02 August 2017
Chicago
Reporter: Mark Dugdale

OCC securities lending activity increases significantly


OCC's securities lending central counterparty (CCP) activity was up 27 percent in new loans last month.

The CCP saw 183,210 transactions pass through its books in July, well ahead of the number of trades it reported in the same month in 2016.

Year-to-date stock loan activity was also up 21 percent from 2016 with approximately 1.33 million new loan transactions in 2017.

The average daily loan value cleared by OCC in July was approximately $151.9 billion.

Other activity at the equity derivatives organisations, including exchange-listed options and futures volume, were also up year over year.

The results came as OCC executive chairman and CEO Craig Donohue warned the White House and Congress against resurrecting dead tax reform initiatives that could negatively affect derivatives, including exchange-traded options.

President Donald Trump has made comprehensive tax reform a top priority for his administration, but Donohue fears Republicans will recycle old proposals rather than draw up fresh plans.

One such proposal would “mark to market most derivatives, including exchange-traded options, and treat the resulting gains as ordinary income rather than capital gain”, Donohue told Tradeweb blog FinReg Alert recently.

He explained: “Under the proposal, individual options positions (ie, options positions without a related stock position) held at year-end would be marked to market. Moreover, if a taxpayer holds appreciated stock and enters a related options transaction to manage risk, the stock would be treated as sold at that time even though the taxpayer continues to hold the stock. Stock held in connection with an option would be marked to market and gain on the stock while the option is outstanding would be treated as ordinary income.”

Donohue said of his concerns: “We are very concerned that such proposals raise serious issues of fairness and tax policy by, among other things, imposing tax in advance of the receipt of cash to pay the tax. This can cause great practical difficulty to many investors, and may also cause them to pay tax on income that they may not ultimately earn.”

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