Listed equity options did not cause the 2008 financial crisis by a long shot, but were swept up in the regulatory reform all the same. Craig Donohue, chief executive officer of the Options Clearing Corporation (OCC), said the increased regulation has reached a point where it is preventing American businesses from taking risks.
"We need to hit the pause button on efforts to re-regulate centrally cleared markets. Then assess regulatory landscape with cost/benefit analysis to ensure efforts to avoid the next financial crisis are not in fact fueling it," said Donohue. "We need a return to smarter regulation, not de-regulation or a return to pre Dodd-Frank regime."
Donohue added that he wants to take the OCC from being a "market utility" to a "market influencer."
OCC is the world's largest equity derivatives clearing organization. It serves 14 U.S. options exchanges, four U.S. futures exchanges, and approximately 115 global clearing members, including intermediaries supporting asset managers, mutual funds, pension funds, retail investors, insurers. OCC is regulated by the Securities and Exchange Commission, the Commodity Futures Ttrading Commission and the Federal Reserve system. OCC clears approximately 17 million contracts daily; holds about $100 billion in customer margin collateral, and has a guarantee fund of approximately $8 billion.
Exchange-traded derivatives markets proved to be resilient during the 2008 financial meltdown, and that performance was the foundation for the G20 mandate for global reform of OTC markets. While G20 reforms and new capital requirements such as Basel III are still not yet fully implemented, policy makers are looking to re-write the rules for the very markets on which the G20 reforms were based - for example, the IOSCO guidance on stress testing and risk management.
"As an influencer we have enhanced our resiliency, strengthened our capital base, created incentives for market participants to seek greater capital efficiencies, and created innovative solutions to make sure we have adequate liquidity resources during times of market stress," said Donohue.
Donohue said the biggest challenge facing U.S. financial markets is promoting stability and market integrity to ensure confidence.
"We need to make sure our house is in order in terms of our risk and control processes so we can provide efficient and effective clearance, settlement and risk management services to retail and institutional investors who trade listed options products," said Donohue.