OCC Plan May Cut Capital Costs for Europe Options Traders
Options Clearing Corp., the Chicago-based clearinghouse for U.S. stock options, plans to register in Europe to help lower capital requirements for firms based there who want to trade American equity derivatives.
OCC has filed to become compliant with the European Market Infrastructure Regulation, meaning banks registered in the region can trade U.S. options without incurring higher capital costs, Chief Risk Officer Michael Walinskas said today.
“We’ve had several big customers asking us to do this,” Walinskas said during an interview at the Buergenstock conference in Geneva organized by the Swiss Futures & Options Association and the Futures Industry Association.
OCC submitted its application in mid-September and is awaiting a response, he said. In the U.S., OCC is subject to a rule mandating that it have enough capital to cover a default by its biggest member or both its second- and third-biggest members. In Europe, regulators may seek a higher standard, Walinskas said.
“It’s unclear to me from my reading of EMIR and related documents that the European Union intended to require clearinghouses from properly regulated jurisdictions such as the U.S. to meet potentially stricter standards applied in the EU,” he said.
The U.S. options market, where trading in Standard & Poor’s 500 Index contracts has doubled since 2006, is attracting European investors who find it easier to implement hedging strategies on American exchanges.
Europeans are accounting for a bigger portion of U.S. stock-options trading because the market’s size means fund managers can execute bigger, more complex trades, according to a report this week from Tabb Group LLC. Investors are using the contracts to protect against stock swings in funds that may include non-U.S. equities, Tabb said. While the American contracts may not perfectly hedge the underlying holding, it’s preferable to using an illiquid European option, the report said.
CBOE Holdings Inc. (CBOE), based in Chicago, is moving to around-the-clock access for futures linked to the CBOE Volatility Index, or VIX, its benchmark gauge for U.S. options prices, to accommodate investors outside America.
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