Aug. 09, 2022
August 9, 2022 This OCC proposal \"seeks to expand its liquidity facility to increase OCC's access to cash to manage a member default.\" See SR-OCC-2022-802 pg 3. Despite having \"access to cash from a variety of sources\", including a Clearing Fund (\"OCC may also use the Clearing Fund to address liquidity shortfalls ...\" See SR-OCC-2022-802 footnote 5), the OCC seeks to modify its Master Repurchase Agreement to create an unquestionably self-serving and unilaterally lopsided agreement with \"certain additional provisions tailored to help ensure certainty of funding and operational effectiveness\" See SR-OCC-2022-802 pg 5). The proposed modifications seek to: 1. Compel the buyer to \"enter into transactions even if the OCC had experienced a material adverse change, such as the failure of a Clearing Member\" See SR-OCC-2022-802 pg 8. 2. Require providing \"immediately available funds within 60 minutes of its request for funds ... and, if needed, prior to OCC's regular daily settlement time ... even in the event of a default by a Clearing Member or a market disruption\". 3. Most importantly, \"require that it would not be an event of default if OCC suffers a \"material adverse change.\" This last requirement is unquestionably suspect. To ensure that parties would not call an event of default would ultimately result in a situation similar to one currently playing out in China with debt-ridden Evergrande. A company that should be in bankruptcy for orderly wind down, isn't. Both creditors and the public are harmed by waiving the normal rules of business for some and not others commonly referred to as \"rules for thee not for me\". As a SRO, especially as the sole clearing agency for standardized US securities options listed on national securities exchanges registered with the commission, the OCC is obligated to manage risk for themselves and their Clearing Members, including in the event of a default. Repeated failures at assigning losses to responsible parties continues to exacerbate systemic risks, including those since the 2008 financial crisis. While socializing losses and privatizing profits has been and continues to be very profitable for a select few, this approach can not be a viable long term solution. The \"OCC maintains access to cash from a variety of sources, including, a requirement for members to pledge cash collateral to OCC and various agreements with banks and other counterparts (\"liquidity facilities\") to provide OCC with cash in exchange for collateral\". The OCC should leverage the resources available to meet the payment obligations created by their members. Failing to secure sufficient cash collateral from their members is a failure by the OCC at managing risk. Perhaps the OCC should first consider increasing collateral requirements on their members as a risk management strategy?