Feb. 2, 2024
Good Morning, I hope this letter finds you well. I am writing as a concerned individual, and while I may not possess an in-depth understanding of the intricacies of financial systems, I do recognize the importance of transparency and fairness within them. I have recently come across the proposed rule change by The Options Clearing Corporation (OCC) regarding its margin requirements during periods of high market volatility. I would like to express my concerns about this proposal and its potential impact on our financial system. One of my primary concerns is the lack of transparency in this rule proposal. It appears that crucial information is redacted, making it difficult for the public to fully review and comprehend the proposal. Transparency is crucial in maintaining trust in our financial institutions, especially when the OCC is designated as a Systemically Important Financial Market Utility (SIFMU). Furthermore, the proposal suggests that reducing margin requirements for Clearing Members might be a response to the risk of cascading Clearing Member failures. While I understand the need to mitigate such risks, it seems unfair that Clearing Members are repeatedly provided with margin requirement reductions while other market participants, including retail investors like myself, face the full consequences of market volatility. I also worry about the potential conflict of interest for the Financial Risk Management (FRM) Officer, whose role is to protect OCC's interests. In situations where a Clearing Member's failure could expose OCC to financial risk, the FRM Officer may be compelled to prioritize the Clearing Member's interests, potentially compromising OCC's stability. In light of these concerns, I respectfully suggest some modifications to the proposed rule: Increase and enforce margin requirements according to the risks associated with Clearing Member positions, encouraging them to manage their portfolios more effectively. Implement external auditing and supervision as an additional layer of oversight to identify and manage risks proactively. Consider rearranging the order of loss allocation in the OCC's Loss Allocation waterfall to prioritize Clearing fund deposits of non-defaulting firms over OCC's own pre-funded financial resources. I believe that implementing these changes could help create a fairer and more transparent financial system that benefits all market participants, including retail investors like myself. Thank you for considering my input on this important matter. I believe that with greater transparency and fairness, we can ensure the resilience and integrity of our financial markets. Sincerely, Corbin Schmucker