What Is the Options Clearing Corporation (OCC)?
Let me explain what the Options Clearing Corporation, or OCC, really is. It's the organization that issues and guarantees options and futures contracts, standing as the world's largest clearinghouse for equity derivatives. I want you to know it operates under the watch of the Commodities Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC).
Don't mix this up with the U.S. Treasury's Office of the Comptroller of the Currency, which shares the same acronym but has nothing to do with derivatives.
Key Takeaways
Here's what you need to grasp: The OCC functions as the central clearinghouse and regulator for listed options in the U.S., all under SEC and CFTC authority. It handles clearing for exchange-traded options contracts and interest rate composites. Beyond that, it delivers value-added services like research, investor education, customer support, and marketing outreach. And remember, after the 2008 financial crisis, the OCC made changes to its operations to better manage risk.
Understanding the Options Clearing Corporation (OCC)
Founded in 1973, the OCC's main goal is to bring stability to the equity derivatives market. As per its mission, it's a customer-focused clearing organization providing risk management, clearance, and settlement services.
Under SEC rules, it clears put and call options, stock indexes, foreign currencies, and interest rate composites. As a registered derivatives clearing organization with the CFTC, it also covers futures products and options on futures.
Importantly, the OCC provides central counterparty clearing and settlement for securities lending transactions. It basically guarantees that the obligations of the contracts it clears get fulfilled. A board of directors, made up of exchange reps, clearing members, and management, oversees everything, and most revenue comes from clearing fees charged to members.
The OCC also offers research services and other solutions to support market growth. It serves 16 exchanges, including the C2 Options Exchange, Chicago Board Options Exchange, International Securities Exchange, Nasdaq BX Options, Nasdaq PHLX, NYSE American Options, and NYSE Arca Options.
Just to note, in 2021, the OCC cleared 9.93 billion contracts, which was the highest annual volume ever in the industry.
History of the Options Clearing Corporation (OCC)
The 2008 financial crisis put the OCC under new scrutiny and gave it a sharper purpose. Changes were implemented to adapt operations and better handle risk. Federal regulators started viewing the OCC as a key player in market governance and oversight, but that attention came with some criticism.
In 2013, the SEC pointed out flaws in how the OCC managed market-wide issues and its planning. They also criticized the lack of proper supervision in corporate governance and noted conflicts of interest in management and the board, raising doubts about its regulatory compliance commitment.
This prompted new executive leadership, including added positions to strengthen compliance efforts.
Current Leadership
Today, the OCC's leadership team draws from various parts of the investment world, including exchanges, clearing members, and other directors. As of October 2022, key people include:
Key Leadership Figures
- Craig S. Donohue: He joined as executive chair in 2014 after over 20 years in global financial markets, including as CEO of CME Group from 2004 to 2012, and has been recognized by Harvard Business Review and Institutional Investor Magazine.
- John P. Davidson: As CEO, he oversees financial and corporate risk management, compliance, and technology. He became CEO in 2019 after joining as president and COO in 2017, bringing more than three decades of experience in global financial markets.
- Scot Warren: As executive vice president and COO, he manages finance, project management, operations, and human resources. He previously was senior managing director of CME Group's Equity Products and Index Services.
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