OCC Implements Phase III of Financial Safeguards Framework

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OCC Implements Phase III of Financial Safeguards Framework


Chicago, IL (July 6, 2020) – Enhancing its resiliency as a Systemically Important Financial Market Utility (SIFMU), OCC, the world’s largest equity derivatives clearing organization, today announced that the U.S. Securities and Exchange Commission (SEC) approved Phase III of the company’s Financial Safeguards Framework (FSF) for liquidity on June 4, 2020. The approved changes were implemented on June 29, 2020.

“The implementation of the Financial Safeguards Framework Phase III enhancements is an important milestone for OCC, our clearing members, and market participants,” said Scot Warren, OCC Chief Operating Officer. “The enhancements are designed to meet new and evolving regulatory requirements and industry best practices.”

Dale Michaels, Executive Vice President, Financial Risk Management, added, “This implementation represents the culmination of several years of collaborative work with our regulators to enhance OCC’s resiliency as a SIFMU. These enhancements increase market transparency and establish a new approach to liquidity stress testing and determining the adequacy, sizing, and sufficiency of OCC’s liquidity resources.”


OCC’s liquidity risk management framework is designed to ensure that OCC holds sufficient qualified liquid resources to meet settlement obligations with a high degree of confidence under a wide range of foreseeable stress scenarios, including the default of the clearing member organization (CMO) group that would generate the largest aggregate payment obligation in extreme but plausible market conditions.


Phase III of OCC’s FSF implemented the following changes to OCC’s rules:


  • Utilize the output of OCC’s existing credit stress testing methodology for liquidity stress testing
  • Increase OCC’s base liquidity resources to $6.5 billion
  • Collect additional resources from the CMO group responsible for stressed liquidity demands exceeding available liquidity resources
  • Provide authority to increase the clearing fund cash requirement incrementally
  • Implement a two-day notification period on all clearing fund collateral substitutions of government securities for cash in excess of the firm’s minimum clearing fund cash requirement. The two-day notification period will allow OCC to include all available clearing fund cash into OCC’s liquidity resources calculations.


Phase I of OCC’s FSF included the resizing of OCC’s clearing fund to cover the simultaneous default of its two largest clearing member firms (Cover Two), and Phase II implemented significant enhancements to OCC’s margin and stress testing methodologies.


About OCC

OCC is the world’s largest equity derivatives clearing organization. Founded in 1973, OCC operates under the jurisdiction of both the U.S. Securities and Exchange Commission (SEC) as a registered clearing agency and the U.S. Commodity Futures Trading Commission (CFTC) as a Derivatives Clearing Organization. Named 2020 Best Clearing House – Equities by Markets Mediafor the third consecutive year, OCC now provides central counterparty (CCP) clearing and settlement services to 20 exchanges and trading platforms for options, financial futures, security futures, and securities lending transactions. More information about OCC is available at www.theocc.com.



Media Contact

David Prosperi



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