The OCC and Options Clearing: STANS Margin, the Clearing Fund, and the Default Waterfall

The Options Clearing Corporation (OCC) is the central counterparty for every exchange-listed stock, ETF, and index option in the United States: once a trade is cleared, OCC becomes the buyer to every seller and the seller to every buyer, so neither side depends on the other’s ability to pay. It backs that guarantee with risk-based margin calculated by its STANS system, a mutualized clearing fund sized to survive the default of its two largest member groups, and a written default waterfall that says exactly whose money absorbs a loss, in what order.

In short: OCC replaces thousands of bilateral exposures with one exposure to itself. It collects margin from each clearing member, sized to cover a 99% expected shortfall over two days; it holds a clearing fund (more than $21 billion at the end of 2025, according to a comment letter cited by the SEC) to cover losses beyond margin; and it has rules for charging those losses to the defaulter first, then to OCC’s own capital, then to surviving members. The Financial Stability Oversight Council designated OCC a systemically important financial market utility in 2012. In Canada, the Canadian Derivatives Clearing Corporation (CDCC) plays the same role for the Montréal Exchange.

This is the institutional follow-on to how options markets work, which introduces OCC at explainer level. Everything here describes how the system is designed and regulated. It is not advice about any broker, clearing firm, or trade.

The misconception: “my counterparty is the person who sold me the option”

When you buy a listed call, someone sold it, but you will never know who, and you do not need to. The trade is matched on an exchange, then submitted to OCC through a clearing member (a broker-dealer or futures commission merchant that is a member of OCC). At that point the contract is novated: the original trade is replaced by two contracts, one between the buyer’s clearing member and OCC, one between OCC and the seller’s clearing member.

Three consequences follow:

Fungibility. Every December SPX 5,000 call is identical, whoever sold it. You can close your position by selling to anyone, because your contract is with OCC, not with the original seller.
Assignment is random across the pool. When a holder exercises, OCC assigns the exercise to clearing members with short positions using a random procedure, and the members then allocate to customers. That process is described in how exercise and assignment work.
Your risk chain is layered. You face your broker; your broker (or its clearing firm) faces OCC. OCC protects clearing members from each other. It does not directly protect customers from their own broker’s failure, which is handled by customer-protection and segregation rules and, for securities accounts, SIPC.

What OCC is, legally

According to the SEC’s October 2, 2026 order approving an OCC rule change (Release No. 34-106573), OCC is registered with the SEC as a clearing agency and is “the only clearing agency for standardized U.S. securities options listed on Commission-registered national securities exchanges.” It is also registered with the CFTC as a derivatives clearing organization, because it clears futures and options on futures. It clears stock loans as well.

On July 18, 2012, the Financial Stability Oversight Council (FSOC) voted unanimously to designate eight financial market utilities as systemically important under Title VIII of the Dodd-Frank Act, according to the Council’s meeting minutes and Appendix A of its 2012 annual report. OCC was one of them, alongside CME, the three DTCC clearing and settlement subsidiaries, ICE Clear Credit, CLS Bank, and The Clearing House’s CHIPS. The Congressional Research Service lists the SEC as OCC’s supervisory agency. Title VIII applies to utilities whose failure or disruption could create or increase the risk of significant liquidity or credit problems spreading among financial institutions or markets, and designation brings heightened risk-management standards and ongoing supervision.

The scale

From OCC’s own fee filing with the SEC (SR-OCC-2025-002), OCC cleared more than 12.28 billion contracts in 2024, held $195.991 billion in margin at the end of 2024, and had a clearing fund sized at $18.5 billion at year end. A Goldman Sachs comment letter quoted in the SEC’s 2026 order states that average daily volume “nearly doubled since 2020, surpassing 60 million contracts per day,” and that the clearing fund had grown “to over $21 billion dollars” by the end of 2025. Those figures move every month; treat them as dated.

