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2023 Annual Report

A Message from Leadership

On April 26, 1973, the listed options industry was born. The Chicago Board Options Exchange (CBOE®) as well as its wholly owned subsidiary, CBOE Clearing Corporation – the predecessor to OCC® – opened their doors for the first time in the Board of Trade Building of Chicago's financial district. At our inception, OCC was intended as the cornerstone for listed options, a role we are honored to serve to this day, and we can point to the rapid growth and evolution of options trading over the years as proof of concept. We are truly humbled and amazed by how the industry has evolved in half a century.

On behalf of our Board of Directors and Management Committee, we are pleased to share our 50th annual report, a reflection of the tremendous success our industry has built together as well as how we aim to continue to evolve over the next fifty years.

On April 26, 1973, the listed options industry was born.

Innovation and Resilience

Delivering innovative solutions to meet industry needs is a staple of OCC’s history, from our first online Clearing Member interface in 1985, to our current system ENCORE’s intraday processing launched in 2003, to our ongoing technology transformation today. OCC’s Renaissance Initiative has been a key focus for the past few years, and we’re pleased with our development progress across our new platform OvationSM and its three pillars: clearing, risk management and data management. Most notable is completing development of the Real-Time Clearing (RTC) system, which Ovation will use in place of ENCORE’s clearing functions. RTC will also introduce an improved give-up system and many other enhancements requested by our Clearing Members.

Ovation’s modular architecture means that OCC will be able to quickly and safely create environments for testing new exchange products, and much of the manual work involved with onboarding new products can be automated. From a technological standpoint, products can be fully tested and demonstrate readiness to launch in as little as a month, as opposed to three months or more. Additionally, Clearing Members and Participant Exchanges will be able to customize the data they receive so that they are getting the information that matters most to them in a faster and more organized way. OCC will also offer Application Programming Interfaces (APIs) for the first time to further enhance data access. Delivering Ovation will help address market participant needs today while laying the foundation for further improvements and innovations in the future.

As the listed options market has matured, we’ve moved from options typically expiring on the third Friday of the month to expirations happening every trading day, and the use of such short-dated and zero-dated options has steadily increased over time. OCC is carefully observing the impact this trend may have on risk management at the clearing level, and we ramped up our monitoring and reporting capabilities regarding our clearing firm exposures to short-dated and zero-dated positions throughout 2023. While we have tools in place that allow us to respond to shifting risks now, we are developing proposed new tools and enhancements to OCC’s System for Theoretical Analysis and Numerical Simulations (STANS®) to expand our risk management capabilities, some of which are subject to regulatory approval.

OCC gained a new status in 2012 as one of only eight Systemically Important Financial Market Utilities (SIFMU), a role signifying OCC’s critical importance to the marketplace. As a SIFMU, we aim to provide secure, reliable operations to market participants, which is why we sought a regulatory non-objection to migrate core systems to the cloud. OCC became the first SIFMU to receive this regulatory non-objection in 2022. Use of the cloud will enable us to offer additional services to our Clearing Members and Participant Exchanges, including customizable access to data within the new system, and will enable OCC to deliver Ovation with enhanced resiliency, security and scalability.

In the coming months, we anticipate the completion of Ovation’s full development and the start of industry-wide external testing for our critical stakeholders that send to and receive data from OCC. We appreciate the continued support and feedback from the industry as well as the dedication of our colleagues whose work makes this transformation possible.

Delivering innovative solutions to meet industry needs is a staple of OCC’s history, from our first online Clearing Member interface in 1985, to our current system ENCORE’s intraday processing launched in 2003, to our ongoing technology transformation today.

Financial Stewardship

We take seriously our obligation to run OCC's operations in a way that meets regulatory requirements, invests in our essential infrastructure, and manages industry resources responsibly for the benefit of market participants. We are pleased that OCC's "AA" credit rating was maintained by S&P Global (S&P®) in 2023, placing OCC in the top 2.5 percent of all global corporations and sovereigns rated by S&P and comparing favorably to other global central counterparties.

OCC’s total external liquidity resources amounted to $4.5 billion at year-end 2023, combining resources from a diverse set of external counterparties. These resources included OCC’s pre-funded non-bank committed repurchase facility, a first-of-its-kind facility established in 2015. The agreement allowed a leading pension fund to invest with a strong counterparty and enabled OCC to diversify its committed lenders while providing a source of timely access to liquidity. In 2023, the program included $2 billion in aggregate commitments from four pension funds and one insurance company. OCC also maintained its $2.5 billion syndicate credit facility with 17 domestic and foreign banks.

