OCC cleared for OTC equity index options

OCC cleared for OTC equity index options

OCC has received regulatory approvals to clear over-the-counter (OTC) equity index options. It plans to launch its OTC S&P 500 equity index option clearing services in the second quarter following the completion of testing with market participants.

On 9 January, the Securities and Exchange Commission (SEC) approved a Securities Investor Protection Corporation rule change broadening the definition of ‘standardised 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 standardised OTC options will now be subject to closeout or transfer in a Sipa proceeding.

Regulatory approvals also enable 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. Additionally, OCC has 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.

“Being the first clearing house in the United States to clear OTC equity index options is an exciting step for OCC,” said Craig Donohue, executive chairman OCC.