The clearinghouse that handles all U.S. options trading was hit with a wide-ranging critique of the way it manages risk and handles compliance, following an examination by the Securities and Exchange Commission, the Wall Street Journal reported today. Regulators found flaws in the way that Chicago-based Options Clearing Corp. prepares for market freeze-ups and measures financial risks facing its members, according to the results of two-and-a-half years of examinations by federal market authorities. Options Clearing's board also failed to sufficiently supervise the clearinghouse's senior management and hasn't properly managed conflicts of interest, according to a letter sent by regulators to Options Clearing management, dated Sept 18. Options Clearing processes trades for all 12 U.S. options exchanges as well as a handful of futures markets. As a clearinghouse, Options Clearing gathers collateral from its member firms, which is used as a backstop for outstanding trades. If a major market player collapses or can't make good on its trades, clearinghouse funds can be drawn to insulate other traders from losses.
