S&P puts OCC on negative watch; OCC responds

CHICAGO (May 17, 2016) – OCC, the world’s largest equity derivatives clearing organization, today issued the following statement in response to Standard and Poor’s (S&P) announcement that OCC’s credit rating has been placed on CreditWatch with negative implications as S&P further refines its methodology for rating central counterparties (CCPs) globally.
“OCC continues to hold a AA+ credit rating from S&P and S&P’s rating report today notes that OCC’s financial safeguards exhibit certain strengths relative to our global peers.  These safeguards include: (i) the use of a two-day margin period of risk, (ii) the inclusion of a $1.8 billion prudential margin of safety in the clearing fund above the cover 1 level, (iii) our ability to call for additional individual intra-day clearing fund contributions of up to $1 billion, and (iv) our ability to re-size the clearing fund intra-month if required by changing market conditions.  Like other systemically important central counterparties, OCC is actively working with U.S. and international regulators to implement enhancements to further strengthen its loss absorption capacity and liquidity resources based on conservative stress testing methodologies.
While OCC’s primary regulator, the Securities and Exchange Commission (SEC) has not yet adopted enhanced capital, loss absorption, or liquidity requirements reflecting international standards, OCC has been proactive in strengthening its capital and clearinghouse financial safeguards in advance of such requirements, as well as European requirements that would potentially apply to OCC pursuant to an equivalency decision between the SEC and the European Commission.  Earlier this year, the SEC approved, and we successfully implemented, our capital plan, which increased our capitalization from $25 million at the beginning of 2014 to $247 million, in addition to increasing our capital by almost 900 percent.”

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