In 2021, OCC experienced another extraordinary year of transaction and contract volume while continuing to provide world-class clearance, settlement and risk management services to the U.S. equity options, futures, and securities lending markets. With record highs in both open interest and contracts cleared, OCC’s total cleared contract volume for the year was 9.93 billion contracts, while average daily volume exceeded 39.9 million contracts. This was the highest annual volume in our history, and it underscores OCC’s importance as the foundation for secure markets.
Today, OCC maintains equity capital (separate from our clearing fund capital) above its target level of $250 million. In 2021, the Securities and Exchange Commission (SEC) approved OCC’s proposed amendment to our Capital Management Policy to provide a persistent minimum level of ‘skin-in-the-game’ (SITG) available in the unlikely event of a Clearing Member default. OCC’s Board of Directors approved an initial persistent minimum level of OCC's own capital that would be contributed as SITG of $59 million. When combined with the unvested funds held in respect of OCC's Executive Deferred Compensation program, OCC's persistent minimum SITG is at least 25 percent of OCC's target regulatory capital, which amounted to $62 million. In addition, liquid assets above 110% of OCC’s target capital are eligible for SITG in the event of a Clearing Member default. Feedback received from representatives of our Clearing Member firms, exchanges and regulators has been favorable and appreciative of our transparency and commitment to making our markets more efficient and effective.
OCC utilizes diverse sources of external liquidity to support its resiliency and reduce risk. As in 2020, we maintained a $2 billion credit facility that has an uncommitted accordion feature in place that permits expansion up to $3 billion. We added one bank for a total of 19 institutions participating in the facility. OCC also maintains a non-bank credit facility program with three financially sound pension fund facilities. Because the pension funds are not connected to Clearing Members (versus certain banks, which may be connected through holding companies), we can mitigate the potential for duplicative exposure in the event of a member default. OCC pioneered this approach several years ago, and we are pleased to continue to incorporate new pension funds into the program.
OCC operates in a way that seeks to be effective and efficient in the delivery of our services, and we take seriously our duty to ensure we meet regulatory expectations, invest in our people and infrastructure, and serve market participants as a financially responsible steward of clearing services. The record volume we experienced last year, combined with our expense discipline, positioned us to take additional steps towards lowering costs for market participants. As a result, we were able to lower clearing fees from four and a half cents to two cents on June 1, as well as implement a clearing fee holiday for the months of November and December, further lowering costs for participants by over $60 million.
To continue to manage OCC’s level of equity capital while maintaining a persistent minimum level of SITG equal to 25 percent of target capital, as well as invest in our technology as part of OCC’s Renaissance Initiative, OCC’s Board of Directors approved a clearing fee refund of $76.3 million, in keeping with our Capital Management Policy, to be paid to Clearing Member firms in April 2022.
Additionally, OCC filed a change to the maximum Operational Loss Fee for 2022 with the SEC and the Commodity Futures Trading Commission. The operational loss fee provides OCC with the ability to replenish equity capital in the unlikely event that OCC’s equity capital falls below defined thresholds. The 2022 Operational Loss Fee that would be charged to Clearing Members in equal shares up to the aggregate amount, is $157 million.
S&P Global (S&P) reaffirmed OCC’s ‘AA’ credit rating in 2021, which places OCC in the top four percent of all global companies and sovereigns rated by S&P and compares favorably to other global central counterparties.
In closing, we remain focused on delivering operational excellence to our participating exchanges, clearing firms and the users of our markets. These unprecedented times have provided us with an opportunity to enhance OCC’s financial resilience to the benefit of all stakeholders. Looking ahead, we are well-positioned to continue delivering the high level of risk management and operational service that market participants and investors have come to expect while meeting the regulatory expectations of our role as a SIFMU.
Amy C. Shelly
Chief Financial Officer
With record highs in both open interest and contracts cleared, OCC’s total cleared contract volume for the year was 9.93 billion contracts, while average daily volume exceeded 39.9 million contracts.