At year-end, OCC held $231.7 billion in margin on behalf of our customers and approximately $16.9 billion in our clearing fund. OCC maintained equity capital (separate from our clearing fund capital) above our target level of $303 million. OCC’s persistent minimum level of skin-in-the-game (SITG) – funds available in the unlikely event of a Clearing Member default – included a minimum level of OCC’s own capital of $69 million. When combined with the unvested funds held under our Executive Deferred Compensation Program, OCC’s persistent minimum SITG in 2023 amounted to $76 million, which is at least 25 percent of OCC’s target regulatory capital per our Capital Management Policy.

OCC aims to have an appropriate clearing fee based upon actual volumes and expenses incurred. In 2023, we maintained our clearing fee at the historically low rate of two cents, which has been in place since June 2021.

In 2023, we maintained our clearing fee at the historically low rate of two cents, which has been in place since June 2021.

Stakeholder Service

OCC values providing high quality service to our Clearing Members and responding to market needs. To that end, in 2023, OCC supported the launch of additional expirations on products, began clearing new products including options on iBoxx® futures and cash-settled equity flex options, and added several more products to extended trading hours. We also welcomed MEMX LLC as our 17th options Participant Exchange.

In addition, OCC is working closely with market participants to support high priority initiatives, including the shortening of the securities transaction settlement cycle to T+1 as well as meeting regulatory requirements for straight-through processing and position limits. Our Clearing Member and Participant Exchange survey results remain strong, with 100 percent of Participant Exchanges and 94 percent of Clearing Members responding overall satisfied or very satisfied.

Last year, we received regulatory approval for enhancements to our Clearing Member standards, which includes expanding our membership criteria to include eligible banks; historically, membership was limited mainly to broker-dealers and futures commission merchants. Eligible banks can now apply for clearing membership at OCC and use existing services, including our Stock Loan/Hedge Program, first introduced in 1993 and now serving 85 Clearing Members across two platforms. As the largest equities lending counterparty in the U.S., OCC believes in the risk management and capital efficiency benefits of clearing, and we’re working to offer those benefits to more market participants, promoting a more stable and resilient industry for everyone.

In 2023, OCC supported the launch of additional expirations on products, began clearing new products including options on iBoxx® futures and cash-settled equity flex options, and added several more products to extended trading hours. We also welcomed MEMX LLC as our 17th options Participant Exchange.

People and Culture

When we look back at our history, every accomplishment we’ve achieved could not have happened without the hard work of our people. Individuals and teams at OCC have helped progress major industry initiatives over the years, such as the 2001 conversion of options pricing models from fractions to decimals or the 2010 Options Symbology Initiative. Some of the dedicated colleagues who worked on these initiatives are now leading our current transformation efforts.

A high-profile example of the critical work they do every day involves the increased consolidation we’re seeing among our Clearing Members. Many OCC teams support these mergers behind the scenes, reviewing the margin impacts, facilitating collateral movements, and supporting these large position transfers in ENCORE. It’s truly a cross-department effort, and we appreciate their dedication and focus in ensuring the success of these highly visible industry changes.

Workplace culture is a critical component of OCC’s ability to achieve both business and people outcomes. In 2023, we refreshed our cultural values to better reflect where OCC is today and where we aim to be in the future. We believe our new values promote a culture of integrity, accountability, learning and growth, and treating others with respect. Going forward, we hope these values will unite our colleagues as one team to shape the future of our industry while proudly reflecting on our rich, decades-long history of service.

OCC’s diversity, equity and inclusion programs contribute tremendously to shaping our culture; we empower our colleagues to foster inclusivity through our Employee Network Groups (ENGs), DEI Council and cultural events. Our colleagues led the creation of two new ENGs between 2023 and today: Helping Young Professionals Excel and Develop (HYPED) and ACCESS, which will champion accessibility across the OCC user experience. While our DEI journey is still ongoing, we’re proud of the strides we’ve made and see DEI remaining a pillar of our culture initiatives going forward.

OCC’s diversity, equity and inclusion programs contribute tremendously to shaping our culture; we empower our colleagues to foster inclusivity through our Employee Network Groups (ENGs), DEI Council and cultural events.

Looking Ahead

Many of OCC’s key themes have stayed the same since our inception: providing world-class clearing, settlement, and risk management to our Clearing Members and Participant Exchanges while supporting the continued growth of listed options. As the year of OCC’s 50th anniversary concludes, we can confidently look toward the future, assured by our transformational progress and strategic direction in the coming years. As always, we will continue working diligently to fulfill the expectations and meet the needs of our Clearing Members, Participant Exchanges, regulators and the greater investing public.

Andrej Bolkovic
Chief Executive Officer



 

As the year of OCC’s 50th anniversary concludes, we can confidently look toward the future, assured by our transformational progress and strategic direction in the coming years.

About OCC
2023 Financial Statements
Year in Review