I write to express my strong support for the proposed enhancements to Rule 15c3-3, which mandates carrying broker-dealers with large total credits to perform their customer and PAB reserve computations on a daily basis. This rule is critical for enhancing the transparency and stability of the financial markets, and here’s why: 1. Increased Market Stability: The recent volatility in financial markets has underscored the importance of having more frequent and timely oversight of broker-dealers' obligations to customers. Daily computations would provide regulators and the market with a more accurate and current picture of a broker-dealer's financial health, thereby potentially preventing systemic risks before they escalate. 2. Enhanced Customer Protection: Customers and PAB account holders entrust broker-dealers with significant amounts of cash and securities. The proposed rule ensures that these assets are adequately protected by requiring more frequent checks on the sufficiency of broker-dealers' reserves. This would significantly mitigate the risk of customer losses in the event of a broker-dealer's failure. 3. Adaptability to Market Dynamics: The proposal acknowledges the dynamic nature of financial markets by requiring adjustments to the frequency of computations based on the broker-dealer's average total credits. This adaptability ensures that the regulatory framework remains relevant and effective, even as market conditions change. 4. Evidence from Recent Market Events: Historical financial crises and recent market disturbances have shown that issues within individual institutions can rapidly escalate, affecting the broader financial system. The proposed rule would act as an early warning system, allowing for timely intervention before problems become systemic. 5. Global Best Practices: Many financial regulatory frameworks around the world are moving towards more frequent and rigorous monitoring of financial institutions. By increasing the computation frequency, the U.S. would align with global best practices, ensuring that its financial system remains competitive and robust. * The OCC collects margin collateral from Clearing * Members to address the market risk associated with a Clearing Member's positions. [31 * OCC uses a proprietary system, STANS ("System for Theoretical Analysis and Numerical Simulation"), to calculate each Clearing Member's margin requirements with various models. One of the margin models may produce "procyclical" results where margin requirements are correlated with volatility, which "could threaten the stability of its members during periods of heightened volatility." [2] * An increase in margin requirements makes it difficult for a Clearing Member to obtain liquidity to meet its obligations to OCC. If the Clearing Member defaults, liquidating the Clearing Member positions could result in losses chargeable to the Clearing Fund, which could create liquidity issues for non-defaulting Clearing Members. [2] * A systemic risk exists because Clearing Members as a whole are insufficiently capitalized and over-leveraged such that a single Clearing Member failure (e.g., from insufficiently managing risks arising from high volatility) could cause a cascade of Clearing Member failures. In layperson's terms, a Clearing Member who made bad bets on Wall St could trigger a systemic financial crisis because Clearing Members are all risking more than they can afford to lose. * The OCC's rule proposal attempts to avoid triggering a systemic financial crisis by reducing margin requirements using "idiosyncratic" and "global" control settings, highlighting one instance of one individual risk factor that * "[a]fter implementing idiosyncratic control settings for that risk factor, aggregate margin requirements decreased $2.6 billion." [4] The OCC avoided margin calling one or more Clearing Members at risk of default by implementing "idiosyncratic" control settings for a risk factor. According to footnote 35 [5], the OCC has made this "idiosyncratic" choice over 200 times in less than four years (from December 2019 to August 20 of varying durations up to 190 10 days). The OCC is choosing to waive away margin calls for Clearing Members over 50 times a year, which seems too often to be idiosyncratic. In addition to waiving away margin calls for 50 personal risks a year, the OCC has also chosen to implement "global" control settings in connection with long-tail [6] events, including the onset of the COVID-19 pandemic and the so-called * "meme-stock" episode on January 27, 2021. [71 * Fundamentally, these rules create an unfair marketplace for other market participants, including retail investors, who are forced to face the consequences of long-term risks. At the same time, the OCC repeatedly waives margin calls for Clearing Members by reducing their margin requirements. For this reason, this rule proposal should be rejected, and Clearing Members should be subject to strictly defined margin requirements as other investors are. * Per the OCC, this rule proposal and these special margin reduction procedures exist because a single Clearing Member defaulting could result in a cascade of Clearing Member defaults, potentially exposing the OCC to financial risk. [8] * Thus, Clearing Members who fail to manage their portfolio risk against long tail events properly become de facto Too Big To Fail. For this reason, this rule proposal should be rejected, and Clearing Members should face the consequences of failing to properly manage their portfolio risk, including against long tail events. Clearing Member failure is a natural disincentive against excessive leverage and insufficient capitalization, as others in the market will not cover their loss. * This rule proposal codifies an inherent conflict of interest for the Financial Risk Management (FRM) Officer. While the FRM Officer's position is allegedly to protect the OCC's interests, the situation outlined by the OCC proposal where a Clearing Member failure exposes the OCC to financial risk necessarily requires the FRM Officer to protect the Clearing Member from failure to protect the OCC. Thus, the FRM Officer is no more than an administrative rubber stamp to reduce margin for other market participants, including retail