OCC completes next phase of liquidity enhancement plans
07 July 2020 Chicago
Image: niroworld/Shutterstock
The Options Clearing Corporation (OCC) has completed the implementation of the third phase of its Financial Safeguards Framework (FSF) which aims to shield it and its members from market volatility.
OCC’s liquidity risk management framework aims to ensure that it holds sufficient qualified liquid resources to meet settlement obligations under “foreseeable stress scenarios”.
Such scenarios, OCC says, include the default of the clearing member organisation (CMO) group that would “generate the largest aggregate payment obligation in extreme but plausible market conditions”.
Phase three of the equity derivatives clearinghouse’s FSF saw several changes to its rules including aims to utilise the output of OCC’s existing credit stress testing methodology for liquidity stress testing and the increase of its base liquidity resources to $6.5 billion.
OCC will also now seek to collect additional resources from its CME group responsible for stressed liquidity demands exceeding available liquidity resources.
It will also provide authority to increase the clearing fund cash requirement incrementally.
Finally, OCC will implement a two-day notification period on all clearing fund collateral substitutions of government securities for cash in excess of the firm’s minimum clearing fund cash requirement.
This will allow OCC to include all available clearing fund cash into its liquidity resources calculations, it says.
OCC gained approval for phase three of its FSF on 4 June and completed the implementation on 29 June.
Phase one of the FSF included the resizing of OCC’s clearing fund to cover the simultaneous default of its two largest clearing member firms, while phase two implemented significant enhancements to its margin and stress testing methodologies.
Dale Michaels, executive vice president, financial risk management, adds: “This implementation represents the culmination of several years of collaborative work with our regulators to enhance OCC’s resiliency as a systemically important financial market utility.
“These enhancements increase market transparency and establish a new approach to liquidity stress testing and determining the adequacy, sizing, and sufficiency of OCC’s liquidity resources.”
OCC’s liquidity risk management framework aims to ensure that it holds sufficient qualified liquid resources to meet settlement obligations under “foreseeable stress scenarios”.
Such scenarios, OCC says, include the default of the clearing member organisation (CMO) group that would “generate the largest aggregate payment obligation in extreme but plausible market conditions”.
Phase three of the equity derivatives clearinghouse’s FSF saw several changes to its rules including aims to utilise the output of OCC’s existing credit stress testing methodology for liquidity stress testing and the increase of its base liquidity resources to $6.5 billion.
OCC will also now seek to collect additional resources from its CME group responsible for stressed liquidity demands exceeding available liquidity resources.
It will also provide authority to increase the clearing fund cash requirement incrementally.
Finally, OCC will implement a two-day notification period on all clearing fund collateral substitutions of government securities for cash in excess of the firm’s minimum clearing fund cash requirement.
This will allow OCC to include all available clearing fund cash into its liquidity resources calculations, it says.
OCC gained approval for phase three of its FSF on 4 June and completed the implementation on 29 June.
Phase one of the FSF included the resizing of OCC’s clearing fund to cover the simultaneous default of its two largest clearing member firms, while phase two implemented significant enhancements to its margin and stress testing methodologies.
Dale Michaels, executive vice president, financial risk management, adds: “This implementation represents the culmination of several years of collaborative work with our regulators to enhance OCC’s resiliency as a systemically important financial market utility.
“These enhancements increase market transparency and establish a new approach to liquidity stress testing and determining the adequacy, sizing, and sufficiency of OCC’s liquidity resources.”
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
