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The Options Clearing Corporation

OCC

Founded in 1973, OCC is the largest clearing organisation in the world for equity derivatives.

Lobbying Activity

Response to Extension of transitional period for CCPs

16 Nov 2016

The Options Clearing Corporation (OCC) appreciates and applauds the opportunity to submit comments on the draft implementing regulation (Draft Regulation) that would extend the transitional periods related to own funds requirements for exposures to central counterparties (CCPs). OCC is directly impacted by the Proposed Regulation as a U.S.-based CCP that applied for recognition status (Recognition) with the European Securities and Markets Authority (ESMA). OCC completely agrees with the concerns expressed in the Draft Regulation that European institutions could be harmed and markets could be disrupted if the transitional periods are not extended. Accordingly, OCC is strongly in favor of the EC adopting the Draft Regulation, and also strongly encourages the EC to further extend the transitional periods beyond June 15, 2017 as necessary. As the sole clearinghouse for the U.S. listed options market, OCC’s clearing members include some of the largest banks in the world by asset size, including 18 members affiliated with European banks or other European financial institutions (European Members). In 2015, over 21% of our average daily open interest and over 17% of our volume was cleared by our European Members. Under EMIR, third country CCPs such as OCC must receive Recognition from ESMA in order to, among other things, be deemed a Qualifying Central Counterparty (QCCP) under the EU Capital Requirements Regulation (CRR). The consequences for OCC not receiving Recognition are severe, and would include the following: • OCC members that are part of a wider consolidated group that includes an EU entity subject to the CRR would need to apply a 1250% risk weighting to their clearing fund contributions, resulting in a substantially higher capital requirement than would otherwise apply. • Transactions cleared through our European Members or by any of our clearing members on behalf of end customers that are themselves subject to this EU regulation would separately attract substantially higher capital requirements. Given these severe consequences, as well as the significant role that our European Members and European market participants play in the derivatives markets for which we clear, OCC applied for Recognition with ESMA in September 2013. OCC’s application for Recognition was deemed complete by ESMA in November 2014. The next step in the Recognition process is for the EC to make a determination that the regulatory regime in OCC’s home country imposes requirements equivalent to those required by EMIR. Although OCC is regulated as a CCP in the U.S. by both the CFTC and SEC, the SEC is OCC’s primary regulator. For CCPs like OCC that are primarily regulated by the SEC, we understand that such a determination would need to made with regard to the SEC’s CCP regulatory regime. The EC made such a determination for the CFTC’s CCP regulatory regime in February of this year, but it has not done so yet for the SEC’s CCP regulatory regime. Once such a determination is made, ESMA will be able move forward with OCC’s application for Recognition. To give this process sufficient time, it is critical for the EC to extend the date by which the CRR capital requirements noted above become effective by adopting the Draft Regulation. Without such an extension, exposures to OCC will become subject to significantly increased capital charges. OCC is very concerned that such increases in capital charges may force our European Members and impacted market participants to exit the U.S. listed options market, and for some market participants, to exit the underlying U.S. equities markets as well, which could lead to a loss of liquidity in the options and stock markets and needlessly divert capital to other types of investment products. We appreciate the opportunity to submit these comments, and are more than happy to discuss them further with you.
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