Options Clearing Corporation
Encyclopedia
Options Clearing Corporation or OCC, founded in 1973, is (as of 2011) the world's largest equity derivatives clearing organization, providing central counterparty (CCP) clearing and settlement services to 14 exchanges and platforms for options, financial and commodity futures, security futures and securities lending transactions. By acting as guarantor, OCC ensures that the obligations of the contracts they clear are fulfilled.
OCC 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 contract
s.
Overseeing OCC is a clearing member dominated board of directors
. OCC operates as an industry utility and receives most of its revenue from clearing fees charged to its members.
, 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-dealer
s, 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.
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).
OCC operates under the jurisdiction of both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission
Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....
(CFTC). Under its SEC jurisdiction, OCC clears transactions for put and call options
Option (finance)
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...
on common stock
Common stock
Common stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...
and other equity issues, stock indexes
Index (economics)
In economics and finance, an index is a statistical measure of changes in a representative group of individual data points. These data may be derived from any number of sources, including company performance, prices, productivity, and employment. Economic indices track economic health from...
, 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 contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
s.
Overseeing OCC is a clearing member dominated board of directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
. OCC operates as an industry utility and receives most of its revenue from clearing fees charged to its members.
Participant exchanges and clearing members
OCC's participant exchanges include: BATS, Chicago Board Options ExchangeChicago Board Options Exchange
The Chicago Board Options Exchange , located at 400 South LaSalle Street in Chicago, is the largest U.S. options exchange with annual trading volume that hovered around one billion contracts at the end of 2007...
, International Securities Exchange
International Securities Exchange
International Securities Exchange Holdings, Inc. is a wholly owned subsidiary of German derivatives exchange Eurex. It is a member of the Options Clearing Corporation and the Options Industry Council . Historically, responsibility for organizing the Options Industry Conference is rotated amongst...
, NASDAQ OMX BX, Inc., NASDAQ OMX PHLX, Nasdaq Stock Market, NYSE Amex, and NYSE Arca
NYSE Arca
NYSE Arca, previously known as ArcaEx, an abbreviation of Archipelago Exchange, is a securities exchange on which both stocks and options are traded...
. Its clearing members serve both professional traders and public customers and comprise approximately 120 of the largest U.S. broker-dealer
Broker-dealer
A broker-dealer is a term used in United States financial services regulations. It is a natural person, a company or other organization that trades securities for its own account or on behalf of its customers....
s, 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
OneChicago, LLC
OneChicago is an all-electronic exchange owned jointly by IB Exchange Group , Chicago Board Options Exchange , and CME Group. It is a privately held company that is regulated by both the Securities and Exchange Commission and the Commodity Futures Trading Commission...
and options on futures contracts traded at NYSE Liffe US. In addition, OCC provides central counterparty services for two securities lending
Securities lending
In finance, securities lending or stock lending refers to the lending of securities by one party to another. The terms of the loan will be governed by a "Securities Lending Agreement", which requires that the borrower provides the lender with collateral, in the form of cash, government securities,...
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
Key to a clearing organization is marginMargin (finance)
In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty...
requirement, which manages its credit risk
Credit risk
Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Other terms for credit risk are default risk and counterparty 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).