OCC welcomes passing of market stability act
13 July 2018 Chicago
Image: Shutterstock
The Options Clearing Corporation (OCC) has issued a statement on the passing of HR 5749, otherwise known as the Options Markets Stability Act, by the US House of Representatives on 10 July.
Craig Donohue, OCC executive chairman and CEO, described the passage of the legislation, sponsored by Representatives Randy Hultgren and Bill Foster, as an important step forward in helping ensure that market makers can provide vital liquidity for investors who use the US equity options markets to help manage their financial risk.
HR 5749, as amended, requires federal bank regulators to establish a methodology for calculating the counterparty credit risk exposure, at default, of a financial institution pursuant to the risk-based and leveraged-based capital rules.
Last month, the House Financial Services Committee passed the bill by a unanimous vote of 54-0.
Representative Hultgren, who serves as the vice-chair of the sub-committee on capital markets and securities, said at the time: “Illinois is the birthplace and home of listed options markets. Healthy options markets provide ample opportunity for investors to plan for the future and hedge risk.”
“The market volatility seen in equity markets earlier this year exposed the extent to which existing rules are restricting liquidity when it is needed the most.”
He added: “Unfortunately, market-makers who provide liquidity for listed options are indirectly constrained by bank capital rules from fulfilling their role in maintaining price stability, leading to less liquidity and higher costs for investors who want to hedge risk. I sponsored the Options Markets Stability Act so investors can manage risk in volatile markets at a lower cost.”
Craig Donohue, OCC executive chairman and CEO, described the passage of the legislation, sponsored by Representatives Randy Hultgren and Bill Foster, as an important step forward in helping ensure that market makers can provide vital liquidity for investors who use the US equity options markets to help manage their financial risk.
HR 5749, as amended, requires federal bank regulators to establish a methodology for calculating the counterparty credit risk exposure, at default, of a financial institution pursuant to the risk-based and leveraged-based capital rules.
Last month, the House Financial Services Committee passed the bill by a unanimous vote of 54-0.
Representative Hultgren, who serves as the vice-chair of the sub-committee on capital markets and securities, said at the time: “Illinois is the birthplace and home of listed options markets. Healthy options markets provide ample opportunity for investors to plan for the future and hedge risk.”
“The market volatility seen in equity markets earlier this year exposed the extent to which existing rules are restricting liquidity when it is needed the most.”
He added: “Unfortunately, market-makers who provide liquidity for listed options are indirectly constrained by bank capital rules from fulfilling their role in maintaining price stability, leading to less liquidity and higher costs for investors who want to hedge risk. I sponsored the Options Markets Stability Act so investors can manage risk in volatile markets at a lower cost.”
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