Options Clearing Corporation
| Industry | Financial services |
|---|---|
| Founded | 1973 |
| Founder | Wayne Luthringshausen |
| Headquarters | Chicago , United States |
Area served | United States |
Key people | Michael Cahill (leadership), Craig Donohue (executive chairman), Michael McClain (president) |
| Products | Clearing and settlement services for equity derivatives, financial and commodity futures, security futures, securities lending |
Options Clearing Corporation (OCC), headquartered in Chicago, serves as a U.S.-based clearinghouse with a focus on equity derivatives. It acts as a central counterparty (CCP) clearing and settlement provider for 16 different exchanges. Established by Wayne Luthringshausen and later led by Michael Cahill, OCC facilitates clearing for options, financial and commodity futures, security futures, as well as securities lending operations.
Functioning as a guarantor among clearing participants, OCC guarantees the fulfillment of contractual commitments. It safeguards approximately $100 billion in collateral from its clearing members and handles transactions worth billions daily. By 2011, OCC had become the largest equity derivatives clearing entity in the United States, and in 2016, it processed 4.17 billion contracts, marking its fifth highest annual throughput.
OCC is regulated by both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Under SEC supervision, it clears put and call options on common stocks, equity indexes, foreign exchange, interest rate composites, and single-stock futures. As a registered Derivatives Clearing Organization (DCO) under CFTC authority and designated a Systemically Important Financial Market Utility (SIFMU) pursuant to the Dodd-Frank Act, OCC also clears futures contracts along with options on futures.
Governance is provided by a board of directors primarily composed of clearing members. Operating as a financial market utility, OCC generates the majority of its income through clearing fees charged to its membership base.
History
Founded in 1973, the Options Clearing Corporation (OCC) originally served as the clearinghouse for five listed equity options markets. Prior to its creation, the Chicago Board Options Exchange maintained its own clearing entity known as the CBOE Clearing Corporation.
As equity options trading expanded significantly over time, clearing volumes increased correspondingly. In October 2000, OCC set a monthly record by clearing 75.3 million contracts—a figure that surged to 550 million contracts by August 2011.
On August 8, 2011, Standard & Poor’s downgraded OCC’s credit rating from triple-A to double-A-plus. At that time, then-chairman and CEO Wayne P. Luthringshausen reassured stakeholders that this change would not impact OCC’s operational capabilities or its obligations to clearing members.
Also during 2011, OCC entered into a licensing agreement with Standard & Poor’s to clear over-the-counter (OTC) options based on the S&P 500 index. This marked the first instance of a clearinghouse managing OTC options tied to S&P indexes such as the MidCap 400 and SmallCap 600. In July 2012, OCC was formally designated as a Systemically Important Financial Market Utility (SIFMU) by the Financial Stability Oversight Council under provisions of the Dodd-Frank Act.
In September 2013, OCC submitted filings for compliance with the European Market Infrastructure Regulation to facilitate European banks’ access to U.S. options trading with lower capital requirements. That same month saw Craig Donohue assume the role of executive chairman while overseeing leadership changes including COO Michael McClain’s elevation to president.
Regulatory approval was granted in January 2014 for OCC to clear OTC equity index options; subsequently, it launched OTC S&P 500 equity index option clearing services in April of that year.
On September 29, 2014, OCC collaborated with U.S. options exchanges to implement new principles-based risk controls—such as price reasonability tests and kill-switch mechanisms—to reduce risks related to trading errors or unintended activity. By June 30, 2016, OCC introduced an additional $0.02 per contract side fee on trades executed through exchanges not adhering to these standards and announced a $39 million rebate to clearing members along with a $17 million dividend distribution to stockholder exchanges.
In February 2023, the Commodity Futures Trading Commission imposed a $5 million penalty on OCC for shortcomings in risk management policies concerning automated systems; OCC consented to pay this fine.
Participant exchanges and clearing members
OCC's network of participant exchanges encompasses BOX Options Exchange LLC, Cboe BZX, Cboe C2, Cboe EDGX, Cboe Exchange, Miami International Securities Exchange LLC, MIAX PEARL LLC, Nasdaq GEMX LLC, Nasdaq ISE LLC, Nasdaq BX Inc., Nasdaq MRX LLC, Nasdaq PHLX LLC, Nasdaq Options Market LLC, NYSE American Options LLC, and NYSE Arca Inc. Approximately 115 leading U.S. broker-dealers, futures commission merchants, and global securities firms act as clearing members, catering to both institutional traders and retail investors.
In addition to options clearing, OCC handles commodity futures and options traded on platforms such as CBOE Futures Exchange, NYSE Liffe, NASDAQ OMX Futures Exchange, and ELX Futures. It also clears security futures on OneChicago and futures options on NYSE Liffe US. OCC further offers central counterparty services for securities lending through its OTC Stock Loan Program alongside AQS, a fully automated marketplace for securities lending and borrowing.
OCC is the sponsor of the Options Industry Council (OIC), a dedicated organization that supports the promotion of exchange-listed options. The OIC Roundtable operates independently and includes representatives from U.S. options exchanges, member brokerage firms, and OCC itself.
Margining
One of OCC's fundamental responsibilities is mitigating credit risk by enforcing margin requirements. Since the 1980s, it utilized the Theoretical Intermarket Margin System (TIMS), which was superseded in 2006 by the more advanced System for Theoretical Analysis and Numerical Simulations (STANS), significantly improving its risk assessment and management processes.