On Tuesday, OCC announced it has received regulatory approvals to clear over-the-counter (OTC) equity index options. After the completion of testing with market participants, the organization plans to?launch clearing services for the product in the second quarter.?
According to OCC’s press release, on January 9, 2014, the Securities and Exchange Commission (SEC) approved a Securities Investor Protection Corporation (SIPC) rule change broadening the definition of “Standardized Options” under the Securities Investor Protection Act (SIPA) to include OTC options cleared by OCC. This approval enhances the protections afforded to customers in the event of a liquidation of their broker-dealer as standardized OTC options will now be subject to closeout or transfer in a SIPA proceeding.
Other benefits to regulatory approvals includes enabling OCC to offer portfolio margining of listed and OTC positions that are held in a single account, which may result in margin offsets and lowering the overall cost of clearing.
In addition, OCC has also received SEC approval for changes to its rules to reflect modifications to its margin model for longer tenor options. These options of at least three years, both listed and OTC, will be covered by enhancements to OCC’s risk model in order to better reflect certain risks of longer-tenor options, strengthening risk management across the industry.
Craig Donohue, Executive Chairman of OCC, said in a press release,?”Being the first clearing house in the United States to clear OTC equity index options is an exciting step for OCC. As the world’s largest equity derivatives clearing house, this is a logical extension of our capabilities.”
Michael Cahill, President and CEO of OCC, added,?”OCC has been a leading innovator in the clearing and settlement of equity derivatives for more than 40 years. We are pleased to extend the protections of our financial guarantee and our central counterparty role to the OTC equity derivatives market.”