OCC Launches Auction Platform

Terry Flanagan

Options Clearing Corp. (OCC) and Securities Finance Trust Company (SFTC) have developed Auction Platform Services (APS) to aid OCC with its default management process.

APS provides OCC with the ability for listing auction assets, centralized bid submissions, and management/audit reporting. OCC will use SFTC’s hosted software to achieve administrative efficiency and cost savings. APS was used to conduct OCC’s most recent default management simulation exercise with successful participation from clearing members in November.

“OCC’s ability to conduct auctions of cleared contracts and collateral is a key component of its default management program,” said John Fennell, OCC senior vice president, risk management and treasury operations. “APS was designed to bring automation and scalability to OCC’s existing auction process. We are pleased to team with SFTC because of their known expertise in financial auctions and their ability to quickly bring the platform to market.”

SFTC developed APS to help address regulatory concerns and provide central counterparties (CCPs) with the level of automation and reporting functionality that demonstrates to regulators, auditors, boards of directors, and compliance groups that their default management process is conducted in a controlled environment.

“We are delighted to work with OCC and offer them an automated asset liquidation platform to aid in providing best in class default management processes,” said Chris Poikonen, executive vice president at SFTC. “As trade volumes rise, CCPs around the globe are coming under increasing regulatory scrutiny, particularly as it relates to their default management procedures, and the associated technology used to support them.”

CCPs also need to demonstrate that their asset liquidation process is conducted in a disciplined, efficient, and risk controlled manner, while protecting non-defaulting members from undue loss. “We are confident that our product offering will help OCC manage the orderly unwinding of a defaulting member’s positions during times of market stress,” said Poikonen.

Separately, OCC has received regulatory approvals to clear over-the-counter (OTC) equity index options, which it says will bring capital and operational efficiencies and enhanced customer protections to the equity derivatives marketplace.

OCC 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.

“OCC has been a leading innovator in the clearing and settlement of equity derivatives for more than 40 years,” said Michael Cahill, president and CEO of OCC. “We are pleased to extend the protections of our financial guarantee and our central counterparty role to the OTC equity derivatives market.”

On January 9, 2014, the Securities and Exchange Commission approved a Securities Investor Protection Corporation (SIPC) rule change broadening the definition of “Standardized 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 standardized OTC options will now be subject to closeout or transfer in a SIPA proceeding.

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