SEC charges Options Clearing Corporation with rule failures
The Options Clearing Corporation (OCC) is to undertake remedial efforts and pay $17 million in penalties to settle Securities and Exchange Commission (SEC) charges that it failed to comply with its SEC-approved Stress Testing and Clearing Fund Methodology rule during certain times between October 2019 and May 2021.
OCC is the sole registered clearing agency for exchange listed option contracts in the United States.
According to the SEC’s order, 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 SEC’s order further finds that 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.
Regulation SCI requires certain entities to take corrective action with respect to systems disruptions, systems compliance issues, and systems intrusions and to notify the Commission of such events. The SEC’s order also finds 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.
In addition to the $17 million penalty, OCC has undertaken several remedial measures, including to revise its model validation policies and procedures; enhance its approach to risk data governance; implement changes to elements of its control environment, including processes, procedures, and controls; and conduct appropriate training on the changes.
This is the SEC’s second enforcement action against OCC. In a September 2019 settled action, the SEC charged OCC with failing to establish and enforce policies and procedures involving financial risk management, operational requirements, and information-systems security, and imposed remedial measures and a $15 million penalty.