DC Circuit refuses to delay OCC's approval
25 February 2016 Washington DC
Image: Shutterstock
The US Court of Appeals for the District of Columbia Circuit has denied a motion to delay approval of Options Clearing Corporation’s (OCC) capital plan, paving the way for the payment of refunds and dividends to shareholder stock exchanges and clearing members totalling $291.5 million.
The DC Circuit dismissed the motion to delay the Securities and Exchange Commission’s (SEC) de novo approval, filed by Bats Global Markets, Susquehanna International Group LLP, KCG Holdings, Box Options Exchange and Miami International Securities Exchange, on 23 February.
The petitioners had urged the DC Circuit to act quickly, arguing that it would be difficult for the SEC to unwind the capital plan, which will in essence see OCC shareholder stock exchanges, including Nasdaq OMX Group and Chicago Board Options Exchange, swap capital for dividends and refunds, once fully implemented.
With the motion to stay the SEC’s approval dismissed, OCC can now proceed with issuing the refunds and dividends while also raising its total equity capital resources to $247 million.
OCC has confirmed that the final 2015 refund of $40 million, special refund of $69.4 million and 2015 dividend of $19.7 million were approved by OCC’s board of directors on 19 February.
The 2014 refund of $33.3 million, the 2015 refund of $40 million and the 2015 dividend of $19.7 million will be paid to clearing members and shareholder stock exchanges on 24 February, according to OCC.
The 2015 special refund of $69.4 million will be paid “as soon as practicable in 2016”, as long as the payment will not cause OCC’s capital to fall below its total equity capital resource requirement of $247 million.
This payment would take total refunds and dividends under the capital plan to $291.5 million.
Craig Donohue, executive chairman of OCC, said in a statement: “The court’s action is consistent with every SEC decision regarding the capital plan since 26 February 2015—amounting to nearly one full year’s worth of unsuccessful challenges from the same group of Petitioners—and further demonstrates the compelling public interest that OCC’s capital plan serves."
“[The] decision also permits OCC to overcome the petitioners’ roadblocks to facilitating the refunds and dividends that our clearing members and stockholder exchanges are entitled to under the plan.”
The petitioners filed a motion to block the SEC’s approval of OCC’s capital plan on 12 February, arguing that it is “irrational” to swap OCC’s own funds for “exorbitantly priced capital” from the shareholder stock exchanges.
The capital plan will create an unfair advantage for a systemically important financial market utility such as OCC, they argued, as it will also be able to implement a new fee schedule that will mark a 19 percent drop in cost.
OCC is the sole clearinghouse for exchange-listed options in the US and the capital plan effectively allows its shareholder exchanges to monetise the OCC's monopoly over options clearing for their benefit, they argued.
Under the approved capital plan, OCC will pay dividends at a level some 16 to 20 percent higher than current market rates, they argued.
At the heart of the group’s argument to have the approval overturned is the SEC’s consultation process, which saw the US securities markets regulator receive a string of comments in opposition, all of which were largely ignored.
The SEC’s approval “contains factual errors, ignores relevant data, fails to engage in necessary economic analysis and does not consider reasonable alternatives”, they argued.
Bats, Susquehanna, KCG and others contested the capital plan last year, citing policy and competition concerns. They managed to convince the SEC to implement a temporary stay while the plan was reviewed, but that was eventually lifted and the plan later approved.
The DC Circuit dismissed the motion to delay the Securities and Exchange Commission’s (SEC) de novo approval, filed by Bats Global Markets, Susquehanna International Group LLP, KCG Holdings, Box Options Exchange and Miami International Securities Exchange, on 23 February.
The petitioners had urged the DC Circuit to act quickly, arguing that it would be difficult for the SEC to unwind the capital plan, which will in essence see OCC shareholder stock exchanges, including Nasdaq OMX Group and Chicago Board Options Exchange, swap capital for dividends and refunds, once fully implemented.
With the motion to stay the SEC’s approval dismissed, OCC can now proceed with issuing the refunds and dividends while also raising its total equity capital resources to $247 million.
OCC has confirmed that the final 2015 refund of $40 million, special refund of $69.4 million and 2015 dividend of $19.7 million were approved by OCC’s board of directors on 19 February.
The 2014 refund of $33.3 million, the 2015 refund of $40 million and the 2015 dividend of $19.7 million will be paid to clearing members and shareholder stock exchanges on 24 February, according to OCC.
The 2015 special refund of $69.4 million will be paid “as soon as practicable in 2016”, as long as the payment will not cause OCC’s capital to fall below its total equity capital resource requirement of $247 million.
This payment would take total refunds and dividends under the capital plan to $291.5 million.
Craig Donohue, executive chairman of OCC, said in a statement: “The court’s action is consistent with every SEC decision regarding the capital plan since 26 February 2015—amounting to nearly one full year’s worth of unsuccessful challenges from the same group of Petitioners—and further demonstrates the compelling public interest that OCC’s capital plan serves."
“[The] decision also permits OCC to overcome the petitioners’ roadblocks to facilitating the refunds and dividends that our clearing members and stockholder exchanges are entitled to under the plan.”
The petitioners filed a motion to block the SEC’s approval of OCC’s capital plan on 12 February, arguing that it is “irrational” to swap OCC’s own funds for “exorbitantly priced capital” from the shareholder stock exchanges.
The capital plan will create an unfair advantage for a systemically important financial market utility such as OCC, they argued, as it will also be able to implement a new fee schedule that will mark a 19 percent drop in cost.
OCC is the sole clearinghouse for exchange-listed options in the US and the capital plan effectively allows its shareholder exchanges to monetise the OCC's monopoly over options clearing for their benefit, they argued.
Under the approved capital plan, OCC will pay dividends at a level some 16 to 20 percent higher than current market rates, they argued.
At the heart of the group’s argument to have the approval overturned is the SEC’s consultation process, which saw the US securities markets regulator receive a string of comments in opposition, all of which were largely ignored.
The SEC’s approval “contains factual errors, ignores relevant data, fails to engage in necessary economic analysis and does not consider reasonable alternatives”, they argued.
Bats, Susquehanna, KCG and others contested the capital plan last year, citing policy and competition concerns. They managed to convince the SEC to implement a temporary stay while the plan was reviewed, but that was eventually lifted and the plan later approved.
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