OCC signs deal on off-exchange S&P 500 options

CHICAGO, Sept 20 (Reuters) - The Options Clearing Corp. struck a deal to clear over-the-counter options tied to the well-known Standard & Poor's 500 Index, and plans to begin offering the service next summer, an executive said on Monday.

The agreement gives Chicago-based OCC, which already guarantees all stock options traded on U.S. exchanges, entree into the $4.8 trillion market for equity-linked options traded away from exchanges.

While OTC equity options were not part of recent Wall Street reform legislation that mandates clearing for most of the rest of the off-exchange derivatives market, running them through a centralized clearing service will provide both savings and safety, OCC Executive Vice President Mike McClain said in an interview

"It's very important for us to be the only clearer of equity options, whether they be OTC or listed," McClain said. "Putting them together makes it very efficient."

Cleared derivatives are seen as a safer alternative to contracts that are backed only by the credit of the two parties involved. A clearinghouse stands in between traders, making sure that each side puts up enough collateral to back its bet and stepping in in case of a default.

CME Group Inc (CME.O), IntercontinentalExchange Inc (ICE.N), London-based LCH.Clearnet, and Nasdaq OMX Group Inc (NDAQ.O) are racing to expand their clearing services to the over-the-counter markets for credit default swaps, interest rate swaps and currency swaps, which together make up the majority of the $615 trillion market for off-exchange derivatives.

But there has been little interest in equity-linked contracts, McClain said, partly because they are difficult to handle and partly because the small size of the market makes it difficult to predict how much new business a clearinghouse stands to bring in.

"We could get something very big, or we could get something small," McClain said. "Equities is the last priority for regulators and legislators. We are very much in the front on this." (Reporting by Ann Saphir, editing by Dave Zimmerman)