Program and AQS, an automated marketplace for securities lending and borrowing.

OCC was designated a systemically important financial market utility (SIFMU) by the Financial Stability Oversight Council in July of 2012. That designation was part of the Dodd-Frank financial overhaul law.[4]

Overseeing OCC is a clearing member-dominated board of directors. OCC operates as an industry utility and receives most of its revenue from clearing fees charged to its members. OCC offers volume discounts on fees and, as applicable, refund excess fees to its clearing members.

OCC's participant option exchanges include: BATS Options Market, BOX Options Exchange, C2 Options Exchange, Chicago Board Options Exchange, EDGX Exchange, International Securities Exchange, ISE Gemini, ISE Mercury, MIAX Options Exchange, MIAX Pearl, NASDAQ OMX BX,NASDAQ OMX PHLX, NASDAQ Options, NYSE Amex and NYSE Arca. OCC's participant futures markets include:CBOE Futures Exchange, ELX Futures, NASDAQ OMX Futures Exchange and OneChicago. [5]

Its clearing members serve both professional traders and public customers and comprise about 115 of the largest U.S. broker-dealers, futures commission merchants and non-U.S. securities firms. OCC's goal is to service clearing members and the exchanges through an operating plan that emphasizes timely, reliable and cost-efficient clearing operations.

OCC also serves other markets, including those trading commodity futures, commodity options and security futures. OCC clears futures contracts traded on CBOE Futures Exchange, ELX Futures and NASDAQ Futures, as well as security futures contracts traded on OneChicago.

The OCC was owned equally by so-called legacy exchanges: NYSE ARCA, NYSE MKT, International Securities Exchange, Nasdaq and CBOE. With the acquisition of ISE by Nasdaq, Nasdaq's stake in OCC grew from 20 percent to 40 percent.[6]

History

The Options Clearing Corporation (OCC) was founded in 1973, initially as a clearinghouse for five listed markets for equity options. Prior to its establishment, and due to a great deal of encouragement from the SEC, the Chicago Board Options Exchange had its own clearing entity, the Chicago Board Options Exchange Clearing Corporation. Clearing volumes have increased dramatically since its launch, reflecting the growing use of equity options. In 2001, for example, the clearinghouse sported average daily volumes of 3.1 million contracts.[7] In 2015, average daily volume was 16.4 million contracts. In August 2011, OCC reported a record monthly volume of 550 million contracts.[8]

In 1992, the OCC, in conjunction with the U.S. options exchanges, created the Options Industry Council (OIC), a cooperative tasked with educating the investing public about options.

The OCC started a securities lending program, the Hedge System, in 1993, to allow clearing members to reduce their margin requirements. Clearing of stock loans got a boost in January 2009 when OCC began clearing all stock loans on AQS, an alternative trading system.[9] The program underwent substantial growth in the 2010s, with 1.4 million new stock loan transactions cleared in 2015.[10]

On August 8, 2011, Standard & Poor's lowered the ratings on clearing facilities including the OCC, to double-A-plus, one step below the coveted triple-A rating. OCC issued a statement in response to the downgrade, that included this quote from OCC's then- chairman and CEO Wayne P. Luthringshausen: “This rating change will have no negative impact on OCC’s operations or our ability to meet our obligations to OCC’s clearing members." [11]

Also in 2011, Standard & Poor's and OCC announced a licensing agreement whereby OCC would clear over-the-counter (OTC) options based on the S&P 500. The deal marked the first time a clearing house would clear OTC options on S&P indexes. It also included the S&P MidCap 400 and S&P SmallCap 600.[12] OCC officially received regulatory approvals to clear OTC equity index options in January 2014. The launch of the OTC S&P 500 equity index option clearing services is expected in the second quarter of 2014.[13]

In September of 2013, OCC filed to become compliant with the European Market Infrastructure Regulation, which will enable banks registered in the region to trade U.S. options without incurring higher capital costs for firms there who want to trade U.S. equity derivatives. [14]

On September 29, 2014, OCC and the U.S. options exchanges announced the adoption of new principles-based risk control standards. The new standards include price reasonability checks, drill-through protections, activity-based protections and kill-switch protections, pending regulatory approval. The reforms are designed to reduce the risk of errors or unintended activity that could cause or contribute to a financial loss to market participants and OCC.[15] Also subject to regulatory approval, starting on June 30, 2016, OCC will impose an additional $.02 charge per contract side on clearing members for transactions that have been executed at exchanges that have not demonstrated compliance with the exchange risk control standards.

