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Options Clearing Corp raises fees, cites regulatory scrutiny

By Tom Polansek

CHICAGO, April 2 (Reuters) - The clearinghouse that handles all U.S. options trades said it has raised fees to cover the costs of increased regulatory requirements and warned members that any refund to them will likely be much smaller than in years past.

The fee adjustment, implemented this week by Chicago-based Options Clearing Corp (OCC), reflects the latest impact on the financial industry from the Dodd-Frank overhaul, which has forced firms to expand staffs and implement new technology to keep pace with regulations.

"There's a whole new regulatory regime with heightened expectations," OCC spokesman Jim Binder said on Wednesday. "Because of some of the new regulatory requirements, we need to have more of a surplus, more capital."

OCC processes trades for all 12 U.S. options exchanges and for some futures markets. It has nearly 120 clearing members that include the biggest U.S. broker-dealers, futures commission merchants and non-U.S. securities firms.

The company on Tuesday implemented a fee of 5 cents to clear trades with one to 500 contracts, the range in which most trading takes place, Binder said. The fee had been discounted to 3 cents since 2008, he said.

OCC refunded $47 million to clearing members last year, $50.1 million in 2012, and $79.6 million in 2011 because fees it collected exceeded operating expenses and surplus requirements, according to an annual report for 2013.

Any refund for 2014 will likely be significantly lower, according to the company.

"OCC's management and board will closely monitor performance during the remainder of the year and the board will determine prior to year-end whether to modify or suspend OCC's refund policy," OCC said in a notice.

The Financial Stability Oversight Council in 2012 designated OCC as a systemically important Financial Market Utility as part of Dodd-Frank. The designation requires compliance with risk management standards and heightened oversight by U.S. financial regulators.

Clearinghouses are "realizing they have to run themselves in a way where they have deeper resources to draw on, a deeper cushion for any problems that arise in their market," said Bruce Weber, dean of the Alfred Lerner College of Business and Economics at the University of Delaware.

Craig Donohue, who became OCC's chairman in January, in February said the company needed to increase working capital levels to cover at least six months of operating expenses to meet regulatory scrutiny.

OCC's focus on regulations follows reports last year that the U.S. Securities and Exchange Commission had criticized regulatory compliance, governance and risk management at the company. The fee adjustment was unrelated to risk management issues, Binder said.

Donohue formerly was chief executive of exchange-operator CME Group Inc, which is separately facing push back from brokers over a decision to raise fees for the first time since 2009.

(Reporting by Tom Polansek; Editing by Leslie Adler)