SEC and CFTC Settle Charges Against OCC for $20 Million

The OCC was charged with not having appropriate risk management procedures in place.

US regulator, the Securities and Exchange Commission (SEC), alongside the Commodity Futures Trading Commission (CFTC) revealed on Wednesday that it has reached a settlement with the Options Clearing Corporation (OCC), which will see the clearing organization undertake remedial efforts and pay $20 million in penalties.

The SEC and CFTC had charged the Chicago-based clearing organization with failing to have policies and procedures involving financial risk management, operational requirements, and information systems security. In addition, the SEC’s order also accused the OCC of changing its policies on core risk management issues without obtaining approval from the regulator.

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OCC is the sole registered clearing agency for exchange-listed options contracts on equities in the United States. It is also the largest equity derivatives clearing organization in the world. 

By settling, the clearing company has neither admitted nor denied the SEC’s and CFTC’s findings. Altogether, it will pay $20 million in penalties. $15 million of this is under the SEC’s order and $5 million under the CFTC’s order. The company will also hire an independent compliance auditor.

Jay Clayton, Chairman of the SEC

Commenting on the settlement, SEC Chairman Jay Clayton said: “As a clearing agency, OCC performs a range of services that are critical to the effective operation of the securities markets. Today’s resolution is intended to ensure that OCC will have appropriate policies and procedures in place to meet its obligations to our financial system.”

OCC response to settlement with SEC and CFTC 

The OCC, has, in turn, released its own statement regarding the settlement. The company states that a settlement was able to be reached because of the clearing agency’s cooperation and remediation efforts it has already undertaken.

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John Davidson CEO of the OCC
John Davidson, CEO of the OCC
Source: OCC

“We take our responsibility to promote the stability and integrity of markets seriously, and we are committed to operating as a resilient clearinghouse and maintaining the highest standards of regulatory compliance throughout our organization,” added OCC Chief Executive Officer John Davidson.

“Our commitment is reflected in the progress we have made as most of the compliance remediation is now complete and any remaining actions are on a path to be completed expeditiously. We look forward to continuing to work constructively with our regulators as our transformation continues.”

OCC overhauls leadership team, names new CEO

As part of this process, the OCC has replaced many of its senior executives at the direction of its Executive Chairman and Board of Directors. This saw the company hire a new CEO, Chief Operating Officer, Head of Financial Risk Management, Chief Information Officer, Chief Security Officer, and heads of control function. It has also increased its staff members in the area of risk management, compliance, legal, and information technology.

Speaking on the changes, Executive Chairman Craig Donohue continued: “On behalf of OCC’s Board of Directors, I want to thank our regulators for their support and cooperation in resolving these matters. 

“For the past five years, OCC has been engaged in a comprehensive transformation effort to strengthen our financial resiliency, our people, our compliance processes, and our technology to meet new and heightened regulatory obligations and to better serve market participants and the investing public.

“I, along with our Board of Directors, believe we have the right leaders in place in John Davidson, Scot Warren and our new management team to successfully move OCC forward in our role as a Systemically Important Financial Market Utility.”

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