OCC submits updated plan to regulators for skin-in-the-game

As part of its commitment to deliver operational excellence to the users of the U.S. equity derivatives markets, OCC, the world’s largest equity derivatives clearing organization, today announced a reduction in clearing fees, a projected year-end refund for clearing member firms, and its intention to seek regulatory approval from the U.S. Securities and Exchange Commission (SEC) to amend its Capital Management Policy with a persistent minimum amount of “skin-in-the-game.”

OCC will reduce clearing fees from five and a half cents ($0.055) per contract to four and a half cents ($0.045) per contract effective September 1, 2020, subject to regulatory review. In addition, OCC projects being able to provide a clearing fee refund to clearing member firms of approximately $80-100 million for 2020 after year end, subject to current volume trends continuing, and Board review and approval.

“2020 has been an extraordinary year for many reasons,” said John Davidson, OCC Chief Executive Officer. “We continue to see record volume in both trades and contracts, with June 2020 total cleared contract volume the highest month ever in the history of our industry. With a strong focus on expense discipline and operational excellence, we have achieved significant operating leverage. As a result, and consistent with our Capital Management Policy, we are now in a position where we can take steps to lower costs for market participants, while continuing to invest in our operational resiliency through our Renaissance Initiative to enhance our technology.”

OCC also announced a plan, subject to regulatory approval, to establish a minimum amount of skin-in-the game, which will:

• Further strengthen pre-funded financial resources,
• Further align the interests of OCC management and market participants; and
• Align more closely with international standards.

“OCC today is in a stronger and more resilient financial position than ever before, having significantly increased our liquidity resources by expanding and diversifying our committed credit facilities with both banks and non-bank providers,” said Scot Warren, OCC Chief Operating Officer. “Establishing a minimum amount of skin-in-the-game will further enhance our alignment with our clearing member firms, as well as reduce the likelihood of a draw on the clearing fund and the resulting cost borne by those firms. We take seriously our duty to manage OCC in a way that ensures we meet regulatory expectations and responsibly invest in OCC’s infrastructure, while also serving market participants as a financially responsible steward of clearing services.”

Earlier this year, the SEC formally approved OCC’s Capital Management Policy, which established OCC’s initial approach to skin-in-the-game.

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