Options Clearing Corporation (OCC): Definition, Insights, and Historical Background

Adam Hayes, Ph.D., CFA, is a seasoned financial writer with over 15 years of experience on Wall Street as a derivatives trader. He specializes in economics and behavioral finance, holding a master’s degree in economics from The New School for Social Research and a Ph.D. in sociology from the University of Wisconsin-Madison. Adam is also a CFA charterholder and holds FINRA Series 7, 55, and 63 licenses. He currently conducts research and teaches economic sociology and finance at Hebrew University in Jerusalem.

What Is the Options Clearing Corporation (OCC)?

The Options Clearing Corporation (OCC) serves as the principal issuer and guarantor of options and futures contracts. Recognized as the largest equity derivatives clearinghouse worldwide, it operates under the regulatory oversight of the U.S. Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC).

It is important not to confuse the OCC with the U.S. Treasury’s Office of the Comptroller of the Currency, which shares the same acronym.

Key Highlights

• The OCC functions as a centralized clearinghouse and regulator for listed options traded across U.S. markets under SEC and CFTC supervision.
• It clears exchange-traded options contracts and interest rate composites efficiently.
• Beyond clearing, the OCC offers valuable services such as market research, investor education, customer support, and marketing initiatives.
• Post-2008 financial crisis reforms enhanced the OCC’s ability to manage risk and strengthen market oversight.

Deep Dive into the Options Clearing Corporation (OCC)

Established in 1973, the OCC’s mission is to foster stability within the equity derivatives markets. It is a customer-centric clearing entity providing comprehensive risk management, clearing, and settlement services.

Under SEC jurisdiction, the OCC clears transactions involving put and call options, stock indexes, foreign currencies, and interest rate composites. As a registered Derivatives Clearing Organization (DCO) with the CFTC, it also manages clearing and settlement for futures products and options on futures.

Essential Functions

In addition to clearing, the OCC acts as a central counterparty for securities lending transactions, guaranteeing contract obligations are met. Governance is maintained by a board of directors comprising representatives from exchanges, clearing members, and management. Revenue is primarily generated through clearing fees charged to its members.

The OCC supports 16 exchanges, including notable ones such as the C2 Options Exchange, Chicago Board Options Exchange, International Securities Exchange, Nasdaq BX Options, Nasdaq PHLX, NYSE American Options, and NYSE Arca Options.

Notable Statistic

In 2021, the OCC achieved a record by clearing 9.93 billion contracts, marking the highest annual volume in the industry’s history.

Historical Evolution of the Options Clearing Corporation (OCC)

The 2008 financial crisis prompted significant scrutiny and operational reforms within the OCC to enhance risk management. Federal regulators increasingly recognized the OCC’s vital role in market governance and oversight.

However, in 2013, the SEC criticized the OCC’s management for inadequate handling of market-wide challenges and insufficient corporate governance. Conflicts of interest within management and the board raised concerns about regulatory compliance commitment.

These critiques led to leadership restructuring, including the appointment of new executives and the creation of roles to strengthen compliance frameworks.

Current Leadership Team

The OCC’s leadership comprises diverse professionals from various sectors of the investment industry, including exchanges and clearing members. As of October 2022, key leaders include:

• Craig S. Donohue: Serving as executive chair since 2014, Donohue brings over 20 years of experience in global financial markets. He previously led CME Group as CEO from 2004 to 2012 and has been recognized by Harvard Business Review and Institutional Investor Magazine.
• John P. Davidson: CEO since 2019, Davidson oversees financial, risk management, compliance, and technology operations at the OCC. With more than 30 years in global markets, he joined the OCC in 2017 as president and COO before becoming CEO.
• Scot Warren: Executive vice president and COO, Warren manages finance, project management, operations, and HR. He formerly served as senior managing director for CME Group’s Equity Products and Index Services.

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