Options trading is central to the complex, risk-adverse equity derivatives industry and leading the clearing of such trades is The Options Clearing Corporation (OCC).
Founded in 1973, OCC is the largest such organization worldwide. As a highly regulated enterprise, it must promote the stability and financial integrity in the equity derivatives marketplace. The company also acts as a guarantor, ensuring the fulfillment of options trading contracts.
OCC largely operated behind the scenes until the financial crisis of 2007-2008. In response to the crisis, Congress and regulators focused new attention on the clearinghouse. It designated OCC as one of a handful of financial linchpins, alongside the largest banks in the country.
OCC, however, was unprepared for the attention. It lacked the technology, expertise and resources to deal with the new regulatory regime and associated requirements.
By 2013, the Securities and Exchange Commission sounded the alarm. “The excessive number of repeat findings raises a serious concern about OCC’s overall commitment to establishing a culture of regulatory compliance,” the SEC wrote in a letter. “And, more specifically, its ability to timely and adequately address the [SEC] Staff’s findings.”
To survive, the OCC had to transform – its leadership, its culture and its processes – to become risk-oriented. At the core of this shift to a risk-oriented culture: revamping its technology.
OCC’s motivations might be about risk management, but its transformation is all digital.
Gaining a Risk-Oriented Mindset
The first order of business: appointing a new Executive Chairman. Industry veteran Craig S. Donohue joined OCC in 2014, soon taking the top spot. He focused on end-to-end transformation, including shaking up the rest of the C-suite. The OCC board of directors gave Donohue the added responsibility of CEO in September of 2016.
Donohue soon promoted John Fennell, an OCC employee since 1993, to the critical Chief Risk Officer role. Fennell immediately targeted the OCC culture. “When I took on the role of chief risk officer at OCC, I realized that as a company we needed to mature from a process-oriented culture to more of a risk-oriented culture,” Fennell said. “We need to be asking ourselves: where is risk present, how do we measure it and how do we manage our business with risk as the primary driver?”
To achieve this cultural shift, OCC decided to revamp many of its business processes. OCC identified two primary problems with existing processes: first, the organization’s focus was more on process than risk and second, it still executed too many of its processes manually.
Manual processes, in fact, go contrary to OCC’s risk centricity, as they lead to human errors that increase the risk to the organization.
For OCC’s process innovation team, therefore, targeting such processes was an obvious starting point in OCC’s transformation. “We have many manual processes,” explained Denise Knabjian, Vice President of Process Innovation for OCC. “We’re finding new ways of doing things and addressing process risk across the organization.”
Low-Code Business Process Management (BPM): Starting Point for Digital Transformation
Automating manual business processes, therefore, was an important first step on OCC’s road to a risk culture. “A BPM tool was our first foray into digital transformation,” Knabjian explained. “Our goal is to strengthen our risk profile and risk culture.”
The process innovation team focused on a number of essential processes, including member onboarding, regulatory filing and even new product development. Next up: quantitative model development and validation.
As with all successful digital transformation initiatives, OCC’s efforts crossed organizational lines. “We’re working in a strong partnership with IT following an Agile methodology,” Knabjian continued. “Partnership with IT is critical.”
Agile methodologies focus on short, customer-focused iterations that frequently incorporate stakeholder input. To support this Agile approach as it reworked its business processes, OCC turned to Appian (NASDAQ: APPN), a leading low-code BPM platform vendor. “Appian is driving our initial usage of Agile,” Knabjian said. “We’re now able to make iterative changes.”
In fact, OCC’s need for agility was broader than simply its use of Agile approaches. “Markets are changing and regulations are ever changing,” said Bill Raczyk, Director of Business Process Improvement for OCC. “We need to be more agile.”
In fact, Raczyk credited Appian in large part for OCC’s success in revamping its processes. “We’ve covered a lot of ground in a relatively short amount of time, and we wouldn’t have been able to do all that without a low-code platform like Appian,” he said.
Extending the Benefits Across the Organization
As OCC’s process innovation efforts proceeded, the organization achieved cross-organizational benefits. “We’re transforming by providing better collaboration,” Knabjian said, “Not just for internal uses but across the customer base.”
OCC listed several other benefits for various business stakeholders beyond risk reduction, including transparency, efficiency and greater business velocity.
In fact, some of these benefits came as a surprise. “By focusing on risk, there are side effects we didn’t anticipate,” Raczyk said. For example, leveraging Appian for process improvement centralized documentation, providing greater efficiency for business users as well as streamlined audit processes.
As a highly regulated firm focused on managing risk, audits are a daily part of life. Facilitating the audit process as well as making it consistent across the organization helped to drive OCC’s strategic transformation to a greater risk orientation.
CRO Fennell helped to connect the dots. “Another challenge is having the business units own the risks, and empowering them to evaluate risks in a consistent way across the firm,” he explained. “Once business units are capable of identifying and measuring risk in a consistent manner firm-wide, the firm will have a demonstrable way to prioritize initiatives, which will have a snowball effect for process owners to know where and how to make investments.”
The full extent of OCC’s digital transformation strategy now became clear. “To transform our culture, we have to ingrain that risk-focused mindset into our everyday work,” Fennell added. “Then they can start to incorporate risk management into the overall strategy.”
Intellyx publishes the Agile Digital Transformation Roadmap poster, advises companies on their digital transformation initiatives, and helps vendors communicate their agility stories. As of the time of writing, Appian is an Intellyx customer. None of the other organizations mentioned in this article are Intellyx customers.
