Feb. 4, 2024
Subject: Insights on Proposed OCC Rule Change SR-OCC-2024-001 34-99393 Dear Securities and Exchange Commission, I am reaching out to share my apprehensions about the proposed rule change by the Options Clearing Corporation (OCC) regarding the adjustment of margin requirement calculations during volatile market periods. As an investor with deep roots in the financial market's stability and fairness, I welcome the chance to contribute my viewpoints on this significant proposal. After delving into the proposed adjustments, I've pinpointed several areas of concern that deserve a thorough evaluation. The current proposal appears to unintentionally favor high-risk financial strategies by circumventing the traditional safeguard of margin calls in volatile periods. Margin calls traditionally act as a financial check, compelling investors to shore up their accounts to offset potential shortfalls when the market value of their investments declines beyond a specified level. By curtailing or omitting margin calls during these critical times, the proposal might enable holders of risky investments to bypass essential corrective actions. This could potentially allow the proliferation of risky investments without adequate checks, leading to greater losses and posing a risk to the market's long-term stability. A particular point of contention is the proposed role of the Financial Risk Management (FRM) Officer. Assigning such critical responsibility to a single individual, tasked primarily with the OCC's protection, might not always resonate with the overall health of the market. This proposal reveals a potential conflict of interest, especially when it admits to a significant variance in risk factor coverage under unique control settings, signaling the need for careful oversight. Additionally, the opacity resulting from the redacted documents accompanying the proposal hampers the essential transparency required to build investor confidence and facilitate a meaningful public dialogue. The restricted visibility into the proposal's full implications questions the comprehensiveness of its evaluation and limits the spectrum of public engagement. While the OCC aims to cushion the market against the shocks of high volatility, it is critical that such interventions do not inadvertently cushion speculative and risky investments from natural market corrections. Modulating the parameters for margin calculations is pivotal for maintaining market equilibrium, but this must be executed in a manner that broadly aligns with market health and fairness. Considering the concerns raised, especially regarding the escalation of margin requirements under duress and the domino effect of Clearing Member failures, a reassessment of the OCC's loss allocation policy is advisable. The proposal's framework suggests a layered approach that could eventually draw from the OCC's reserved funds before impacting non-defaulting Clearing Members' deposits. Advocating for a reorganization that emphasizes the proactive involvement of non-defaulting Clearing Members' contributions can foster a more equitable and transparent approach to risk management. In addressing these concerns, I suggest incorporating more robust oversight measures and modifications to the rule. An independent evaluation mechanism to impartially assess the impacts on both the OCC and the wider market is crucial. This would ensure a level of transparency and accountability, evaluating risk management practices from a neutral standpoint. Additionally, making accessible non-confidential summaries of the redacted sections would allow for a richer, more inclusive public discourse. Further refinements to the proposed rule could include: - Elevating transparency through detailed disclosures on risk management decisions, enhancing trust, and providing a clearer understanding of margin adjustments during volatile periods. - Intensifying regulatory oversight to ensure diligent accountability in managing risks. - Promoting inclusivity by inviting public participation in the regulatory process, enriching the decision-making with diverse perspectives. - Encouraging the formulation of industry standards and best practices in collaboration with stakeholders to bolster market stability. - Demanding the publication of stress testing outcomes to validate the efficacy of risk management strategies. - Suggesting the formation of an independent oversight committee, comprising industry experts, to objectively review and scrutinize risk management practices. These proposals are aimed at reinforcing the regulatory framework to not only adeptly manage risk but also embody transparency, accountability, and integrity of the market. As a committed market participant, my goal is to advocate for a regulatory landscape that upholds fairness, transparency, and the collective interest. I trust that the SEC will carefully weigh these considerations in shaping a rule that not only mitigates risk but also firmly upholds the principles of market integrity. Very Respectfully, Joshua R. Allen [A Concerned Retail Investor]