Feb. 4, 2024
In response to SR-OCC-2024-001, a few obvious items need to be addressed: 1. No rule changes (or any other documentation) about public markets should be redacted. Even submitting this for comment with redacted supporting details is offensive to anyone with any conception of the current imbalances plaguing our markets. 2. If the point of margin is to protect clearing members from cascading defaults, then the solution should be to RAISE margin in times of market stress, so as to disincentivize further leveraging of our already over-leveraged markets. A list of more effective interventions is included below: 1. Increase and enforce margin requirements to prevent excessive risk-taking. 2. Modify the Loss Allocation waterfall, prioritizing Clearing fund deposits of non-defaulting firms over OCC's pre-funded financial resources. 3. Introduce external auditing and supervision as a "fourth line of defense" with public reporting. 4. Strengthen oversight mechanisms, actively involving regulatory bodies during heightened market volatility. 5. Establish industry-wide standards and best practices for consistent risk management. 6. Provide clearer guidelines for idiosyncratic controls, preventing misuse with a structured evaluation framework. 7. Emphasize enhanced transparency requirements in reporting and decision-making. 8. Advocate for public accessibility of stress testing results, showcasing effectiveness and building trust. 9. Incorporate public input through consultations and hearings, fostering inclusivity. 10. Consider establishing an external oversight committee for impartial evaluation and scrutiny. With the abundant evidence of naked short selling in the MMTLP fiasco that is currently under review by Congress (and for which the SEC has still not provided adequate explanation), the SEC might want to imagine how these rule proposals will appear in retrospect when an eventual audit of the DTCC occurs.