US SEC approves OCC capital management policy 31 January 2020Chicago Reporter: Natalie Turner
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The Options Clearing Corporation (OCC) has been given the green light for its capital management policy from the US Securities and Exchange Commission (US SEC).
The core elements of the Chicago-based equity derivatives clearinghouse’s policy provide OCC’s approach to determining clearing fees inclusive of an operating margin based on the variance in daily volume.
It also identifies the considerations made in determining OCC’s level of target capital on an annual basis and to monitor its capital levels to identify whether capital has fallen or is in danger of falling.
If this were to be the case, the policy also includes a contingency plan of replenishing additional capital if it falls below defined thresholds.
According to Craig Donohue, OCC’s executive chairman, the capitalisation will help to “increase market transparency, and provide capital and operational efficiencies for the participants in the US exchange-listed options, futures and securities lending markets."
In the event of a clearing member default, OCC explains, the amount of equity capital above 110 percent of the target capital requirement will be available to offset the loss after utilising the margin and clearing fund contributions of the default clearing member.
Additionally, OCC will contribute the funds held under its executive deferred compensation plan (EDCP), to the extent such funds are deposited on or after 1 January and in excess of amounts necessary to pay for benefits vested under the EDCP at such time, on a pro-rata basis with clearing member fund contributions.
OCC’s chief operating officer Scot Warren says that the policy’s fair swift approval was due in part to the feedback received from OCC clearing member firms and other market participants.
“This policy will ensure OCC maintains appropriate financial resources to continue providing critical services to our participating exchanges, clearing member firms, and their customers in the unlikely event of a material operational loss," he says.
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