The Power of the Options Clearing Corporation (OCC)
The Options Clearing Corporation (OCC) stands as the world’s largest equity derivatives clearinghouse, acting as both issuer and guarantor for options and futures contracts. Governed by both the Commodities Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC), the OCC plays a pivotal role in the orderly functioning of financial markets by ensuring all transactions are properly cleared and settled, thus mitigating systemic risk.
Not to be confused with the U.S. Treasury’s Office of the Comptroller of the Currency, the OCC is fundamental to the robust infrastructure underpinning the financial sector.
The Guardian of Market Integrity
- As a central clearinghouse, the OCC abides by SEC and CFTC regulations, ensuring seamless operations for listed options within the U.S.
- Clearances include diverse financial instruments such as put and call options, stock indexes, foreign currencies, and interest rate composites.
- Additional solutions by the OCC range from research to investor education, customer support, and marketing outreach – all geared towards boosting market integrity and growth.
- In response to evolving market needs, particularly illustrated by the 2008 financial crisis, the OCC has expanded and refined its risk management procedures.
Understanding the Options Clearing Corporation (OCC)
Formed in 1973, the OCC’s mission is to provide stability to the equity derivatives market. Described as a customer-driven clearing organization, it excels in delivering comprehensive risk management, clearance, and settlement services.
Under the SEC’s jurisdiction, the OCC clears transactions across multiple asset types, while also serving as a registered derivatives clearing organization (DCO) under the CFTC. Responsibilities encompass providing central counterparty clearing and settlement for various financial contracts, fulfilling its role as an essential guarantor of market trades.
Guided by its board of directors from diverse market backgrounds including representatives from exchanges and clearing members, the OCC’s primary revenue stems from clearing fees. Beyond clearing, the OCC is actively involved in offering research and other value-added services to promote market stability and growth. Notably, in 2021 it cleared a record-breaking 9.93 billion contracts.
The Evolution of the Options Clearing Corporation (OCC)
Post-2008 finance shifted perspectives on the OCC’s role in market governance. Oversight and regulatory scrutiny have intensified, leading to structural revamps within the OCC to enhance its risk management capabilities and compliance with market demands. Although it received criticism from the SEC around 2013 for management practices and conflicts of interest, new leadership and reforms were rapidly instated to rectify oversight and governance issues.
Illuminating Today’s Leadership
As of 2022, notable leaders steering the course of the OCC include:
- Craig S. Donohue: With over two decades of experience in global financial markets, Donohue joined the OCC in 2014 as the executive chair after serving as CEO at CME Group.
- John P. Davidson: The current CEO since 2019, Davidson brings extensive expertise in financial and corporate risk management, having joined the OCC initially as COO in 2017.
- Scot Warren: Serving as the executive vice president and COO, Warren oversees crucial aspects such as finance and projects, previously holding prominent leadership roles within CME Group.
Together, they drive the OCC’s mission to provide robustness, efficiency, and transparency across financial markets.
Related Terms: clearing organization, equity derivatives, futures contracts, financial markets, securities lending.
References
- Options Clearing Corporation. “What Is OCC?”
- Options Clearing Corporation. “Participant Exchanges & Futures Market”.
- Business Wire. “OCC Clears Record-Setting 9.93 Billion Total Contracts in 2021”.
- U.S. Securities and Exchange Commission. “Testimony on ‘Mitigating Systemic Risk in the Financial Markets Through Wall Street Reforms’”.
- Options Clearing Corporation. “OCC Executives”.
- Options Clearing Corporation. “Craig S. Donohue”.
- Options Clearing Corporation. “John P. Davidson”.
- Options Clearing Corporation. “Scot E. Warren”.