investors, who are forced to face the consequences of long-tail risks. At the same time, the OCC repeatedly waives margin calls for Clearing Members by repeatedly reducing their margin requirements. For this reason, this rule proposal should be rejected, and Clearing Members should be subject to strictly defined margin requirements as other investors are. * Per the OCC, this rule proposal and these special margin reduction procedures exist because a single Clearing Member defaulting could result in a cascade of Clearing Member defaults, potentially exposing the OCC to financial risk. [8] Thus, Clearing Members who fail to manage their portfolio risk against long tail events properly become de facto Too Big To Fail. For this reason, this rule proposal should be rejected, and Clearing Members should face the consequences of failing to properly manage their portfolio risk, including against long tail events. Clearing Member failure is a natural disincentive against excessive leverage and insufficient capitalization, as others in the market will not cover their loss. * This rule proposal codifies an inherent conflict of interest for the Financial Risk Management (FRM) Officer. While the FRM Officer's position is allegedly to protect the OCC's interests, the situation outlined by the OCC proposal where a Clearing Member failure exposes the OCC to financial risk necessarily requires the FRM Officer to protect the Clearing Member from failure to protect the OCC. Thus, the FRM Officer is no more than an administrative rubber stamp to reduce margin requirements for Clearing Members at risk of failure. * Unfortunately, rubber stamping margin requirement reductions for Clearing Members at risk of failure vitiate the protection from market risks associated with Clearing members' positions provided by the margin collateral that the OCC would have collected. For this reason, this rule proposal should be rejected, and the OCC sh enforce sufficient margin requirements to protect the OCC and minimize the size of any bailouts that may already be required. As the OCC's Clearing Member Default Rules and Procedures [9] Loss Allocation waterfall allocates losses to "3. OCC's pre-funded financial resources" (OCC's * "skin-in-the-game" per SR-OCC-2021-801 34-91491 * [10]) before "4. Clearing fund deposits of non-defaulting firms", any sufficiently large Clearing Member default which exhausts both "1. The margin deposits of the suspended firm" and "2. Clearing fund deposits of the suspended firm" automatically poses a financial risk to the OCC. As this rule proposal is concerned with potential liquidity issues for non-defaulting Clearing Members due to charges to the Clearing Fund, it is clear that the OCC is concerned about the risk that exhausts the OCC's pre-funded financial resources. * With the first and foremost line of protection for the OCC being "1. The margin deposits of the suspended firm", this rule proposal to reduce margin requirements for at-risk Clearing Members via idiosyncratic control settings is blatantly illogical and nonsensical. By the OCC's admissions regarding the potential scale of financial risk posed by a defaulting Clearing Member, the OCC should be increasing the amount of margin collateral required from the at-risk Clearing Member(s) to increase their protection from market risks associated with Clearing Member's positions and promote appropriate risk management of Clearing Member positions. Curiously, increasing margin requirements is precisely what the OCC admits is predicted by the allegedly "procyclical" STANS model [2] that the OCC alleges is an overestimation and seeks to mitigate [11]. If this rule proposal is approved, mitigating the procyclical margin requirements directly reduces the first line of protection for the OCC, margin collateral from at-risk Clearing Member(s), so this rule proposal should be rejected, made fully available for public review, and approved only with significant amendments to address the issues raised herein. * In light of the issues outlined above, please consider the following modifications: * 1. Increase and enforce margin requirements commensurate with risks associated with Clearing light of the abovementioned issues. Please consider the following modifications: 1. Increase and enforce margin requirements commensurate with risks associated with Clearing Member positions instead of reducing margin requirements. Clearing Members should be encouraged to position their portfolios to account for stressed market conditions and long-tail risks. This rule proposal encourages Clearing Members to become Too Big To Fail to pressure the OCC with excessive risk and leverage into implementing idiosyncratic controls more often to privatize profits and socialize losses. 3. External auditing and supervision as a "fourth line of defense" similar to that described in The "four lines of defense model" for financial institutions [12] with enhanced public reporting to ensure that risks are identified and managed before they become systemically significant. 5. Swap "3. OCC's pre-funded financial resources" and "4. Clearing fund deposits of non-defaulting firms" for the OCC's Loss Allocation waterfall so that Clearing fund deposits of non-defaulting firms are allocated losses before OCC's own pre-funded financial resources and the EDCP Unvested Balance. Changing the order of loss allocation would encourage Clearing Members to police each other with each Clearing Member, ensuring other Clearing Members take appropriate risk management measures as their Clearing Fund deposits are at risk after the deposits of a suspended firm are exhausted. This would also increase protection to the OCC, a SIFMU, by allocating losses to the clearing corporation after Clearing Member deposits are exhausted. By extension, the public would benefit from lessening the risk of needing to bail out a systemically important clearing agency In conclusion, the proposed enhancements to Rule 15c3-3 are not only timely but necessary to safeguard the integrity of the financial markets and protect customer assets. I urge you to adopt these changes to ensure that our financial system remains resilient against both current and future challenges. Sincerely, The individual investor