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 largest equity derivatives clearing organization in the world, it operates under the jurisdiction of the Commodities Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC).

The OCC should not be confused with the U.S. Treasury's Office of the Comptroller of the Currency, which also goes by the acronym 'OCC'.

Key Takeaways

  • The Options Clearing Corporation (OCC) serves as a central clearinghouse and regulator for listed options traded in the United States under the auspices of the SEC and CFTC.
  • The OCC clears exchange-traded transactions in options contracts, interest rate composites, and single-stock futures.
  • Value-added solutions provided by the OCC include research services, investor education, customer support, and marketing outreach.
  • Changes have been made so the OCC could adapt its operations to better address risk after the 2008 financial crisis.

Understanding the Options Clearing Corporation (OCC)

The objective of the OCC, which was founded in 1973, is to instill stability in the equity derivatives market. According to its mission statement, the OCC is a customer-driven clearing organization that delivers risk management, clearance, and settlement services.

Under its SEC jurisdiction, the OCC clears transactions for put and call options, stock indexes, foreign currencies, interest rate composites, and single-stock futures. Meanwhile, as a registered derivatives clearing organization (DCO) under CFTC jurisdiction, it provides clearing and settlement services for transactions in futures products, as well as options on futures.

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

The organization essentially acts as a guarantor to ensure the obligations of the contracts it clears are fulfilled. A board of directors (B of D) populated by representatives from exchanges, clearing members and management oversee the OCC, and most of its revenue comes from clearing fees charged to its members.

The OCC also provides research services and other value-added solutions that support and grow the markets that 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.

The OCC cleared nearly 5 billion contracts in 2019, the industry's second-highest ever annual volume after 2018—when a record 5.24 billion contracts were cleared.

History of the Options Clearing Corporation (OCC)

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.

Current Leadership

The OCC's management and leadership currently consist of a diverse team of people from different parts of the investment world, including exchanges, clearing members, and other directors. As of December 2020, key figures include:

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