SEC and CFTC Charge Options Clearing Corp. With Failing to Establish and Maintain Adequate Risk Management Policies
summary
The Options Clearing Corporation (OCC), the U.S.'s sole registered clearing agency for equity options and a designated systemically important financial market utility, agreed to pay $20 million in penalties to the SEC and CFTC for failing to implement adequate risk management, operational, and cybersecurity policies—and for changing core risk policies without regulatory approval—without admitting or denying the charges.
paragraph
The Options Clearing Corporation (OCC) agreed to pay a combined $20 million penalty—$15 million to the SEC and $5 million to the CFTC—to settle charges that it failed to establish and enforce required policies for financial risk management, operational requirements, and information-systems security. The SEC found that OCC altered core risk management policies without obtaining prior regulatory approval, while the CFTC cited violations of Core Principles for Derivatives Clearing Organizations, marking the first enforcement actions under the SEC’s 2012/2016 clearing agency rules and the CFTC’s DCO Core Principles. As a systemically important financial market utility (SIFMU), OCC’s failures posed potential risks to the broader financial system, prompting both agencies to require an independent compliance auditor to oversee its remediation efforts.
narrative
The Options Clearing Corporation (OCC), the U.S.'s sole registered clearing agency for exchange-listed equity options and a designated systemically important financial market utility (SIFMU), agreed to pay $20 million in penalties to settle charges brought by the SEC and CFTC for systemic failures in risk management. The SEC found that OCC failed to implement and enforce adequate policies for financial risk, operational requirements, and information-systems security, and further violated regulations by changing core risk management policies without obtaining required regulatory approval. The CFTC separately charged OCC with violations of its Core Principles applicable to Derivatives Clearing Organizations, marking the first enforcement actions by both agencies under their respective 2012/2016 regulatory frameworks. Without admitting or denying the findings, OCC committed to hiring an independent compliance auditor to assess and verify its remediation efforts and ongoing compliance. Both agencies emphasized OCC’s critical role in market stability, noting that disruptions to its operations could have widespread consequences for market participants and the broader financial system. The SEC’s investigation was led by its Chicago Regional Office with support from the Office of Clearance and Settlement’s National Examination Program, while the CFTC’s team collaborated closely with SEC staff. The settlement reflects regulators’ heightened scrutiny of critical market infrastructure and their commitment to enforcing principles-based rules with rigorous oversight.
Classified unclassified(confidence 30%). No EDGAR filing fingerprint (criminal/DOJ-side scheme). detection rule →
Parties
$20 million in penalties ($15 million to sec and $5 million to cftc)associate regional director of sec chicago regional officecftc chairmanco-director of sec division of enforcementCommodity Futures Trading Commissiondirector of cftc division of enforcementheath p. tarbertjames mcdonaldJay Claytonjoel levinoccocc will undertake remedial efforts and pay $20 million in penaltiesoptions clearing corporationpolicies on core risk management issues without obtaining required sec approvalpolicies to manage certain risks as required by u.s. laws and sec and cftc rulesregional director of sec chicago regional officesec and cftcsec chairmanSecurities and Exchange Commissionstephanie avakian
Keywords
seccftcoccrisk managementclearingpoliciesriskpolicies proceduresmanagementoptions clearingmanagement policiesclearing agencydivision enforcementchicago regionalenforcement
Exhibits & Attached Documents (1)
Extracted insights
Dollar amounts 3
- $20.00M $20 million $10M–$100M
- $15.00M $15 million $10M–$100M
- $5.00M $5 million $1M–$10M
Entities 20
- agency $20 million in penalties ($15 million to sec and $5 million to cftc)
- agency associate regional director of sec chicago regional office
- agency cftc chairman
- agency co-director of sec division of enforcement
- agency Commodity Futures Trading Commission
- agency director of cftc division of enforcement
- person heath p. tarbert
- person james mcdonald
- person Jay Clayton
- person joel levin
- agency occ
- agency occ will undertake remedial efforts and pay $20 million in penalties
- company options clearing corporation
- agency policies on core risk management issues without obtaining required sec approval
- agency policies to manage certain risks as required by u.s. laws and sec and cftc rules
- agency regional director of sec chicago regional office
- agency sec and cftc
- agency sec chairman
- agency Securities and Exchange Commission
- person stephanie avakian
Triples 15
- SEC and CFTC announced OCC will undertake remedial efforts and pay $20 million in penalties
- Options Clearing Corporation failed to implement policies to manage certain risks as required by U.S. laws and SEC and CFTC rules
- OCC failed to establish and enforce policies and procedures involving financial risk management, operational requirements, and information-systems security
- OCC changed policies on core risk management issues without obtaining required SEC approval
- OCC was designated systemically important financial market utility (SIFMU) in 2012
- OCC agreed to pay $20 million in penalties ($15 million to SEC and $5 million to CFTC)
- OCC agreed to hire independent compliance auditor to assess remediation and compliance efforts
- Jay Clayton is SEC Chairman
- Heath P. Tarbert is CFTC Chairman
- Stephanie Avakian is Co-Director of SEC Division of Enforcement
- James McDonald is Director of CFTC Division of Enforcement
- SEC conducted investigation by Scott B. Tandy, Sarah E. Hancur, and Charles J. Kerstetter of Chicago Regional Office
- Joel Levin is Regional Director of SEC Chicago Regional Office
- Kathryn A. Pyszka is Associate Regional Director of SEC Chicago Regional Office
