ENHANCING OUR RESILIENCY
At OCC, we take seriously our designation as a Systemically Important Financial Market Utility (SIFMU). We are committed to operating as a covered clearing agency and maintaining the highest standards of regulatory compliance throughout our organization.
As part of our ongoing transformation, on September 4, 2019, we announced that we reached a settlement agreement with the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC), regarding allegations that OCC failed to comply with certain SEC and CFTC regulations.
In reaching their settlement with OCC, both agencies considered our cooperation and remediation efforts. The SEC noted that OCC developed and provided remediation plans to the Commission staff and had already obtained SEC approval to enhance the company’s margin policy and incorporate stress testing and liquidation costs into its clearing fund and margin methodologies, respectively, among other approvals. The CFTC specifically noted that “OCC developed remediation plans to bring OCC into compliance with [clearing agency] Core Principles and Regulations.”
The settlement agreement contains additional undertakings that OCC is addressing, which we believe will strengthen OCC. Our Board of Directors, management, and our entire team in Chicago, Dallas, and Washington, D.C. will work tirelessly to continue to earn the trust and confidence of our clearing member firms, participant exchanges, business partners, and regulators.
To achieve operational excellence, OCC has made significant progress in strengthening its financial resiliency. In January 2020, the SEC approved our new Capital Management Policy, which ensures that OCC maintains appropriate financial resources to continue providing critical services to our exchanges, our clearing member firms, and their customers in the unlikely event of a material operational loss.
Capitalization sufficient to withstand such a loss is a critical component of OCC’s role as a SIFMU to reduce systemic risk, increase market transparency, and provide capital and operational efficiencies for market participants. We appreciate the work done by the SEC to approve this new policy, and we have benefitted from the feedback we received from our clearing member firms and other market participants.
In addition to regulatory matters, OCC’s Renaissance Initiative is laying the groundwork for far-reaching organizational transformation. It represents our evolution to a completely new technology architecture, which will power a new operating model, automated workflows, and increased collaboration. The Renaissance Initiative will make our company more agile, enhance our resiliency, and further strengthen our compliance posture. It also will help our colleagues deliver more efficient and effective services to the users of our markets.
When the Renaissance Initiative is completed, OCC’s systems will have a modular architecture that includes independent and integrated Clearing, Risk, and Data platforms. This will clear the path for automated tools, allowing OCC colleagues to rely on data and analytics to run the business more efficiently.