OCC completes next phase of liquidity enhancement plans
07 July 2020 Chicago
Image: niroworld/Shutterstock
The Options Clearing Corporation (OCC) has completed the implementation of the third phase of its Financial Safeguards Framework (FSF) which aims to shield it and its members from market volatility.
OCC鈥檚 liquidity risk management framework aims to ensure that it holds sufficient qualified liquid resources to meet settlement obligations under 鈥渇oreseeable stress scenarios鈥�.
Such scenarios, OCC says, include the default of the clearing member organisation (CMO) group that would 鈥済enerate the largest aggregate payment obligation in extreme but plausible market conditions鈥�.
Phase three of the equity derivatives clearinghouse鈥檚 FSF saw several changes to its rules including aims to utilise the output of OCC鈥檚 existing credit stress testing methodology for liquidity stress testing and the increase of its base liquidity resources to $6.5 billion.
OCC will also now seek to collect additional resources from its CME group responsible for stressed liquidity demands exceeding available liquidity resources.
It will also provide authority to increase the clearing fund cash requirement incrementally.
Finally, OCC will implement a two-day notification period on all clearing fund collateral substitutions of government securities for cash in excess of the firm鈥檚 minimum clearing fund cash requirement.
This will allow OCC to include all available clearing fund cash into its liquidity resources calculations, it says.
OCC gained approval for phase three of its FSF on 4 June and completed the implementation on 29 June.
Phase one of the FSF included the resizing of OCC鈥檚 clearing fund to cover the simultaneous default of its two largest clearing member firms, while phase two implemented significant enhancements to its margin and stress testing methodologies.
Dale Michaels, executive vice president, financial risk management, adds: 鈥淭his implementation represents the culmination of several years of collaborative work with our regulators to enhance OCC鈥檚 resiliency as a systemically important financial market utility.
鈥淭hese enhancements increase market transparency and establish a new approach to liquidity stress testing and determining the adequacy, sizing, and sufficiency of OCC鈥檚 liquidity resources.鈥�
OCC鈥檚 liquidity risk management framework aims to ensure that it holds sufficient qualified liquid resources to meet settlement obligations under 鈥渇oreseeable stress scenarios鈥�.
Such scenarios, OCC says, include the default of the clearing member organisation (CMO) group that would 鈥済enerate the largest aggregate payment obligation in extreme but plausible market conditions鈥�.
Phase three of the equity derivatives clearinghouse鈥檚 FSF saw several changes to its rules including aims to utilise the output of OCC鈥檚 existing credit stress testing methodology for liquidity stress testing and the increase of its base liquidity resources to $6.5 billion.
OCC will also now seek to collect additional resources from its CME group responsible for stressed liquidity demands exceeding available liquidity resources.
It will also provide authority to increase the clearing fund cash requirement incrementally.
Finally, OCC will implement a two-day notification period on all clearing fund collateral substitutions of government securities for cash in excess of the firm鈥檚 minimum clearing fund cash requirement.
This will allow OCC to include all available clearing fund cash into its liquidity resources calculations, it says.
OCC gained approval for phase three of its FSF on 4 June and completed the implementation on 29 June.
Phase one of the FSF included the resizing of OCC鈥檚 clearing fund to cover the simultaneous default of its two largest clearing member firms, while phase two implemented significant enhancements to its margin and stress testing methodologies.
Dale Michaels, executive vice president, financial risk management, adds: 鈥淭his implementation represents the culmination of several years of collaborative work with our regulators to enhance OCC鈥檚 resiliency as a systemically important financial market utility.
鈥淭hese enhancements increase market transparency and establish a new approach to liquidity stress testing and determining the adequacy, sizing, and sufficiency of OCC鈥檚 liquidity resources.鈥�
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