- CFTC conducted investigation by Robert Howell, Daniel Burstein, and Scott Williamson of Chicago Regional Office
PDF (from attached: pdf)
Text layers
Extracted body text (4,051c)
The Securities and Exchange Commission and the Commodity Futures Trading Commission today announced that the Options Clearing Corporation (OCC) 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. The SEC’s order also found that OCC changed policies on core risk management issues without obtaining required SEC approval. 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. That designation makes OCC subject to enhanced regulation and transparency regarding its risk management systems because disruption to OCC’s operations might be costly not only for itself and its members, but other market participants or the broader financial system. Today’s 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.” “As this case shows, principles-based regulation does not mean lax oversight,” said CFTC Chairman Heath P. Tarbert. “While clearing agencies have some discretion in crafting their risk management policies and procedures, those policies and procedures must be reasonable and take into consideration relevant risks.” Without admitting or denying the SEC’s and CFTC’s findings, OCC agreed to pay a combined $20 million in penalties ($15 million under the SEC’s order and $5 million under the CFTC’s order) and hire an independent compliance auditor to assess its remediation of the violations and subsequent compliance efforts. The respective orders detail the charges and undertakings, as well as cooperation and remedial efforts that the SEC and CFTC considered in accepting OCC’s offer of settlement. “Here, the SEC sought a resolution that would ensure compliance with the law,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “OCC has begun its remediation efforts and has agreed to undertakings designed to resolve the identified deficiencies and fulfill its regulatory obligations.” “The CFTC will continue to work closely with our regulatory and enforcement partners to protect the integrity of our markets and to ensure that risks—which can stretch across multiple regulators’ markets—are appropriately addressed,” added James McDonald, Director of the CFTC’s Division of Enforcement. “I want to thank the SEC for their collaboration on this important matter.” The SEC’s investigation was conducted by Scott B. Tandy, Sarah E. Hancur, and Charles J. Kerstetter of the Chicago Regional Office and supervised by the office’s Regional Director, Joel Levin, and Associate Regional Director, Kathryn A. Pyszka. The Chicago Regional Office, with the assistance of the Office of Clearance and Settlement’s National Examination Program, conducted the examinations that led to the investigation. The examination team included Matthew McGarvey, Allison Fakhoury, Paula Sherman, Anna Mieszaniec, Amy Walstad, Noelito Santos, Jeanine O’Meara, Donald Bernhardt, Karl Nalepa, Angelica Daughaday and Raffaele Maione. The CFTC’s investigation was conducted by Division of Enforcement staff members Robert Howell, Daniel Burstein, and Scott Williamson of the Chicago Regional Office, with the assistance of the Division of Clearing and Risk.
OCR text (4,051c · plain-text · 99% conf)
The Securities and Exchange Commission and the Commodity Futures Trading Commission today announced that the Options Clearing Corporation (OCC) 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. The SEC’s order also found that OCC changed policies on core risk management issues without obtaining required SEC approval. 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. That designation makes OCC subject to enhanced regulation and transparency regarding its risk management systems because disruption to OCC’s operations might be costly not only for itself and its members, but other market participants or the broader financial system. Today’s 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.” “As this case shows, principles-based regulation does not mean lax oversight,” said CFTC Chairman Heath P. Tarbert. “While clearing agencies have some discretion in crafting their risk management policies and procedures, those policies and procedures must be reasonable and take into consideration relevant risks.” Without admitting or denying the SEC’s and CFTC’s findings, OCC agreed to pay a combined $20 million in penalties ($15 million under the SEC’s order and $5 million under the CFTC’s order) and hire an independent compliance auditor to assess its remediation of the violations and subsequent compliance efforts. The respective orders detail the charges and undertakings, as well as cooperation and remedial efforts that the SEC and CFTC considered in accepting OCC’s offer of settlement. “Here, the SEC sought a resolution that would ensure compliance with the law,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “OCC has begun its remediation efforts and has agreed to undertakings designed to resolve the identified deficiencies and fulfill its regulatory obligations.” “The CFTC will continue to work closely with our regulatory and enforcement partners to protect the integrity of our markets and to ensure that risks—which can stretch across multiple regulators’ markets—are appropriately addressed,” added James McDonald, Director of the CFTC’s Division of Enforcement. “I want to thank the SEC for their collaboration on this important matter.” The SEC’s investigation was conducted by Scott B. Tandy, Sarah E. Hancur, and Charles J. Kerstetter of the Chicago Regional Office and supervised by the office’s Regional Director, Joel Levin, and Associate Regional Director, Kathryn A. Pyszka. The Chicago Regional Office, with the assistance of the Office of Clearance and Settlement’s National Examination Program, conducted the examinations that led to the investigation. The examination team included Matthew McGarvey, Allison Fakhoury, Paula Sherman, Anna Mieszaniec, Amy Walstad, Noelito Santos, Jeanine O’Meara, Donald Bernhardt, Karl Nalepa, Angelica Daughaday and Raffaele Maione. The CFTC’s investigation was conducted by Division of Enforcement staff members Robert Howell, Daniel Burstein, and Scott Williamson of the Chicago Regional Office, with the assistance of the Division of Clearing and Risk.