Feb. 3, 2024
Dear Securities and Exchange Commission, I am reaching out to share my apprehensions about the Options Clearing Corporation's (OCC) recent proposal to modify margin requirement calculations in high volatility periods. As a dedicated investor with a vested interest in the market's stability and equity, I value this chance to contribute my perspective on this issue. Upon examining the proposed adjustment, I've identified several areas that demand meticulous attention. The current proposition seems to unintentionally protect high-risk financial positions by potentially bypassing the standard risk-control mechanism of margin calls in volatile market scenarios. Margin calls traditionally act as a safeguard, compelling investors to bolster their funds or securities to mitigate potential losses when their position values dip below a specified level. By limiting or circumventing margin calls under volatile conditions, the proposal might permit the unbridled escalation of hazardous investments, thereby amplifying risks and unsettling long-term market equilibrium. Therein lies a paradox – the proposal's protective strategy might paradoxically nurture undue risks, thereby escalating broader market vulnerability over time. A concerning element is the delegated authority to the Financial Risk Management (FRM) Officer. Entrusting considerable responsibility to an individual tasked with defending OCC's interests might lead to a potential conflict, where safeguarding OCC's concerns does not necessarily coincide with the general market health. The proposal acknowledges instances where risk factor coverage under unique control settings significantly diverges from standard settings, underlining the importance of vigilant examination. Moreover, the opaqueness surrounding the proposal's supplementary materials raises significant transparency issues. Openness is essential to building investor and public confidence. The obscured details within these materials curtail our capacity to fully appraise the proposed rule's efficacy. This opacity not only casts doubt on the evaluation's comprehensiveness but also limits meaningful public engagement. While recognizing the OCC's intention to minimize risks in volatile conditions, it's crucial that such measures do not inadvertently shield speculative ventures. Adjusting margin requirement parameters is vital for maintaining market equilibrium, yet it should reflect a commitment to the collective market interest. Considering the concerns raised by the OCC Rule proposal, especially regarding heightened margin demands in stressful market periods and the potential domino effect of Clearing Member defaults, I suggest reevaluating the OCC's loss allocation strategy. The proposal outlines a sequence where non-defaulting firms' Clearing Fund deposits serve as a fourth line of defense during market strain, following OCC's own pre-funded resources. This implies an anticipation of losses surpassing the initial three layers, including OCC's reserves, before tapping into the non-defaulting Clearing Members' funds. To encourage fairness and equilibrium, I recommend that non-defaulting members' Clearing Fund contributions be prioritized above OCC's pre-funded assets. This shift would ensure a more immediate involvement of Clearing Members' funds in loss absorption, adhering to equity and transparency principles within OCC's risk management framework. Such a change would better protect non-defaulting members and foster a more robust financial ecosystem. To address these issues, I propose additional protective measures and alterations to the rule. For instance, implementing an independent review process to evaluate the impact of control settings on OCC's and the market's broader interests. This step is vital for enhancing transparency and accountability within the regulatory landscape, offering an impartial assessment of risk management practices. Engaging external experts in this review not only helps to avoid potential biases but also strengthens public trust and confidence in the regulatory procedures. It aligns with the overarching goal of maintaining market integrity, providing a sturdy framework for ongoing improvement and adaptability in line with market changes. Moreover, making non-confidential summaries of the redacted documents available would encourage a well-rounded public dialogue and promote a more participatory decision-making process. Additional suggestions to refine the proposed rule include: Emphasizing the need for greater transparency in risk management reporting and decision-making. Clear reporting enhances trust among market participants and allows for a thorough review of margin adjustments, especially in volatile times. Bolstering regulatory oversight to ensure accountability in risk management practices. Including public consultation and hearings can make the rulemaking process more inclusive and democratic. Promoting the development of industry-wide standards and best practices in cooperation with all stakeholders underscores a dedication to market stability. Making stress test outcomes publicly available demonstrates the effectiveness of existing risk management strategies. Establishing an external oversight committee, consisting of industry experts, to provide an unbiased review and scrutiny of risk management practices. These recommendations aim to strengthen oversight, improve transparency, and maintain accountability, thereby preserving the integrity and fairness of our financial markets. In conclusion, as a proactive investor, I am dedicated to nurturing a financial landscape that champions fairness, transparency, and the collective well-being of all market participants. I trust that the SEC will consider these concerns meticulously during the rule-making process and strive for regulations that not only manage risks effectively but also respect the fundamental values of market integrity. Sincerely, Martin Stölmacker Retail Investor from Hamburg, Germany