ICE Reddit Mentions | ChartExchange

We all saw the [OCC](https://en.wikipedia.org/wiki/Options_Clearing_Corporation) memo saying the [NSCC](https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_Corporation#NSCC) noped out of settling GME WarrantS (GMEWS) last week \[[OP on X](https://x.com/WhatCanIMT/status/2082986376900022440), 1\] on July 30 (effective immediately); on the *last trading day* to get in a settled trade before the C35 deadline for the DTCC’s 6/29 Market Disruption \[[OP on X](https://x.com/WhatCanIMT/status/2082799115868733914)\]. Digging Deeper, **VERY BULLISH!**
When the NSCC said they’re no longer settling GME Warrants, the OCC memo said it was “Pursuant to OCC By-Law Article VI, Section 19” (blue highlight) \[2\] that GME Warrants settlement will be directly between brokers going forward.
https://preview.redd.it/h86l3l8872hh1.png?width=1996&format=png&auto=webp&s=6dc60df2465ce186bbc1964fad9fa808dd0aaf81
We can look up the Article VI, Section 19 of the OCC By-Laws \[[OCC PDF](https://www.theocc.com/getmedia/3309eceb-56cf-48fc-b3b3-498669a24572/occ_bylaws.pdf)\] and >!HOLY SHIT!< this section is *literally* titled “**Shortage of Underlying Securities**” when an event “threatens to *reduce the available supply* of the affected security to a level *insufficient to permit performance of the exercise settlement obligations* with respect to outstanding option contracts for the affected security”:
https://preview.redd.it/5qh38ud772hh1.png?width=1846&format=png&auto=webp&s=ada50b66d5bc6357a10ae45450d8957db5db70cb
**There are not enough GME Warrants so the NSCC and OCC are making brokers figure shit out between themselves when options with GME Warrants are assigned or exercised.**
https://i.redd.it/i1mrw0l572hh1.gif
Digging deeper into the OCC By-Laws to see what the OCC will do, we immediately see that the OCC says they can take 4 actions; though the 4 actions simply boils down to these 2 that we see in the OCC Memo (above under “Broker-to-Broker Settlement”):
* (1) Force brokers to settle directly between themselves (aka “figure this shit out yourselves”), and
* (2-4) Suspend & delay settlement based on the legalese in subsections (b) or (c) (red highlights)
https://preview.redd.it/30sej8c472hh1.png?width=1844&format=png&auto=webp&s=7c90d82f70b4a863e664f13f6a47836480e50664
Subsection (b) is not that interesting it's as for a situation where enough of the underlying security (i.e., GMEWS) become available. If this happens (e.g., if GameStop issues more warrants), then use the available supply to settle.
Subsection (c) is very interesting as it’s for when “there is no reasonable likelihood that a sufficient supply of the underlying security will become available within the foreseeable future” (e.g., no more warrants from GameStop). In this case, the OCC will “fix cash settlement prices” which means the OCC determines how much each warrant is worth and then Clearing Members pay up to settle debts. **FU Pay Me!**
https://preview.redd.it/hkir9t7372hh1.png?width=1858&format=png&auto=webp&s=1ccae4e2b997bcaa1b11d3fdf39628b78d28fb0d
*However*, there’s a catch. The OCC decides how much each warrant debt is worth (“provided, however, that the Corporation may fix the final settlement price or adjust a previously-determined final settlement price”) *allegedly in the interest of fairness* (“as necessary or appropriate to achieve *fairness* to buyers and sellers of such futures”). *I’m pretty sure retail already knows where their thumb pushes on the scale of justice.*
At least retail does have a record of the OCC’s policy on our side, right? Under “... *Interpretations and Policies*”, the OCC has a section with guidelines on what they’re *supposed* to do. It’s the OCC’s policy \[.01\] to settle everything through the proper clearing corporation, but “in those situations in which the application of that policy would, in the judgment of the Corporation, be **inequitable or impractical**, the Corporation may take such actions, consistent with the By-Laws and Rules, as it deems **equitable and feasible** in the circumstances and will be guided in accordance with the provisions of Interpretation and Policy .02”.
https://preview.redd.it/jccredu072hh1.png?width=1854&format=png&auto=webp&s=56439932ab78bdb5e8b6d106a99e7f34206b47d5
Under “Interpretation and Policy .02” for when things are “inequitable or impractical”, there’s a part for “Where Shortage Appears to be Permanent” which says the OCC will “fix cash settlement prices to be paid in settlement”.
https://preview.redd.it/0xzkv8u172hh1.png?width=1854&format=png&auto=webp&s=3e160d523018dbe0deaa973ba0cca62ad22dd0db
There is also a policy section for “Fixing of Cash Settlement Prices” which *generally* says to use the market value (where available). *So far so good…*
https://preview.redd.it/3k2cpotw62hh1.png?width=3044&format=png&auto=webp&s=ad653adb3fa498865b533a6f6410c92a9e8b187a
Until we get to the policy section for “Determination of Market Value of Underlying Security” where if the OCC determines there are *special circumstances* (e.g., MOASS) that would make the policies “unfair to exercising Clearing Members or assigned Clearing Members \[the OCC\] may use a different method to determine the market price of the underlying security”.
