SEC approves OCC RWD plan
24 August 2018 Chicago
Image: Shutterstock
OCC has revealed that the US Securities and Exchange Commission approved its proposed recovery tools and proposed recovery and orderly wind-down (RWD) plan.
It said that this provides critical tools designed to enable it to successfully manage extreme market disruptions in future financial crises. OCC said it is the first central counterparty (CCP) to receive such approval from the SEC.
OCC said the recovery tools and RWD plan provide several key enhancements to its resiliency.
Improved assessment powers: The improved assessment powers cap each clearing member's aggregate liability to replenish the Clearing Fund at 200 percent of the member's then-existing required contribution, during a minimum 15-day (maximum 20-day) cooling-off period.
OCC said the improved assessment powers will increase the minimum amount of assessments available to it while eliminating the unlimited demands on clearing members (which could have had a destabilising effect during a crisis).
The improved assessment powers also will provide clearing members with better clarity about their maximum exposure to OCC, thereby facilitating their own management of risk and, to the extent applicable, regulatory and capital considerations.
New tools to extinguish losses: OCC said that if an unprecedented loss event ever threatens to exhaust its Clearing Fund resources (inclusive of assessments), the new recovery tools would provide it with the ability to call for voluntary payments and voluntary tear-ups (of contracts) and, if ultimately necessary, to impose mandatory tear-ups to extinguish the positions causing such losses.
OCC further explained that for positions that are producing losses for a CCP, the CCP would extinguish or tear-up those positions to stop the losses as it goes through its financial resources. Every clearing house has this authority, it added.
OCC said: “It is important to understand that in the US, this has never happened, as a CCP has never failed.”
“The need to have in place strong recovery and wind-down plans for CCPs was one of the outcomes of rethinking the clearing system infrastructure after the global financial crisis.”
It said that the updated RWD plan better prepares it for potential threats, however, remote, to its viability and lays out critical steps that it could take to ensure continuity of its critical clearing services to participants in times of extreme financial distress.
OCC added that the updated RWD plan now includes its recovery tools and also reflects the significant organisational improvements that it has accomplished over the past few years.
On 23 August, Standard & Poor revealed that OCC’s credit rating remains unaffected by the SEC’s approval of the company’s new financial safeguards framework.
It said that this provides critical tools designed to enable it to successfully manage extreme market disruptions in future financial crises. OCC said it is the first central counterparty (CCP) to receive such approval from the SEC.
OCC said the recovery tools and RWD plan provide several key enhancements to its resiliency.
Improved assessment powers: The improved assessment powers cap each clearing member's aggregate liability to replenish the Clearing Fund at 200 percent of the member's then-existing required contribution, during a minimum 15-day (maximum 20-day) cooling-off period.
OCC said the improved assessment powers will increase the minimum amount of assessments available to it while eliminating the unlimited demands on clearing members (which could have had a destabilising effect during a crisis).
The improved assessment powers also will provide clearing members with better clarity about their maximum exposure to OCC, thereby facilitating their own management of risk and, to the extent applicable, regulatory and capital considerations.
New tools to extinguish losses: OCC said that if an unprecedented loss event ever threatens to exhaust its Clearing Fund resources (inclusive of assessments), the new recovery tools would provide it with the ability to call for voluntary payments and voluntary tear-ups (of contracts) and, if ultimately necessary, to impose mandatory tear-ups to extinguish the positions causing such losses.
OCC further explained that for positions that are producing losses for a CCP, the CCP would extinguish or tear-up those positions to stop the losses as it goes through its financial resources. Every clearing house has this authority, it added.
OCC said: “It is important to understand that in the US, this has never happened, as a CCP has never failed.”
“The need to have in place strong recovery and wind-down plans for CCPs was one of the outcomes of rethinking the clearing system infrastructure after the global financial crisis.”
It said that the updated RWD plan better prepares it for potential threats, however, remote, to its viability and lays out critical steps that it could take to ensure continuity of its critical clearing services to participants in times of extreme financial distress.
OCC added that the updated RWD plan now includes its recovery tools and also reflects the significant organisational improvements that it has accomplished over the past few years.
On 23 August, Standard & Poor revealed that OCC’s credit rating remains unaffected by the SEC’s approval of the company’s new financial safeguards framework.
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