The SEC has ordered The Options Clearing Corporation (OCC) to pay $17 million in penalties for violating its SEC-approved Stress Testing and Clearing Fund Methodology rule. The regulatory body found that OCC failed to comply with its own rule during certain times between October 2019 and May 2021.
OCC, based in Chicago, failed to properly establish, implement, and enforce written policies and procedures designed to manage certain operational risks, resulting in its failure to comply with its margin methodology, margin policy, and stress testing and clearing fund methodology. The SEC also found that OCC did not provide timely notification to the regulatory body of its failure to modify its Comprehensive Stress Testing System, as required by Regulation SCI.
Chair Gary Gensler emphasized the importance of OCC’s compliance with risk management policies and procedures designed to meet its obligations to the financial system. Meanwhile, the Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, called OCC’s violation of the rules designed to ensure the stability and efficiency of the financial markets “troubling.”
As part of the remedial measures, OCC has committed to revising its model validation policies and procedures, enhancing its approach to risk data governance, implementing changes to elements of its control environment, including processes, procedures, and controls, and conducting appropriate training on the changes.
This is not the first time OCC has faced penalties from the SEC. In 2019, the regulatory body imposed a $15 million penalty on OCC for failing to establish and enforce policies and procedures involving financial risk management, operational requirements, and information systems security.
The OCC plays a critical role in the financial markets, serving as the sole registered clearing agency for exchange-listed options contracts in the United States. However, this recent enforcement action by the SEC underscores the need for organizations in the financial industry to comply with risk management policies and procedures to ensure the stability and efficiency of the financial system.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.