Options Clearing Corporation facts for kids
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| Industry | Financial services |
|---|---|
| Founded | 1973 |
| Headquarters | Chicago, Illinois, U.S. |
| Products | Clearing house (finance), Equity derivatives clearing |
The Options Clearing Corporation (OCC) is a special company in Chicago, USA. It acts like a trusted middleman for financial deals, especially those involving "options." Options are like agreements that give someone the choice to buy or sell something later.
The OCC makes sure that these financial agreements are completed smoothly. It works with 16 different financial exchanges. Think of it as a referee who guarantees that everyone plays by the rules and fulfills their promises.
The OCC handles many types of financial agreements. These include options, futures, and even deals related to lending securities (like stocks). It holds about $100 billion in money from its members to make sure all deals are safe. Every day, billions of dollars move through the OCC!
In 2011, the OCC became the biggest company in the U.S. for clearing options. By 2016, it had processed 4.17 billion contracts. This was one of its busiest years ever.
The OCC follows rules set by two main government groups. These are the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). These groups help make sure the OCC operates fairly and safely.
The OCC is guided by a group of directors, mostly from its member companies. It earns money by charging small fees for each deal it clears.
Contents
How the OCC Started
The Options Clearing Corporation (OCC) began in 1973. At first, it was set up to handle deals for just five markets that traded options. Before the OCC, another group called the CBOE Clearing Corporation handled these tasks.
Growing Bigger Over Time
Over the years, the number of options deals grew a lot. This meant the OCC became much busier. For example, in October 2000, the OCC cleared 75.3 million contracts in just one month. By August 2011, this number jumped to a record 550 million contracts in a single month!
Important Changes and Agreements
In 2011, a company called Standard & Poor's changed the OCC's financial rating. This meant the OCC was seen as slightly less secure, but it still had a very strong rating. The OCC's leader at the time, Wayne P. Luthringshausen, said this change would not stop the OCC from doing its job.
Also in 2011, the OCC made a deal with Standard & Poor's. This allowed the OCC to clear special options based on the S&P 500 stock index. This was a big step because it was the first time the OCC cleared these types of options.
In 2012, the OCC was named a "Systemically Important Financial Market Utility" (SIFMU). This means it's a very important part of the financial system. If something went wrong with the OCC, it could affect many other parts of the economy.
In 2013, the OCC worked to meet new rules in Europe. This helped banks in Europe trade U.S. options more easily. In the same year, Craig Donohue became the new executive chairman of the OCC. He wanted to bring new ideas and changes to the company.
In 2014, the OCC started clearing more types of options. These were options on stock indexes like the S&P 500. This made it easier and safer for people to trade these options.
Making Trading Safer
In 2014, the OCC and U.S. options exchanges agreed on new rules to make trading safer. These rules helped prevent mistakes or unexpected actions that could cause financial losses. For example, they added checks to make sure prices were reasonable.
In 2016, the OCC added a small fee for trades on exchanges that didn't follow these new safety rules. This encouraged everyone to be safer. The OCC also gave back money to its members, showing it was managing its finances well.
In 2023, the Commodity Futures Trading Commission (CFTC) found that the OCC needed to improve its systems. The OCC agreed to pay a sum of money and work on making its automated systems even better at managing risks.
Who Works with the OCC?
The OCC works with many different financial exchanges. These include:
- BOX Options Exchange LLC
- Cboe BZX Exchange, Inc.
- Cboe C2 Exchange, Inc.
- Cboe EDGX Exchange, Inc.
- Cboe Exchange, Inc.
- 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
- NYSE Arca, Inc.
The OCC also has about 115 "clearing members." These are large U.S. and international financial companies. They help both professional traders and regular customers make their deals.
Other Markets the OCC Helps
The OCC also helps other markets. These include markets for trading commodity futures and options. It clears futures contracts from exchanges like CBOE Futures Exchange and NYSE Liffe.
The OCC also helps with securities lending. This is when people borrow and lend stocks. The OCC makes sure these lending deals are safe and fair.
The OCC also supports the Options Industry Council. This group helps teach people about options trading. It is funded and managed by the OCC.
How the OCC Manages Risk
A very important part of what the OCC does is manage "margin requirements." This is money that members must put aside. It helps protect the OCC if a member cannot complete their part of a deal. This system helps reduce the risk of financial problems.
Since the 1980s, the OCC used a system called TIMS to manage this. But in 2006, they switched to a newer, more advanced system called STANS. This new system helps them better understand and manage risks.
See also
- Securities market participants (United States)
