OCC Outlook for 2024

By: The WFE Focus Team Jan 2024

What changed in your business over the last year and what was your biggest achievement?

I think the biggest achievement for OCC this past year wasn’t something that changed, but rather something that stayed the same: our ability to deliver our critical services to clearing members and market participants under a wide variety of market conditions. We are always working to enhance our operational efficiency and compliance posture with an eye toward serving our key stakeholders as effectively as possible.

We were also very focused on working with our regulators and enhancing our processes to adjust to a changing environment as well as upcoming rules and regulations. We were doing all of the above while running our large technology transformation, which we call the Renaissance program. This transformation is a multi-year effort to modernize our core clearing, risk management, and data systems, and we completed significant development in 2023 to advance us toward our projected 2025 finish line. The advancements we’re making will provide substantial benefits to our stakeholders and help us continue to serve market participants well into the future.

What is your most important project this year (regulatory or otherwise)?

I guess like with many organizations it is hard to choose a single initiative, as we have many projects that are mandatory, non-discretionary and focus on regulatory requirements, rules and regulations and industry initiatives; these will always be our No. 1 priority. However, it would be tough to not call out The Renaissance program which will continue to serve as our primary focus in 2024 and 2025 as we begin external industry-wide testing. Our new core clearing, risk management, and data management system, which we have named Ovation, is being built with state-of-the-art technology in the cloud to enhance our resiliency, flexibility, and scalability. We’re pleased that we made significant progress this past year, completing development on many critical components. Yet, there remains more work to be done as we move forward and prepare to enter the testing phase which will be the main focus in 2024.

Ovation’s cloud environment will enable us to quickly deploy technical upgrades, accelerate time to market for new exchange products, and enhance access to data for our members and exchanges. With the cloud, we can set up these systems in a way that maintains the integrity of our current operations until launch. We can also easily scale according to our stakeholders’ needs over time while ensuring that we retain and build on the reliability and the high level of availability that we have with our current setup. We’re working to make sure the transition to Ovation is as seamless as possible; to that end, our stakeholders will not notice a significant change to their interfaces, which was a conscious decision to minimize disruption. However, the implementation uses an event-based, service-orientated architecture, which will provide a better user experience and allow us to offer additional services such as APIs to enable customized data access in the future.

What are you most excited for in 2024?

This year, we’re launching industry-wide testing of Ovation, which will encompass the entire OCC ecosystem including all our members and exchanges. Mandatory external certification testing will encompass sending and receiving data to and from OCC. Once completed, exchanges and members can then test their own daily processing environments with production-like data. Internally, we’ll be performing our own operational readiness testing, running our current system ENCORE side-by-side with Ovation with both systems processing all the daily transactions and data. This simultaneous operation is the best way to simulate the volume of activity that Ovation will need to process. Our primary goal of testing is to ensure that the entire industry is ready to go live when Ovation launches, with minimal impact to the market.

Another initiative we’re excited for involves recent enhancements to our membership criteria. We received regulatory approval last year to open up clearing membership directly to banks for the first time in our history; in the past, clearing membership was limited mainly to broker-dealers and futures commission merchants. We firmly believe in the risk management and capital efficiency benefits of clearing, and we’re working to bring those benefits to more market participants to help promote a more stable, resilient market for everyone.

What are your biggest opportunities?

As a CCP, we take our role as the foundation for secure markets very seriously, and we’re constantly evaluating how we can better manage market risk while meeting the needs of our members and exchanges. This past year, short-dated and so-called zero-dated options have spurned much discussion and study among our members, regulators, and the overall marketplace. While trading in short-dated options is not new, we are seeing greater volumes of that activity today than we did several years ago. We must be prepared from a risk management standpoint by ensuring our practices appropriately account for those changes and that we’re sufficiently covering the activity in our margining, stress testing, and liquidity framework. While we have tools that allow us to respond where we see increased risk at the clearing level, we’re also developing some enhancements and proposed new tools to expand our ability to manage potential risks introduced by this trend in trading options.

As previously noted, we’re also focused on advancing our operational efficiency and compliance posture, especially as the options market and regulatory environment continue to evolve at a rapid pace. We value the collaborative relationship with our regulators as we undergo a number of operational enhancements which will advance OCC toward that goal.

What do you see as the key themes and trends for your organization and market infrastructure in 2024?

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. This year is no exception, as even our modern priorities reflect these themes.

Technology transformation continues to be top of mind for our industry and OCC. Market participants are increasingly moving to adopt cloud-based services to enhance business agility and operational efficiency as well as to monitor and manage risk. Those features are also very important to us as a CCP and why we chose to utilize the cloud as part of our transformation efforts.

We’re also seeing increased interest in newer developing technologies like artificial intelligence. From our perspective, there are definitely some potential use cases for AI within a number of areas of the organization. However, our highly regulated nature requires a very careful approach and diligent evaluation process as well as regulatory review before we would be ready to pursue AI in any capacity.

For the overall industry, we see the shift to T+1 settlement and the implementation of Basel 3 bank capital requirements as important themes this year. Both represent significant shifts for our capital markets and will require all market infrastructures and participants to work together.


The views, thoughts and opinions contained in this Focus article belong solely to the author and do not necessarily reflect the WFE’s policy position on the issue, or the WFE’s views or opinions.