What Is the Options Clearing Corporation (OCC)?

The Options Clearing Corporation (OCC) is an organization that acts as both the issuer and guarantor for options 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.

Key Takeaways

  • The Options Clearing Corporation is an organization that acts as both the issuer and guarantor for options and futures contracts.
  • The OCC operates under the jurisdiction of the U.S. Securities and Exchange Commission and the Commodities Futures Trading Commission.
  • It clears transactions for put and call options, stock indexes, foreign currencies, interest rate composites, and single-stock futures.
  • Value-added solutions provided by the OCC support and grow the markets it serves, along with 16 different exchanges.
  • Changes were made so the OCC could adapt its operations to better address risk after the financial crisis.

Understanding the 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.

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.

The OCC offers central counterparty clearing and settlement services for securities lending transactions.

The organization acts as guarantor to ensure the obligations of the contracts it clears are fulfilled. 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.

The OCC also provides value-added solutions that support and grow the markets it serves. The corporation serves 16 different exchanges including the C2 Options Exchange, Chicago Board Options Exchange, International Securities Exchange, Nasdaq OMX BX, Nasdaq OMX PHLX, NYSE American Options, and NYSE Arca Options.

Special Considerations

The aftermath of the 2008 financial crisis brought new scrutiny and purpose to the OCC. Changes were made so it could adapt its operations to better address risk. 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 criticized the OCC’s management and planning for the way it handled 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.

This led to the introduction of new executive leadership including the addition of new positions to reinforce the OCC's compliance efforts.

Leadership

The OCC's management and leadership is made of a diverse team of people from different parts of the investment world including exchanges, clearing members, and other directors.

  • Craig S. Donohue: Before joining the OCC as executive chairman in 2014, Donohue spent more than 20 years in global financial markets. He was CEO of CME Group between 2004 and 2012. He has been previously recognized by Harvard Business Review and by Institutional Investor Magazine.
  • John P. Davidson: As CEO, Davidson is responsible for oversight of the OCC's financial and corporate risk management, compliance, and technology functions. Davidson became CEO in 2019, and joined the OCC in 2017 as president and chief operating officer. According to his bio, Davidson has more than three decades' worth of experience in the global financial markets.
  • Scot Warren: Warren is the corporation's executive vice president and chief operating officer (COO). He oversees the OCC's finance, project management, operations, and human resources, among others. Warren previously served as senior managing director of the CME Group's Equity Products and Index Services.

OCC By the Numbers

The OCC cleared more than 5.24 billion contracts in 2018. This included more than 4.57 equity contracts. The total margin held at the end of 2018 amounted to $112.6 billion. The corporation highlighted several other highlights in its annual fact sheet including:

  • An average of 19.7 million contracts cleared daily through September 2019
  • An increase of 17.2% in securities lending central counter party (CCP) activity with a total of 1.37 million transactions