Feb. 4, 2024
Dear Securities and Exchange Commission, I'm writing to express concerns about the Options Clearing Corporation's proposed rule change on margin requirements during high market volatility. As a long-term investor, I value market stability and fairness. The current proposal seems to shield risky positions from margin calls during volatile periods, potentially leading to unchecked risks and market instability. The role of the Financial Risk Management Officer raises a conflict of interest concern, compounded by a lack of transparency in the proposal's materials. While acknowledging the OCC's intent, it's vital to ensure risk management measures don't shelter bad bets. I suggest prioritizing Clearing Fund deposits over OCC's resources in the loss allocation framework to enhance fairness. I propose additional safeguards, such as an independent review mechanism and enhanced transparency requirements, to reinforce accountability and trust. Strengthening oversight mechanisms and incorporating public input are also essential steps. In conclusion, I urge the SEC to consider these concerns for a rule that promotes fairness and market integrity. And to address the problems as posed in the rule, here are suggestions you can put forward to improve our financial markets: 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. Best, Nigel