Margin: the STANS model

OCC calculates clearing member margin with STANS (System for Theoretical Analysis and Numerical Simulations). Its public description comes from OCC’s rule filing SR-OCC-2020-016 (noticed in SEC Release No. 34-90763, December 2020), which formalized a “STANS Methodology Description” that the SEC approved on February 8, 2021 (Release No. 34-91079). The core design:

The target. The base requirement is “an estimate of a 99% expected shortfall (‘ES’) over a two-day time horizon,” with additional charges for model risk, stress tests, liquidation costs, and other add-ons. Expected shortfall is the average loss in the worst 1% of scenarios, which is larger and more tail-sensitive than the 99% value-at-risk, the threshold loss at the edge of that 1%.
Risk factors. Most are total returns on individual securities; others include equity index returns and implied volatility risk factors at fixed “pivot points” on each volatility surface, so a portfolio of options is revalued when volatility moves, not only when prices move.
Volatility forecasting. Each risk factor is fitted with a GARCH-type model, so margin rises when recent volatility rises.
Dependence. STANS takes two years (500 business days) of history and fits a Student’s t copula with four degrees of freedom, which the filing describes as “in the conservative end” of suitable fits. Fat-tailed copulas make joint extreme moves more likely than a normal distribution would.
Simulation. A Monte Carlo generates 10,000 scenarios for each risk factor, and every position in a member’s account is fully revalued in each scenario.
Stress add-ons. A concentration charge covers extreme idiosyncratic moves in concentrated positions, including the “survivor bias” of history that omits bankruptcies and takeovers. A dependence charge recalculates ES assuming perfect correlation and zero correlation among risk factors.

Because margin is calculated on the whole account, offsetting positions reduce it. This is the same portfolio logic that brokers use for customer portfolio margin, though the customer-level rules are set by FINRA and the exchanges, not by OCC.

Worked example: expected shortfall on a short put book

To show what a 99% two-day ES means in dollars, take a hypothetical clearing member account that is short 1,000 one-month S&P 500 index puts, struck 5% below an index level of 5,000 (strike 4,750), with implied volatility of 18%, a 4% rate, and a 1.3% dividend yield. With a $100 multiplier, each put is worth $19.47 under Black-Scholes, so the account collected about $1.95 million of premium on $500 million of notional.

We simulated 200,000 two-day scenarios in the spirit of STANS (this is our illustration, not OCC’s model): daily index returns from a Student’s t distribution with four degrees of freedom and 1.1% daily volatility, and log changes in implied volatility with a -0.7 correlation to returns, so falling markets come with rising volatility. Each scenario fully revalues the puts.

Measure	Two-day loss on the short puts
99% value-at-risk	$6.33 million
99% expected shortfall	$10.15 million
Stress: index -5%, IV +10 points	$12.23 million
Stress: index -10%, IV +20 points	$31.73 million
Stress: index -20%, IV +30 points	$74.76 million

Three points stand out. The ES is about 60% larger than the VaR, which is why clearing houses moved to ES: it looks inside the tail. The ES is about five times the premium collected, a reminder that selling options is a small-gain, large-loss distribution (see options risks explained honestly). And the stress losses rise much faster than the shock, because short puts are short gamma and short vega at the same time. Margin covers the modeled tail; the clearing fund exists for the losses beyond it.

The clearing fund: Cover 2

The clearing fund is a mutualized pool to which every clearing member contributes. OCC Rule 1001(a), as described in the SEC’s 2026 order, sizes it monthly at an amount sufficient to protect OCC against losses from “the default of the two Clearing Member Groups that would potentially cause the largest aggregate credit exposure for OCC under stress test scenarios that represent extreme but plausible market conditions.” This is the Cover 2 standard, which OCC adopted in 2018 (SR-OCC-2018-008, approved in Release No. 34-83735). A “Clearing Member Group” includes a member and its affiliates, so the test asks what happens if two whole banking groups fail at once in a severe market.

The stress tests use, per the same order, “relevant peak historic price volatilities,” shifts in other market factors, the default of one or more members, and forward-looking scenarios. Under the CPMI-IOSCO Principles for Financial Market Infrastructures, Cover 2 is the expected standard for CCPs that are involved in activities with a more complex risk profile or are systemically important in multiple jurisdictions; Canada’s CDCC, discussed below, applies Cover 1 plus affiliates.