https://preview.redd.it/n25y95kv62hh1.png?width=1796&format=png&auto=webp&s=9316a172cdd7a94777859fa3e9b2dba50405b8b0
*🤦 The OCC can do whatever they want if it’s unfair to Clearing Members.*
Lastly, there’s also a section for “Situations Not Otherwise Provided For” (MOASS might fit that description) where the OCC decides what the *equitable* final \[cash\] settlement prices will be fixed at.
https://preview.redd.it/f3zsznmt62hh1.png?width=1796&format=png&auto=webp&s=77956bc642d6aeef3e5c90b4edc981bdabe5db88
With all this OCC Policy about doing what’s *equitable* \[[LII](https://www.law.cornell.edu/wex/equitable), [Dictionary](https://www.merriam-webster.com/dictionary/equitable)\]*,* *fair, feasible and practical*, keep in mind that the [OCC’s Board of Directors](https://www.theocc.com/company-information/board-of-directors) is filled with people connected to [Bank of America](https://www.theocc.com/company-information/board-of-directors/stuart-bourne), [UBS](https://www.theocc.com/company-information/board-of-directors/maria-chiodi), [Goldman Sachs](https://www.theocc.com/company-information/board-of-directors/alicia-crighton), [Nasdaq](https://www.theocc.com/company-information/board-of-directors/jeffery-davis) ([\#2](https://www.theocc.com/company-information/board-of-directors/kevin-kennedy)), [Apex Clearing](https://www.theocc.com/company-information/board-of-directors/matthew-hulsizer), [Intercontinental Exchange (ICE)](https://www.theocc.com/company-information/board-of-directors/elizabeth-k-king), [JP Morgan](https://www.theocc.com/company-information/board-of-directors/michael-kurd), [Jeffries](https://www.theocc.com/company-information/board-of-directors/joseph-lewis), [CBOE](https://www.theocc.com/company-information/board-of-directors/tim-lipscomb), [Schwab](https://www.theocc.com/company-information/board-of-directors/faris-matalka), [NYSE](https://www.theocc.com/company-information/board-of-directors/mike-west), and [**Citadel**](https://www.theocc.com/company-information/board-of-directors/josh-woods). 👎⚖️
At least the OCC Policy says the starting point for how much we’ll get paid is based on the market value of the GME Warrants.
# OCC Now Picking Winners and Losers
Now that the OCC has forced all the brokers to settle exercised options between themselves, this means that exercising Clearing Members have to **settle directly with the** ***assigned*** **Clearing Member** (see Shortage of Underlying Securities above, red underline) possibly requiring a buy-in; *with OCC handling the assignment*.
The OCC picks who is assigned to deliver GMEWS on a GME1 option assignment/exercise.
https://preview.redd.it/g5cdeg5s62hh1.png?width=777&format=png&auto=webp&s=19d51a7d2aff7acd380c3abbdaf3bc13c7bef57e
The OCC picks the **loser** for every GME1 options assignment/exercise. So unlike Squid Game players who choose their own order for crossing the glass bridge, the **OCC \[3\] controls** who goes next in line and, thus, who is most likely to fall first and who is most likely to make it across. \[4\]
# BUT "The Loser" DOES NOT DEFAULT
Oddly, the loser here **does not default** despite failing to deliver on contractual obligations. Thanks to a 2006 Proposed Rule Change by the OCC (approved May 2007, just a bit before the 2008-2009 Great Financial Crisis \[5\]) \[[Federal Register](https://www.federalregister.gov/documents/2007/07/20/E7-14019/self-regulatory-organizations-the-options-clearing-corporation-order-granting-approval-of-a-proposed)\] actions by the OCC under Section 19 of Article VI (including suspending settlement obligations) in the event of a Shortage Of Underlying Securities “**would not be considered an event of default** \[and\] would not allow a Clearing Member to initiate the close-out netting procedures” \[[Id.](https://www.federalregister.gov/d/E7-14019/p-36)\].
https://preview.redd.it/crqquqtq62hh1.png?width=1514&format=png&auto=webp&s=a88522e1058f5459a8cb3bb77d0559380cad1e44
Squid Game (and its dire consequences) is only for the poors.
