Options Clearing Corporation

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Options Clearing Corporation
Industry Financial services
Founded 1973 (1973)
Headquarters Chicago, Illinois, U.S.
Products Clearing house (finance), Equity derivatives clearing
Website www.theocc.com

Options Clearing Corporation (OCC) is a United States clearing house based in Chicago. The clearing house specialises in equity derivatives clearing, providing central counterparty (CCP) clearing and settlement services to 14 exchanges. Instruments include options, financial and commodity futures, security futures and securities lending transactions.

Like all clearing houses, the OCC acts as guarantor between clearing parties ensuring that the obligations of the contracts they clear are fulfilled.

As of 2011, OCC was the largest equity derivatives clearing organization in the United States and operates under the jurisdiction of both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Under its SEC jurisdiction, OCC clears transactions for put and call options on common stock and other equity issues, stock indexes, foreign currencies, interest rate composites and single-stock futures. As a registered Derivatives Clearing Organization (DCO) under CFTC jurisdiction, OCC offer clearing and settlement services for transactions in futures and options on futures contracts.

OCC is overseen by a clearing member dominated board of directors and operates as a financial market utility, receiving most of its revenue from clearing fees charged to its members.

History[edit]

OCC's predecessor Chicago Board Options Exchange Clearing Corporation is founded in 1973 when the CBOE list traded options for the first time.

In 1975 the Securities and Exchange Commission (SEC) approves OCC as the central clearing corporation for exchange-listed options. Over the next two years the Pacific Exchange (PCX) The American Stock Exchange (AMEX) and the Philadelphia Stock Exchange (PHLX) join the OCC as clearing members.

In 1985, OCC implements delivery versus payment (DVP) to enhance foreign currency settlement. The following year New York Stock Exchange and the National Association of Securities Dealers (NASD) become Participant Exchanges of OCC. IN 1987 OCC extends membership to Canadian firms and also sets up special clearing agreement, OCC's clearing services and financial guarantee enable Amex to establish a link with the European Option Exchange (EOE).

In 1994, The exchanges significantly increase the number of options product listings in flexibly structured exchange-traded options, long-term options, month-end options and interest rate options leading to significant increases in volume for the OCC.

In 2000, The International Securities Exchange joins OCC as a Participant Exchange. It is the first new US options exchange since 1985 and the first all-electronic options exchange. This is followed by a number of other electronic exchanges over the next decade including, The Island Futures, NASDAQ Options, BATS Options.

In October 2008 NYSE Liffe announced it has chosen OCC to take over clearing responsibilities for its US futures arm.[1]

Participant exchanges and clearing members[edit]

OCC's participant exchanges include: BATS, Chicago Board Options Exchange, International Securities Exchange, NASDAQ OMX BX, Inc., NASDAQ OMX PHLX, Nasdaq Stock Market, NYSE Amex, and NYSE Arca. Its clearing members serve both professional traders and public customers and comprise approximately 120 of the largest U.S. broker-dealers, futures commission merchants and non-U.S. securities firms. OCC's goal is to service clearing members and the exchanges through an operating plan that emphasizes timely, reliable, and cost-efficient clearing operations.

OCC also serves other markets, including those trading commodity futures, commodity options, and security futures. OCC clears futures contracts traded on CBOE Futures Exchange, NYSE Liffe, NASDAQ OMX Futures Exchange and ELX Futures, as well as security futures contracts traded on OneChicago and options on futures contracts traded at NYSE Liffe US. In addition, OCC provides central counterparty services for two securities lending market structures, OCC's OTC Stock Loan Program and AQS, an automated marketplace for securities lending and borrowing. OCC is also a sponsor of the Options Industry Council.

Margining[edit]

Key to a clearing organization is margin requirement, which manages its credit risk (risk of member default).

From the 1980s, the margining system was called known as TIMS (Theoretical Intermarket Margin System). In 2006, this system was replaced by a new system called STANS (System for Theoretical Analysis and Numerical Simulations).[2]

References[edit]

  1. ^ "OCC Timeline". OCC. Retrieved April 30, 2014. 
  2. ^ The Options Clearing Corporation Launches New Risk Management Methodology

External links[edit]