Feb. 2, 2024
I appreciate the opportunity to provide feedback on the proposed rule SR-OCC-2024-001. This proposal is pivotal for ensuring the financial stability and transparency of the Options Clearing Corporation (OCC) and, by extension, the broader market. I want to suggest a few modifications to the proposal that could enhance its effectiveness in achieving these goals. 1. Strengthening Margin Requirements: It is essential to adjust margin requirements to reflect the risks associated with Clearing Member positions more accurately. This adjustment should discourage the formation of a "Too Big To Fail" mentality among Clearing Members by ensuring that margin requirements are commensurate with the level of risk they pose to the system. Encouraging members to manage their portfolios with consideration for stressed conditions and long-tail risks would lead to a healthier, more resilient market ecosystem. 2. Implementing External Auditing and Supervision: Introducing an external auditing mechanism as a supplemental oversight layer could significantly enhance the OCC's risk management framework. Inspired by the "four lines of defense model" for financial institutions, this approach would bolster the OCC's ability to identify and mitigate systemic risks before they escalate. Coupled with enhanced public reporting, external auditing would improve the transparency and accountability of the OCC's operations, fostering greater confidence among market participants. 3. Revising the Loss Allocation Waterfall: I propose a reordering of the loss allocation mechanism to prioritize the use of Clearing Member deposits over the OCC's pre-funded resources in the event of a member default. This adjustment would incentivize Clearing Members to engage in mutual oversight, encouraging a collective approach to risk management. Such a change not only protects the OCC’s resources but also aligns with the broader public interest by reducing the likelihood of systemic failures that could impact the market at large. In conclusion, while the original intent of the rule proposal SR-OCC-2024-001 is commendable, the suggested modifications aim to strengthen the market's integrity and resilience further. By enhancing margin requirements, incorporating external oversight, and revising the loss allocation process, we can work towards a more stable, transparent, and equitable financial ecosystem. Thank you for considering these suggestions, which I believe would benefit all market participants by fostering a safer, more robust trading environment. Sincerely, The Individual investor