Stock Loan Programs
OCC Stock Loan/Hedge Program
In July 1993, OCC introduced a Stock Loan Program (formerly "Hedge") which allowed Clearing Members to use borrowed and loaned securities to reduce OCC margin requirements by reflecting the real risks of their intermarket hedged positions.
Since the program's creation, OCC has worked with Clearing Members and The Depository Trust Company (DTC) to expand the program and increase the operational efficiency of the Stock Loan System.
In OCC's role as Principal Counterparty, OCC becomes the lender to the borrower and the borrower to the lender for each transaction.
OCC's Stock Loan System allows Members to:
- Use the current DTC stock delivery process to create stock loan/borrow positions.
- Elect to mark stock loans to the market at 100% or 102% by counterparty. Mark to market payments are guaranteed by OCC.
- Select from various mark to market rounding options.
- Instruct OCC to automatically allocate Stock Loan positions against equity positions for margin offset.
- Reallocate Stock Loan positions daily to achieve maximum margin relief at OCC.
- Maximize cost savings through periodic Margin/Stock Loan Analysis executed by OCC's Financial Surveillance Group.
- Borrower and lender negotiate stock loan transaction terms and rebate.
- Details of loan are sent to DTC using special OCC reason codes. Cash and securities are transferred through DTC.
- OCC processes new loan and return loan transactions daily, updates Clearing Members' stock inventories and automatically allocates new positions per Clearing Members' standing instructions.
- Each business evening, OCC marks to market each outstanding stock loan/borrow position. Mark to markets are effected through OCC's settlement system. Intraday and end of day Stock Loan activity reports are distributed via ENCORE's Report facility.
- All output reports are available daily on-line.
- All Stock Loan data is available to participants in a machine-readable fashion via batch or real-time transmissions.
These features, along with OCC's risk management practices and daily surveillance, create an environment in which Clearing Members can benefit from the following:
- Reduced OCC margin costs
- Expanded credit lines
- Expanded lending opportunities
- Continuous risk monitoring of all Stock Loan participants by OCC's Financial Surveillance Group
OCC's Market Loan Program is a program whereby OCC processes and maintains stock loan positions that have originated through a Loan Market. OCC acts as Central Counter Party ("CCP") to these matched loans and provides clearing and settlement services to the market and OCC Clearing members.
In January 2009, OCC began centrally clearing all stock loan transaction on AQS, a wholly owned subsidiary of Quadriserv. AQS is an SEC regulated Alternative Trading System (“ATS”). In addition to providing central clearing services for AQS, OCC also guarantees all mark to market and rebate payments associated with those transactions.
The AQS Market provides:
- Price Discovery
- Trade Matching
- Clearance and Settlement Processing by OCC
- Open Contract Maintenance
- Market Data Services
- Regulatory Compliance processes and procedures
- Automated Rebate reconciliation
As the Central Counterparty to AQS transactions, OCC:
- Facilitates anonymous trading by becoming the borrower to the lender and the lender to the borrower
- Guarantees delivery of securities vs. cash, through DTC, upon close-out of the stock loan transaction
- Guarantees daily mark to market payments
- Guarantees rebate payments
With OCC as the Central Counterparty, the AQS Securities Lending Market provides the following benefits:
- Anonymous trading
- Reduced counterparty credit exposure
- Guaranteed settlements, mark to market and rebate (limited) payments
- Reduced Operational costs
- Risk Management and Financial Surveillance oversight of all OCC registered Clearing Member market participants
For more information about the AQS Market, please visit www.tradeaqs.com.