OCC Considers Clearing OTC Option Trades

Trader's Magazine is quoting a source at the Options Clearing Corporation, who claims that the OCC is considering clearing Over the Counter option trades.

So why do traders care if the OCC wants to get into a new line of business? They care because getting these trades into a clearing house will reduce the exposure of good firms to the bad behavior of firms who take crazy risks. If OTC derivatives were being processed by a clearing house responsible for collecting margin, the disastrous amount of risk taken on by Bear Stearns and Lehman Brothers would probably not have happened, in part because the clearing house would have been requiring additional capital be posted. Being required to post more capital at the clearing house would have reduced the cash these firms had available to fund additional trades.

How much money did you lose to the market meltdown surrounding Lehman and Bear Stearns? Don't ask, right? Getting OTC derivatives into the clearing house system will help prevent that from happening again and that helps all of us who trade.