On March 6, 2015, the SEC approved OCC's capital plan increasing shareholders' equity from $25 million at the end of 2013 to $247 million through the retention of $72 million in 2014 earnings and receipt of $150 million in equity capital contributions from OCC's stockholder exchanges. Under the plan, the stockholder exchanges also committed to provide up to $117 million in capital in the event of unexpected losses, giving OCC access to about $364 million in equity capital resources. [16] A stay was subsequently put on the approval order for the capital plan, instituted automatically under SEC rules because petitions had been filed requesting review by the full commission; however, the stay was lifted in September of 2015.[17]

OCC announced in 2016 that it would be moving both its Chicago HQ and its Dallas office to a larger spaces in their respective cities.[18]


Management Restructuring

On December 31, 2013, longtime CEO and chairman Wayne P. Luthringshausen, who worked on the development of the OCC (then the Chicago Board Options Exchange Clearing Corporation) in 1973 and shortly thereafter became CEO, retired from the clearinghouse. Upon his retirement, the OCC split the roles of CEO and chairman, with Michael Cahill becoming CEO. The management moves continued in January 2014 when Craig Donohue became executive chairman.

Cahill retired from OCC at the end of 2014 after the company announced the move in September. He worked at OCC for 32 years. The flurry of managerial moves came after the SEC criticized the OCC's risk management and compliance practices in 2013. OCC's board of directors has started the process of searching for a new CEO, according to a statement. Executive Chairman Craig Donohue will oversee a transition of Cahill's responsibilities to other OCC executives during the search; Chief Operating Officer Michael McClain, took on the additional title of president as part of the transition. [19]

Key People

Executives:[20]

  • Craig S. Donohue, Executive Chairman and CEO
  • John Davidson, President and Chief Operating Officer
  • Scot Warren, Chief Administrative Officer
  • John Fennell, Executive Vice President and Chief Risk Officer
  • Jean Cawley, Senior Vice President and Special Adviser to the Executive Chairman
  • Joseph Kamnik, Senior Vice President, General Counsel and Corporate Secretary
  • Jim Kustusch, Senior Vice President, Operations
  • Amy Shelly, Senior Vice President and Chief Financial Officer
  • David Hoag, Senior Vice President and Chief Information Officer
  • Tracy Raben, Senior Vice President and Chief Human Resources Officer
  • Joe Adamczyk, Senior Vice President and Chief Compliance Officer
  • Mark Morrison, Senior Vice President and Chief Security Officer
  • Dale Michaels, Executive Vice President, Financial Risk Management
  • Adi Agrawal, Senior Vice President and Chief Business Transformation Officer
  • Chip Dempsey, Senior Vice President and Chief Commercial Officer
  • David Prosperi, First Vice President, Public Relations, and First Vice President, Communications
  • Julie Bauer, Senior Vice President, Government Relations

Board Members: [21]

Resources

Comprehensive Options Expiration Calendar

OCC Options Expirations.

Volume

The OCC offers customizable trade volume searches, among other tools, at its market data portal.

OCC News

The OCC provides current and archived news issues that display what the company has been doing throughout the year internally, externally, and on Capitol Hill. These articles can be found over at its OCC newsroom.

OCC Annual Reports

References

  1. U.S. options clearinghouse CEO to retire after year in top spot. Reuters.
  2. OCC 2016 Annual Report. OCC.
  3. What is OCC?. OCC.
  4. OCC Announces Its Designation as a Systemically Important Financial Market Utility. OCC.
  5. OCC Participant Exchanges and Futures Market. OCC.
  6. Nasdaq buys Deutsche Boerse options market for $1.1 billion. Bloomberg.
  7. OCC 2001 Annual Report. OCC.
  8. OCC Timeline. OCC.
  9. OCC Stock Loan Programs. OCC.
  10. OCC 2015 Annual Report. OCC.
  11. OCC Statement Regarding the S&P Change on OCC Counterparty Risk. OCC.
  12. S&P And The Options Clearing Corporation Bring Central Counterparty Clearing To OTC Index Options. OCC.
  13. OCC Prepares to Launch OTC S&P 500 Equity Index Options Clearing. PRWeb.
  14. OCC Plan May Cut Capital Costs for Europe Options Traders. Bloomberg.
  15. OCC and The U.S. Options Exchanges Announce New Risk Control Standards to Strengthen Industry Protections. OCC.
  16. SEC Approves New OCC Capital Plan. SEC.
  17. OCC Applauds SEC Decision to Discontinue Stay and Proceed with Review of Capital Plan. OCC.
  18. OCC expands, plans to move Chicago HQ. Crain's Chicago Business.
  19. U.S. options clearinghouse CEO to retire after year in top spot. Reuters.
  20. OCC Announces Board Appointments And Nominations, Adopts Governance Enhancements. Mondo Visione.
  21. Board Member Biographies. The Options Clearing Corporation.