Feb. 4, 2024
Dear Securities and Exchange Commission, I’m reaching out to express my worries about the Options Clearing Corporation’s (OCC) proposed rule change, aiming to adjust parameters for margin requirements during high market volatility. As a long-term household investor deeply invested in financial market stability and fairness, I welcome the opportunity to share my insights. Upon reviewing the proposed rule change, I’ve identified potential issues that merit careful consideration. The current form of the proposal seems to unintentionally protect risky financial positions from standard risk management mechanisms like margin calls during volatile market periods. Typically, margin calls act as a safeguard, requiring investors to cover potential losses when their positions fall below a certain threshold. By limiting or preventing margin calls during turbulent markets, the proposal could enable investors with imprudent risks to avoid necessary adjustments, potentially leading to unchecked growth in risky positions and posing a threat to long-term market stability. One concerning aspect is the role of the Financial Risk Management (FRM) Officer, who, with a primary duty to safeguard OCC’s interests, may face a conflict of interest. This could compromise the broader market’s well-being. The lack of transparency in the redacted materials accompanying the proposal raises questions about the thoroughness of the evaluation process and diminishes the opportunity for informed public discourse. While recognizing OCC’s intent to mitigate risks during high volatility periods, it’s crucial to ensure that risk management measures don’t inadvertently shelter bad bets. Adjusting parameters for margin requirements is essential for market stability, but it must align with broader market interests. Given the concerns highlighted in the OCC Rule proposal, especially regarding increasing margin requirements during stressed market conditions and the potential cascade of Clearing Member failures, I recommend a reconsideration of the OCC’s loss allocation framework. The current structure places Clearing Fund deposits of non-defaulting firms as the fourth layer of defense, following the OCC’s pre-funded financial resources. To promote fairness, I propose prioritizing Clearing Fund deposits over the OCC’s pre-funded resources, ensuring a more balanced and resilient financial ecosystem. In response to these concerns, I propose additional safeguards and modifications to the rule, such as an independent review mechanism to assess the impact of control settings on both OCC’s interests and the broader market. This would reinforce transparency and accountability within the regulatory framework. Additionally, providing non-confidential summaries of redacted materials and prioritizing enhanced transparency requirements would enable a more informed public discourse. Other recommendations include advocating for increased transparency in reporting, strengthening oversight mechanisms, involving public input through consultations, encouraging industry-wide standards, and considering the establishment of an external oversight committee comprised of industry experts. In conclusion, as an engaged investor, I am dedicated to fostering a financial environment that prioritizes fairness, transparency, and the well-being of all market participants. I trust that the SEC will thoroughly consider these concerns and work towards a rule that addresses risk management while upholding broader principles of market integrity. Sincerely, Alexis Ranger