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鈥檚 securities lending CCP faring at the moment? Are volumes and notional value meeting your targets?
We鈥檙e here to serve the industry, so we don鈥檛 really set targets for transaction volume or notional value. Rather, we鈥檙e prepared to serve the industry and what it demands from a cleared stock loan programme. Having said that, we鈥檝e 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鈥檚 really indicative of the growth and interest in cleared stock loan is that since 2011, we鈥檙e up more than 1,000 percent in notional value. Those figures speak to the reception that we鈥檝e had from market participants, who have looked to us to meet their clearing needs.
We鈥檙e satisfied with the reception and the support of the industry. And we鈥檙e 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鈥檙e 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鈥檚 the plan with expanding eligibility to participate in OCC鈥檚 stock loan programme, because it鈥檚 quite a complicated process, isn鈥檛 it?
The market鈥檚 desire is to allow agent lenders to directly participate in the market, and the clients they represent鈥攖he traditional 鈥�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鈥檙e 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鈥檙e working to allow direct participation and expanded participation of new types of members, and that work is proceeding and we鈥檙e 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鈥攚hat 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鈥檝e shown in finding new sources of credit facilities and it鈥檚 been a very well received programme.
In fact, we鈥檝e 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鈥檚 also a good way for a beneficial owner to earn a different income stream, and for us it鈥檚 a counter cyclical source of financing.
What else is OCC working on?
Of course, our agent lender work doesn鈥檛 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鈥檙e also working on our capital plan to enhance the resiliency of OCC, and that has been a central focus. We are pleased that the Securities 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鈥檚 review. The SEC鈥檚 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鈥檙e 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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