The Options Clearing Corp. has renegotiated and renewed its $1 billion committed repurchase facility with the California Public Employees Retirement System.
This one-year facility is in addition to the OCC’s existing $2 billion worth of liquidity resources the clearinghouse with various banks and broker-dealers.
One key difference between the CalPERS line and the OCC’s other credit facilities is that CalPERS facility is set up as a committed repo facility, which always has funds in the tri-party account, according to John Fennell, executive vice president, financial risk management at the OCC.
When the OCC places its treasuries into the account, cash comes out as payment of the proceeds, and quickly. “It’s probably close to 20 minutes,” said Fennell. “That’s important for us because we operate on a very short turnaround. The lines we have typically need to be funded within an hour of a draw request.”
The OCC has not needed to draw upon the facility since signing the original agreement in January 2015. “We have done several operational tests where we just draw on it and then hold the cash for a few days and then return it,” said Fennell. “It actually works very well.”
As part of the renegotiation, the OCC and CalPERS have worked on evening out the liquidity’s maturity throughout the year. “We started to notice that we had a lot of our liquidity maturing in the fourth quarter,” said Fennell. “Now we have some maturing in the second and third quarters as well as the fourth quarter.”
Since establishing its CalPERS facility with the help of eSecLending, other pension funds have approached the OCC to discuss setting up similar facilities, but the clearinghouse is not looking to create new credit facilities, according to Fennell.
“For us, stepping into this when we did was really about trying to work with a partner that was innovative and was willing to challenge the status quo,” he said. “Working with CalPERS and doing $1 billion was more to test the model. Over the first year, we put the model in place, tested it, and the model works well.”
