DEFINITION of Options Clearing Corporation (OCC)
The Options Clearing Corporation (OCC) is an organization that acts as both the issuer and guarantor for option and futures contracts. The OCC operates under the jurisdiction of the U.S. Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC). Under its SEC jurisdiction, the OCC clears transactions for put and call options, stock indexes, foreign currencies, interest rate composites and single-stock futures.
As a registered derivatives clearing organization (DCO) regulated by the CFTC, the OCC provides clearing and settlement services for transactions in futures products, as well as options on futures. For securities lending transactions, the OCC offers central counterparty clearing and settlement services.
BREAKING DOWN Options Clearing Corporation (OCC)
Founded in 1973, the Options Clearing Corporation is the largest equity derivatives clearing organization in the world. According to its mission statement, the OCC is a customer-driven clearing organization that delivers risk management, clearance and settlement services. The objective of the OCC is to instill stability in the equity derivatives market.
The OCC also provides value-added solutions that support and grow the markets it serves. The organization states that it acts as guarantor to ensure the obligations of the contracts it clears are fulfilled.
How the Financial Crisis Led to Changes at the Options Clearing Corporation
The aftermath of the 2008 financial crisis brought new scrutiny and purpose to the OCC as it was called upon to adapt its operations to better address risk. Furthermore, federal regulators began to see the OCC as an increasingly integral part of the governance and oversight of the markets. The heightened attention focused on the organization brought with it some unfavorable assessments by regulators.
In 2013, the SEC, in particular, criticized the OCC’s management and planning for the handling of market-wide issues. The SEC also said the OCC’s management at that time lacked appropriate supervision in terms of corporate governance. The SEC further cited numerous conflicts of interest with the management and board of directors, which called into question the organization’s commitment to regulatory compliance.
New executive leadership was introduced thereafter, including the addition of new positions to reinforce the OCC's compliance efforts.
A board of directors populated by representatives from exchanges, clearing members and management oversees the Options Clearing Corporation. Most of its revenue comes from clearing fees charged to its members; volume discounts on those fees are available. Exchanges and markets that the OCC serves include C2 Options Exchange, Chicago Board Options Exchange, International Securities Exchange, NASDAQ OMX BX, NASDAQ OMX PHLX, NYSE American Options and NYSE Arca Options.