A Day in the Life of: Craig Donohue

Tell us about your role as CEO of OCC. What does a typical day look like?

When you work in financial services, I am not sure there is a typical day. One day I can be in Washington, D.C., meeting with policymakers on behalf of our industry. Another day I can be meeting with members of our board of directors or management team on various strategic issues. I also talk on a regular basis with the heads of our partner exchanges as well as with some of our clearing firms. Plus, I always try to make myself available to any of my colleagues in our Chicago, Dallas or Washington, D.C., offices. The variety makes my job challenging and rewarding in terms of what we are accomplishing as an organization. I am very fortunate to work every day with some very talented people at OCC, not only at the management level, but at all levels of the company. Whether it is in our quarterly town hall meetings, our regularly scheduled “CEO Office Hours” sessions or when I run into a colleague in the hallway, there is a common thread in that they all understand the important role OCC plays in financial markets and that they are making a contribution to enhancing our resiliency and operational excellence so we can better serve market participants and help drive growth for the U.S. exchange-listed options industry.

What is the biggest challenge you face in your position?

One of the biggest challenges I face in my position is how OCC can continue to safeguard the integrity of cleared markets in our role as a Systemically Important Financial Market Utility. We have a responsibility as the foundation for secure markets to help reduce systemic risks, increase transparency and provide market participants with capital and collateral efficiencies. This last point is very important for the options industry market makers, who are being challenged by potential changes to market structure. Price may be important to market participants, but so are execution certainty and size visibility. Whatever regulatory changes occur in 2018, it is important that the real-world impact of any changes is considered, as they could impact market liquidity and trading volume for options market makers who are the lifeblood of our industry. 

Central clearing is picking up steam in the securities lending market. How has the clearing landscape changed throughout your career?

The ecosystem in which securities lending transactions take place has been evolving for some time, and for several reasons. Regulatory change has sought to reduce risk in the financial system by increasing capital requirements, improving risk management systems and processes and by encouraging such activity to be centrally cleared. This has resulted in increased demand for central counterparties like OCC to expand the number of solutions they provide to the market. As a result, our securities lending program has evolved over time from providing margin efficiencies to delivering capital and credit efficiencies, which in turn make OCC a more compelling value proposition for market participants. We continue to work with an industry coalition to refine the clearing model to allow for expanded participation in our clearing solution. The migration from non-cleared bilateral transactions to clearing will improve the resilience and profitability of market participants. This is consistent with OCC’s mission of promoting stability and market integrity through efficient and effective risk management, clearing and settlement services. 

What is your proudest moment on the job?

When I joined OCC as executive chairman in 2014, things had fundamentally changed at the company. While OCC had a great track record of success for its first 40 years as the options markets grew and became more mature, the fundamental change came in the form of the Dodd-Frank legislation and OCC’s designation as a Systemically Important Financial Market Utility. OCC was a solid organization operationally and in terms of the quality of its risk standards. However, it had fallen behind the curve in terms of adjusting to new regulatory requirements, and there was a heightened expectation on the part of regulators and market participants, particularly as it related to capital, financial and risk management-related resiliency. The challenge facing all of us was how we were going to meet that expectation, and I can say I am most proud of how my colleagues in Chicago, Dallas and Washington, D.C., have worked so hard to help OCC work to meet this expectation as our company evolves from being not only a market utility, but also an industry influencer. We now are laser-focused on strengthening our resiliency, accelerating the change process to adapt to a very different regulatory environment and enhancing our talented team of colleagues across all levels of our company. 

What was OCC’s role in the launch of Bitcoin futures?

On December 10, 2017, OCC became the first clearing house to successfully clear Bitcoin futures with the launch of the CBOE’s new contract, and it is clear that 2018 is presenting itself as the year of institutionalized trading of cryptocurrency derivatives. We have the risk management infrastructure in place to support the launch of such innovative products, but it will be critical for the industry to remain alert to the volatility that comes with Bitcoin and related cryptocurrencies. We have a great deal of confidence in our system for theoretical analysis and numerical simulations margining system, which has a two-day liquidation horizon, to handle products with this kind of volatility, although the volatility levels of Bitcoin-like currencies are less relevant for a central counterparty that clears related futures trades due to our not less than daily mark-to-market settlements among clearing firms. Only time will tell how Bitcoin performs in a regulated setting, so it will be equally important for OCC and regulatory bodies like FINRA, the SEC and the CFTC to monitor how the product stands up against concerns around its volatility. 

What lies ahead for OCC in 2018?

We have a full agenda for this year. Given that technology is at the core of everything we do, in late 2017 we initiated the process to evaluate options for replacing our 20-year-old Encore clearing platform and related infrastructure with a modularized system that will use an OCC-specific data model and warehouse. When it is done, this project will deliver a more nimble and self-controlled system that will lower our costs while providing our clearing firms and participating exchanges with additional capabilities. We also will continue to improve our stress testing capabilities and enhance our information security while we support the launch of innovative new products by our participating exchanges and the growth in our securities lending program. All of this will be accomplished while we continue to provide high-quality and efficient clearing, settlement and risk management services in a cost-effective manner with operational excellence.