The world’s largest clearing house for equity derivatives, Chicago-based Options Clearing Corp. (OCC), has settled allegations from U.S. regulators that it failed to adopt adequate risk management policies.
In a settlement with the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC), the company agreed to pay US$20 million — US$15 million under the SEC’s order and US$5 million under the CFTC’s order — and to beef up its risk management policies.
The firm settled the case without admitting or denying the regulators’ findings.
According to orders from the SEC and the CFTC, OCC “failed to establish and enforce policies and procedures involving financial risk management, operational requirements, and information-systems security.”
The regulators note that OCC has been designated as a systemically important financial market utility (SIFMU) in the U.S., which carries enhanced regulatory and transparency requirements, “because disruption to OCC’s operations might be costly not only for itself and its members, but other market participants or the broader financial system.”
“As a clearing agency, OCC performs a range of services that are critical to the effective operation of the securities markets,” said SEC chairman Jay Clayton. “Today’s resolution is intended to ensure that OCC will have appropriate policies and procedures in place to meet its obligations to our financial system.”
OCC notes that the settlement acknowledges its cooperation with the regulators, and its efforts to correct the issues raised in the case.
In particular, it reports that it has received SEC approval to enhance its margin policy and to incorporate stress testing and liquidation costs into its clearing fund and margin methodologies, among other changes.
“We take our responsibility to promote the stability and integrity of markets seriously, and we are committed to operating as a resilient clearinghouse and maintaining the highest standards of regulatory compliance throughout our organization,” said John Davidson, CEO of OCC, in a statement.