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Clearing Firm Charged with Failing to Establish, Maintain Adequate Risk Management Policies

The Options Clearing Corp. will undertake remedial efforts and pay $20 million in penalties to settle charges that it failed to implement policies to manage certain risks as required by U.S. laws and SEC and CFTC rules. According to the SEC’s and CFTC’s respective orders, Chicago-based OCC failed to establish and enforce policies and procedures involving financial risk management, operational requirements, and information-systems security.  OCC did not admit or deny the findings. The SEC’s order also found that OCC changed policies on core risk management issues without obtaining required SEC approval. According to a Wall Street Journal report, OCC has been criticized in recent years over how it has managed risk in derivatives and was cited by the SEC in 2013 and in 2017 for compliance deficiencies. OCC,the world’s largest equity derivatives clearing organization, handles about 19 million options trades a day and some futures contracts, according to the WSJ.As the U.S.’s sole registered clearing agency for exchange-listed option contracts on equities, OCC was designated in 2012 as a systemically important financial market utility, or SIFMU.  The enforcement action is the SEC’s first charging violations of SEC clearing agency standards adopted in 2012 and in 2016, and the CFTC’s first charging violations of Core Principles applicable to Derivatives Clearing Organizations.“As a clearing agency, OCC performs a range of services that are critical to the effective operation of the securities markets,” said SEC Chairman Jay Clayton. “Today’s resolution is intended to ensure that OCC will have appropriate policies and procedures in place to meet its obligations to our financial system.”

 
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