Feb. 3, 2024
Dear SEC, I am writing to express profound concerns regarding the proposed rule change outlined in document SR-OCC-2024-001, which aims to adjust parameters for calculating margin requirements during periods of high market volatility. The proposed amendments have prompted apprehensions within the financial community due to their potential implications for market stability, the lack of transparency in redacted materials, and the inherent conflict of interest associated with the role of the Financial Risk Management (FRM) Officer. The proposal, as it stands, signals a move towards relaxed margin requirements, which I believe is deeply concerning given the current market dynamics and risks. Instead of easing regulatory measures, the circumstances demand that margin requirements be strengthened to ensure robust risk management practices across the financial sector. This critical perspective is pivotal in safeguarding the integrity and resilience of our markets. The reasons for my opposition to this rule are multifaceted and merit careful consideration. Firstly, the redacted details within the proposal hinder meaningful public review and comment, which are essential components of the regulatory process. Transparency is paramount in ensuring the integrity and fairness of regulatory decisions, and the opacity surrounding certain aspects of the proposed rule undermines this principle. Moreover, the proposal attributes market volatility primarily to regulatory shortcomings, overlooking the significant role of market participants engaging in abusive practices such as excessive naked shorting. By focusing solely on reducing margin requirements to protect Clearing Members, the proposal risks amplifying systemic risks within the financial system, thereby compromising market stability. The concentration of responsibility within the role of the FRM Officer presents a fundamental conflict of interest, as they are tasked with safeguarding both the interests of the OCC and at-risk Clearing Members. This dual mandate raises concerns regarding impartial risk assessment and management, as the FRM Officer may face competing pressures that compromise their ability to act in the broader market's best interests. To address these concerns and advocate for better market practices within the proposed rule, I propose the following measures: * Strengthen and rigorously enforce margin requirements to align with Clearing Member risks, mitigating excessive risk-taking and preventing the emergence of "Too Big To Fail" scenarios. * Introduce external auditing and supervision as a "fourth line of defense," promoting transparency and proactive risk management through public reporting. * Modify the Loss Allocation waterfall to prioritize Clearing fund deposits of non-defaulting firms over OCC's pre-funded financial resources, encouraging self-regulation among Clearing Members. * Emphasize enhanced transparency requirements, ensuring clear and accessible disclosure in reporting and decision-making processes related to risk management measures. * Strengthen oversight mechanisms by actively involving regulatory bodies to maintain accountability and address emerging risks during periods of heightened market volatility. * Incorporate public input through consultations and hearings in the rulemaking process, fostering inclusivity and ensuring regulatory actions represent diverse perspectives. * Encourage the establishment of industry-wide standards and best practices in collaboration with stakeholders to ensure a consistent approach to risk management across the industry. * Provide clearer guidelines for the application of idiosyncratic controls, preventing misuse and proposing a structured evaluation framework for consistency. * Advocate for public accessibility of stress testing results to build trust among market participants and showcase the effectiveness of risk management measures. * Consider establishing an external oversight committee comprising industry experts, academics, and investor advocacy representatives to ensure impartial evaluation and scrutiny of risk management practices. Furthermore, I strongly urge for the imposition of heavy penalties and sanctions against companies and employees found to be in violation of regulatory standards or found tampering with data integrity. A robust enforcement framework is essential to deter malpractices and uphold the integrity of our financial markets. In conclusion, I urge SEC and the relevant regulatory bodies to thoroughly reconsider the proposed rule change in light of the concerns raised. Strengthening margin requirements, enhancing transparency, and prioritizing market stability are critical imperatives that should guide regulatory decisions. By incorporating feedback from diverse stakeholders and implementing robust risk management measures, we can foster a more resilient and equitable financial marketplace for all participants. Thank you for your attention to this matter Florent C