SEC fines OCC $17m for violating own clearing rules: “In a word, troubling”

Rick Steves

“OCC plays a critical role in our financial markets, and the fact that they violated the very rules designed to ensure the stability and efficiency of those markets is, in a word, troubling.”

The Options Clearing Corporation (OCC) has agreed to undertake remedial efforts and pay $17 million in penalties to settle charges with the SEC for failing to comply with its SEC-approved Stress Testing and Clearing Fund Methodology rule during certain times between October 2019 and May 2021.

Chicago-based OCC’s failure to implement and comply with its own rule was the result of its failure to properly establish, implement, and enforce written policies and procedures reasonably designed to manage certain operational risks, the Securities and Exchange Commission stated.

According to the SEC, the OCC failed to modify its Comprehensive Stress Testing System and did not provide timely notification to the SEC of this failure as required by Regulation SCI.

The SEC’s order also found that OCC failed to comply with its margin methodology, margin policy, and stress testing and clearing fund methodology relating to specific wrong-way risk and holiday margin.

OCC is the only clearing agency for exchange-listed option contracts in the US

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, commented: “OCC plays a critical role in our financial markets, and the fact that they violated the very rules designed to ensure the stability and efficiency of those markets is, in a word, troubling. The SEC’s order includes a substantial penalty and imposes important undertakings while recognizing OCC’s remedial efforts and commitment to both redressing these violations and preventing future ones.”

SEC Chair Gary Gensler said: “OCC is the sole registered clearing agency for exchange listed option contracts in the United States. Today’s action by the SEC reinforces the importance of OCC’s compliance with risk management policies and procedures designed to meet its obligations to our financial system.”

The OCC agreed to pay a $17 million penalty and undertake several remedial measures, including revising its model validation policies and procedures; enhancing its approach to risk data governance; implementing changes to elements of its control environment, including processes, procedures, and controls; and conduct appropriate training on the changes.

In September 2019, the OCC settled SEC charges regarding failures to establish and enforce policies and procedures involving financial risk management, operational requirements, and information-systems security. Then, OCC paid a $15 million penalty.

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