**Footnotes**
\[1\] See also: [SuperStonk](https://www.reddit.com/r/Superstonk/comments/1vbbmks/found_on_x_gamestop_corporation_brokertobroker/) and [1st known X post by RuoKdam](https://x.com/RuoKdaM/status/2082979574371999897). And [OCC Memo PDF](https://infomemo.theocc.com/infomemos?number=59491).
\[2\] Credit to [this post by DirtEvader on X](https://x.com/dirtevader/status/2083106560025169994).
\[3\] Please note the the [OCC’s Board of Directors](https://www.theocc.com/company-information/board-of-directors) is filled with people connected to [Bank of America](https://www.theocc.com/company-information/board-of-directors/stuart-bourne), [UBS](https://www.theocc.com/company-information/board-of-directors/maria-chiodi), [Goldman Sachs](https://www.theocc.com/company-information/board-of-directors/alicia-crighton), [Nasdaq](https://www.theocc.com/company-information/board-of-directors/jeffery-davis) ([\#2](https://www.theocc.com/company-information/board-of-directors/kevin-kennedy)), [Apex Clearing](https://www.theocc.com/company-information/board-of-directors/matthew-hulsizer), [Intercontinental Exchange (ICE)](https://www.theocc.com/company-information/board-of-directors/elizabeth-k-king), [JP Morgan](https://www.theocc.com/company-information/board-of-directors/michael-kurd), [Jeffries](https://www.theocc.com/company-information/board-of-directors/joseph-lewis), [CBOE](https://www.theocc.com/company-information/board-of-directors/tim-lipscomb), [Schwab](https://www.theocc.com/company-information/board-of-directors/faris-matalka), [NYSE](https://www.theocc.com/company-information/board-of-directors/mike-west), and [**Citadel**](https://www.theocc.com/company-information/board-of-directors/josh-woods).
\[1\] See also: [SuperStonk](https://www.reddit.com/r/Superstonk/comments/1vbbmks/found_on_x_gamestop_corporation_brokertobroker/), [1st known X post by RuoKdam](https://x.com/RuoKdaM/status/2082979574371999897), and [OCC Memo PDF](https://infomemo.theocc.com/infomemos?number=59491).
\[2\] Credit to [this post by DirtEvader on X](https://x.com/dirtevader/status/2083106560025169994).
\[3\] Please note the the[ OCC’s Board of Directors](https://www.theocc.com/company-information/board-of-directors) is filled with people connected to[ Bank of America](https://www.theocc.com/company-information/board-of-directors/stuart-bourne),[ UBS](https://www.theocc.com/company-information/board-of-directors/maria-chiodi),[ Goldman Sachs](https://www.theocc.com/company-information/board-of-directors/alicia-crighton),[ Nasdaq](https://www.theocc.com/company-information/board-of-directors/jeffery-davis) ([\#2](https://www.theocc.com/company-information/board-of-directors/kevin-kennedy)),[ Apex Clearing](https://www.theocc.com/company-information/board-of-directors/matthew-hulsizer),[ Intercontinental Exchange (ICE)](https://www.theocc.com/company-information/board-of-directors/elizabeth-k-king),[ JP Morgan](https://www.theocc.com/company-information/board-of-directors/michael-kurd),[ Jeffries](https://www.theocc.com/company-information/board-of-directors/joseph-lewis),[ CBOE](https://www.theocc.com/company-information/board-of-directors/tim-lipscomb),[ Schwab](https://www.theocc.com/company-information/board-of-directors/faris-matalka),[ NYSE](https://www.theocc.com/company-information/board-of-directors/mike-west), and[ **Citadel**](https://www.theocc.com/company-information/board-of-directors/josh-woods).
\[4\] Remember when the OCC proposed a rule change to reduce margin requirements for Clearing Members at risk of failure to prevent a cascade of Clearing Member failures \[[SuperStonk](https://www.reddit.com/r/Superstonk/comments/1ae0toi/occ_proposes_reducing_margin_requirements_to/)\]; which apes shot down \[[SuperStonk](https://www.reddit.com/r/Superstonk/comments/1ciqum4/simians_smash_sec_rule_proposal_to_reduce_margin/)\]? That proposal included a seemingly innocuous and boring Financial Risk Manager (FRM) position whose entire job was to basically rubber stamp margin reductions for Clearing Members \[[Id.](https://www.reddit.com/r/Superstonk/comments/1ciqum4/simians_smash_sec_rule_proposal_to_reduce_margin/)\]; until there’s someone the OCC wants to margin call and <Soup Naz!> *no rubber stamp for you*! </<Soup Naz!> *The power to selectively put out a sacrificial lamb and/or scapegoat.* (Credit to Dismal Jellyfish for originally noticing this. 💜🫡)
Despite apes shooting down that ridiculous proposal, the OCC has found a way using existing frameworks to *selectively put out a sacrificial lamb / scapegoat* by controlling who is assigned on options exercises and their contractual requirements to deliver.
\[5\] Very convenient timing for this Rule Proposal and Approval just before the 2008-2009 Great Financial Crisis when you consider that it literally says "an OCC default or insolvency has always been considered so unlikely that OCC's rules do not contain any provisions whatever contemplating such events" \[[Federal Register](https://www.federalregister.gov/d/E7-14019/p-9)\]. There was so much shit hitting the fan in 2008 that the OCC was forced to consider the risk it would go under. And now we're seeing the same rules and By-Laws coming up. 🤔