Who pays how much

Each member’s share has been a formula. A 2013 rule change (Release No. 69403) based contributions on a member’s share of open interest, total risk (margin), and volume, weighted 50%, 35%, and 15%; a 2018 change adjusted the weighting to track credit risk more closely, and by 2025 the weights were 70% total risk, 15% open interest, and 15% volume. Allocations sit above a fixed minimum of $500,000 per member. In September 2025 OCC proposed (SR-OCC-2025-018) adding a stress-loss component, so that members whose positions generate the stressed losses used to size the fund pay a correspondingly larger share: 70% “shortfall” (stress loss in excess of margin), 15% margin, 15% volume, and nothing for open interest. SEC staff approved it under delegated authority on December 11, 2025; Fidelity petitioned for review; and the full Commission set aside the staff action and approved the change on October 2, 2026. The change does not alter the fund’s total size, and OCC said it would apply from the November 2026 sizing. The dispute was about fairness between members that bring very different tail risks (heavily retail-driven short-dated flow versus more stable books), which is a recurring tension in any mutualized fund.

The default waterfall

If a clearing member fails, OCC first tries to close out or auction the member’s positions and port its customers’ positions to healthy firms. Any loss after that runs down a waterfall set out in OCC Rule 1006. Based on OCC’s 2021 filings establishing “persistent minimum skin-in-the-game” (SR-OCC-2021-003, approved in SEC Release No. 34-92038, May 27, 2021), the order is:

The defaulting member’s own margin.
The defaulting member’s own clearing fund deposit.
OCC’s Minimum Corporate Contribution, a dedicated slice of OCC’s own funds held exclusively for default losses (“skin in the game”).
OCC’s liquid net assets funded by equity above 110% of its Target Capital Requirement.
The clearing fund deposits of non-defaulting members, pro rata, pari passu with the unvested balance of OCC’s employee deferred compensation plan, which puts some of OCC’s staff compensation at risk alongside members.
Assessments on surviving members to replenish the fund.

OCC’s Board set the initial Minimum Corporate Contribution so that total persistent skin in the game (that contribution plus the unvested deferred compensation) equals 25% of OCC’s Target Capital Requirement. For 2024, an OCC filing put the Minimum Corporate Contribution at $61 million and total persistent skin in the game at $69 million. The filing notes members’ concern that, before the change, OCC’s capital above the 110% threshold could fall below the 25% level that the European Market Infrastructure Regulation expects of CCPs.

Limits on assessments

Members cannot be charged without limit. Under Rule 1006(h), as described in OCC’s filings approved in 2018, a proportionate charge to the clearing fund starts a cooling-off period of 15 consecutive calendar days, extended by later charges up to a maximum of 20 days. During that period a member’s liability is capped at an additional 200% of its then-required contribution. Members that want to leave can give notice and avoid further liability for events after the period. The design trades off two risks: unlimited assessments would make membership unattractive, while too short a window could encourage members to flee at the first loss.

Worked example: running the waterfall

Use the hypothetical account above, and suppose its clearing member defaults during the “index -10%, IV +20 points” stress, so liquidating the puts costs $31.73 million. The illustrative figures for margin and deposits below are ours, not OCC’s.

Step	Resource	Applied	Loss remaining
Start			$31.73m
1	Defaulter’s margin (the $10.15m ES)	$10.15m	$21.58m
2	Defaulter’s clearing fund deposit (assume $4.00m)	$4.00m	$17.58m
3 and 4	OCC’s own resources (assume $5.00m)	$5.00m	$12.58m
5	Non-defaulters’ clearing fund, pro rata	$12.58m	$0

A surviving member holding 1% of a $20 billion fund (a $200 million deposit) would bear 1% of the $12.58 million, or about $125,800, and would then have to replenish its deposit. If a much larger loss exhausted the fund, that member’s further liability during the cooling-off period would be capped at 200% of its $200 million requirement.

The example shows the logic professionals care about: a defaulter’s own resources go first, the CCP’s own money goes before other members’, and mutualization is a backstop rather than the first line of defense. It also shows why the fund is sized for two large groups: a single account of this size is small relative to the fund, but a failing bank may carry thousands of such accounts on correlated risks.

Liquidity, not only solvency

A clearing house can be solvent and still fail to pay on time. Options settle premiums the next business day, and on a stressed day OCC may need to pay winners before it has turned a defaulter’s collateral into cash. SEC rules for covered clearing agencies (Rule 17Ad-22(e)(7)) require qualifying liquid resources sufficient to meet payment obligations in extreme but plausible conditions. This is why CCPs care about the form of collateral, not only its value: cash and short Treasury bills can be used the same day, while a pledged stock must first be sold into a falling market. The CDCC disclosure below makes the same point by sizing a separate liquidity fund alongside its clearing fund.

