OCC
Scot Warren
06 October 2015
Options Clearing Corporation is revamping its capital base, working on adding agent lenders and their clients to its ranks, and strengthening the current stock loan, futures and options franchises. Scot Warren explains
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How is OCC’s securities lending CCP faring at the moment? Are volumes and notional value meeting your targets?
We’re here to serve the industry, so we don’t really set targets for transaction volume or notional value. Rather, we’re prepared to serve the industry and what it demands from a cleared stock loan programme. Having said that, we’ve taken a programme of 10 clearing firms in 1993 to 70 clearing firms conducting an average of 5,000 trades a day with $190 billion in notional value. Year over year, we are up 12 percent in trades and up 36 percent in notional value.
What’s really indicative of the growth and interest in cleared stock loan is that since 2011, we’re up more than 1,000 percent in notional value. Those figures speak to the reception that we’ve had from market participants, who have looked to us to meet their clearing needs.
We’re satisfied with the reception and the support of the industry. And we’re working in a very collaborative fashion with the industry to figure out the future direction of cleared stock loan.
Is the CCP becoming a more attractive route to market?
The regulatory balance sheet relief and collateral efficiencies make OCC a compelling value proposition for market participants. I think part of the attraction of a CCP is also looking at how the programme can be expanded, which is always done in collaboration with market participants and undertaken with care.
We’re working with a coalition of industry participants to ensure that we have the solution that not only meets the needs of today, but also those of tomorrow. A good example is our work on broadening the eligibility to participate and bringing in agent lenders.
What’s the plan with expanding eligibility to participate in OCC’s stock loan programme, because it’s quite a complicated process, isn’t it?
The market’s desire is to allow agent lenders to directly participate in the market, and the clients they represent—the traditional ‘40 Act and Employee Retirement Income Security Act funds. Certain funds need additional regulatory approvals, because their current statutes have not contemplated cleared lending so those types of entities would need regulatory relief to be able to use a cleared solution. More broadly, market participants are also looking at the possibility that sovereign wealth funds could participate as well.
We currently have a coalition of industry participants working with us to design the exact specifications of how the market needs to function, and around that we plan to build a technological and regulatory framework. So we’re at the point of putting together the nuts and bolts of determining how that programme will work, and the next step is board of directors and regulatory approval, then actually building out that solution.
We’re working to allow direct participation and expanded participation of new types of members, and that work is proceeding and we’re looking forward to seeing it through to completion. We want to have the blueprint for this nailed down before the end of 2015, so that we can begin seeking regulatory approval and building out the technology solution early next year.
OCC partnered with CalPERS on a liquidity deal earlier this year—what effect has this new liquidity source had?
With our credit rating and operating history, OCC has long been respected as a foundation for secure markets. What the relationship with CalPERS has done is show our innovation and ability to collaborate to secure new committed credit facilities. I think our team should be proud of the innovation they’ve shown in finding new sources of credit facilities and it’s been a very well received programme.
In fact, we’ve had more interest in similar partnerships, but a committed credit facility is a function of the size of the need, and so we have the benefit of having more interest than that our current needs. It’s also a good way for a beneficial owner to earn a different income stream, and for us it’s a counter cyclical source of financing.
What else is OCC working on?
Of course, our agent lender work doesn’t diminish our ongoing effort to enhance the existing securities lending programme that we support for market participants. We want to grow and expand and enhance the risk management programme, which is also an ongoing effort.
We’re also working on our capital plan to enhance the resiliency of OCC, and that has been a central focus. We are pleased that the Íø±¬³Ô¹Ï and Exchange Commission (SEC) agreed with us that the concerns raised by the petitioners do not justify maintaining the stay during the dependency of the commission’s review. The SEC’s decision to discontinue the stay and proceed with their review of our capital plan permits us to further strengthen our equity capital resources so that a compelling public interest can be served.
We’re also continuing to strengthen and enhance our risk management capabilities not only in securities lending, but also in the options and futures franchises.
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