When I joined The Options Clearing Corporation (OCC) in 2004, options trading activity had reached 3 million contracts a day. Volume growth had been relatively flat for a few years in the wake of the dotcom bust, but the economy was improving. I had no idea what was in store; to get a sense of what capacity to plan for, I reached out to the CIOs who worked with our business partners -- the various options and futures exchanges -- to learn how much business they expected to send our way.
We were all grossly off the mark! We're currently averaging slightly fewer than 11 million contracts a day. And on August 16, we cleared nearly 24 million contracts in one day, which is our current high volume day record. OCC has a rule of thumb that says we will maintain enough processing capacity to handle twice the volume of our most recent high-water mark, which typically is two to three times our daily average. And so we diligently prove out our capacity objective with an annual test. But even though OCC's capacity management is critical to the efficient operation of the industry, this is not enough to ensure that the demand from the ultimate consumers -- those who buy and sell the contracts -- can be successfully handled by everyone involved with processing each transaction. Each link in the value chain needs to be strong, and our relationships across corporate boundaries make them so.
Although most CIOs have an overview of everything within the four walls of their organization, at OCC we think beyond them, to the industry as a whole
The OCC is the financial guarantor of each options transaction, which we process on behalf of the six different options exchanges and three futures exchanges that comprise the US security derivatives industry. These trades originate from consumers (retail customers and professional traders) and come to OCC through approximately 130 broker/dealers, our clearing members.
With all these players exchanging data, and with a 40 percent compound annual growth rate in trading volume since 2004, operational performance can get out of sorts quickly if we're not reaching out to our clearing members and exchanges regularly. OCC can't finalize trade processing until we have all the data from the exchanges and clearing members. Likewise, they cannot finalize their processing until OCC is finished with its part of the transaction. So it's important to be sure we all have the capacity to handle the increasing volumes and also the resiliency to manage operational problems or disasters if or when they happen. Therefore, although most CIOs have an overview of everything within the four walls of their organization, at OCC we think beyond them, to the industry as a whole.
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