OCC Approves New Capital Plan

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Existing Stockholders to Contribute $150 Million in Equity Capital and Provide Replenishment Capital Commitments and Members to Receive 2014 Refund of approximately $40 Million and Reduced Fees in 2015.

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OCC announced today its Board of Directors approved a newly formed capital plan designed to comply with proposed new standards for covered clearing agencies. Under the plan, OCC’s existing stockholders, Chicago Board Options Exchange, Incorporated, International Securities Exchange, LLC, NASDAQ OMX PHLX LLC, NYSE MKT LLC, and NYSE Arca, Inc. will contribute $150 million in equity capital, increasing OCC shareholders’ equity to approximately $247 million by Q1 2015.[1] The existing stockholders will also commit to provide specified replenishment capital if needed. The plan, which is subject to regulatory approval, and approval by the exchange stockholders’ boards of directors, will enable OCC to be compliant with the proposed new standards by February 2015, well in advance of the expected implementation date.

Implementation of OCC’s capital plan would increase OCC’s shareholders’ equity to $247 million, which consists of $117 million of baseline capital (equal to 6 months of forward-looking expenses) and a $130 million risk buffer (covering OCC’s operational and business risks). The $247 million of shareholders’ equity would be further backed by a replenishment capital facility that would give OCC the ability to access additional committed equity capital from the owner exchanges in an amount up to the baseline capital (currently $117 million) in the event of unexpected losses. In total, the plan would provide OCC with ready access to approximately $364 million in equity capital resources.

Under the proposed plan, after retaining equity capital sufficient to ensure that OCC remains above its target capital requirement, OCC will pay a refund equal to 50% of distributable earnings before tax. The exchange stockholders will then receive dividends equal to the after-tax income in excess of the amount required to maintain OCC’s target capital requirement.

The proposed plan also provides that OCC will target a 25% buffer margin on revenue, a reduction of 6% from its 31% average over the last 10 years. The reduction in target buffer margin reflects OCC’s commitment to operating as an industry utility and ensuring that market participants benefit as much as possible from OCC’s operational efficiencies in the future. This reduction will also enable OCC to charge lower fees to market participants rather than maximizing refund and dividend distributions to clearing members and exchange stockholders.

Additionally, upon receiving the requisite regulatory and exchange stockholder approvals, OCC’s new capital plan will enable OCC to declare a refund of approximately $40 million[2] from 2014 fees to its clearing members and to return to a lower effective fee schedule during the second quarter of 2015.

“OCC’s new capital plan puts us in a strong position to comply with proposed new regulatory capital requirements while minimizing negative impacts on market participants,” said Craig Donohue, OCC Executive Chairman. “It creates an even stronger partnership and alignment between our exchange stockholders and our clearing members and accelerates our compliance with the proposed new capital standards. Most importantly, this plan eliminates the need for OCC to raise fees and burden the industry for a prolonged period, enabling us to return quickly to the efficient, low cost operating model that has served our markets well.”

About OCC
OCC is the world's largest equity derivatives clearing organization. Founded in 1973, OCC operates under the jurisdiction of both the Securities and Exchange Commission (SEC) as a Registered Clearing Agency and the Commodity Futures Trading Commission (CFTC) as a Derivatives Clearing Organization. OCC now provides central counterparty (CCP) clearing and settlement services to 16 exchanges and trading platforms for options, financial futures, security futures and securities lending transactions. More information about OCC is available at http://www.theocc.com.

[1] Based on starting equity of $25 million in January 2014 and approximately $72 million in equity accumulated through retained earnings during 2014.
[2] This represents management’s best estimate of the 2014 refund pending the completion of the financial statements and financial statement audit in early 2015.

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Angela Kotso
OCC
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Caroline Davis
OCC
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