When the CCP itself falls short

OCC is not immune to supervisory findings. On September 4, 2019, the SEC and CFTC announced settled charges that OCC had failed to establish and enforce policies on financial risk management, operational requirements, and information-systems security, and had changed core risk policies without required SEC approval. OCC paid a combined $20 million ($15 million to the SEC, $5 million to the CFTC) without admitting or denying the findings, and agreed to hire an independent compliance auditor. The CFTC said it was its first enforcement action under the core principles for derivatives clearing organizations. The case is a reminder that the guarantee is only as strong as the risk management behind it, which is why the methodology is now written down and subject to SEC approval.

The broader regulatory map, including FINRA, the exchanges, and the CFTC’s role, is covered in how options markets are regulated.

Canada: CDCC

In Canada, the Canadian Derivatives Clearing Corporation (CDCC) is the central counterparty for the Montréal Exchange’s futures and options, for certain over-the-counter equity derivatives, and for Canadian fixed-income repo. It is wholly owned by the Montréal Exchange, which is owned by TMX Group. The figures below come from CDCC’s 2025 disclosure under the CPMI-IOSCO Principles for Financial Market Infrastructures.

Regulation. The Autorité des marchés financiers recognized CDCC as a clearing house under Québec’s Derivatives Act by decision 2012-PDG-0078 dated May 2, 2012. The Ontario Securities Commission recognized it as a clearing agency on April 8, 2014, and the British Columbia Securities Commission also recognizes it. The Bank of Canada designated its clearing system, the Canadian Derivatives Clearing Service, as systemically important under the Payment Clearing and Settlement Act in April 2012.
Scale (2025). 32 clearing members; 90,257,587 options and 144,620,816 futures contracts cleared (single-counted); a margin fund of about $17.8 billion and a clearing fund of about $5.4 billion (Canadian dollars, deposit value).
Margin. For derivatives, CDCC’s base initial margin uses a scanning approach built from price scan ranges and volatility scan ranges, with normal or Student’s t assumptions depending on the product’s tails, targeting at least 99% coverage over a two-day close-out horizon (five days for over-the-counter equity options). Repo uses an expected-shortfall model.
Clearing fund. Sized under a Cover 1 plus affiliates standard: the largest credit loss beyond margin from the default of one clearing member and its affiliates under extreme but plausible scenarios, tested daily, with a separate supplemental liquidity fund sized the same way for liquidity shortfalls.
Waterfall. CDCC’s rules include a layer of CDCC’s own default risk capital and full rights of use over the clearing fund, with replenishment rules for non-defaulting members. Canadian-dollar cash collateral is held at the Bank of Canada.

The main structural difference is the cover standard. Cover 2 assumes two simultaneous member-group failures; Cover 1 plus affiliates assumes one. That reflects the principles’ distinction between CCPs that are systemically important in multiple jurisdictions or have complex risk profiles and those that are not, rather than a judgment that Canadian markets are safer.

What can go wrong

Procyclical margin. Models that respond to recent volatility raise margin exactly when markets fall, forcing members to post cash at the worst moment. CCPs use floors and anti-procyclicality tools to dampen this, at the cost of higher margin in calm periods.
Model risk in the tail. A copula fitted on two years of data may not contain the next crisis. That is why STANS adds stress and dependence charges, and why the fund is sized on stress tests rather than on the margin model.
Concentration and wrong-way risk. A member whose own credit is tied to the positions it clears (for example, large exposure to a market that would also hurt its balance sheet) is more dangerous than its margin suggests.
Mutualization fights. Every change to who funds the clearing fund creates winners and losers among members, as the 2025 to 2026 allocation dispute showed.
Operational failure. The 2019 settlement involved policies and systems, not a default. A CCP can fail its members through process as well as through losses.

The short version

OCC turns every listed US option into a contract with a single, heavily regulated counterparty. It margins clearing members with STANS, a Monte Carlo model targeting a 99% two-day expected shortfall with fat-tailed dependence, implied-volatility risk factors, and stress add-ons. Losses beyond margin fall on a Cover 2 clearing fund, sized monthly for the failure of the two largest member groups, through a waterfall that charges the defaulter first, then OCC’s own skin in the game, then surviving members, with assessments capped at 200% of each member’s requirement during a cooling-off period. FSOC designated OCC systemically important in 2012. Canada’s CDCC follows the same design under a Cover 1 plus affiliates standard, overseen by the AMF, the OSC, and the Bank of Canada.