Feb. 4, 2024
Dear SEC, I am reaching out with an impassioned plea to address profound concerns regarding the proposed rule change by the Options Clearing Corporation (OCC), specifically pertaining to the adjustment of parameters for calculating margin requirements during periods of high market volatility. As a steadfast and committed household investor deeply vested in the stability and fairness of the financial market, I am grateful for the opportunity to share my insights on this crucial matter. Upon scrutinizing the proposed rule change, I have uncovered potential discrepancies that demand your careful consideration. The current form of the proposal seems to inadvertently shield risky financial positions from the standard risk management mechanism of margin calls during turbulent market conditions. Margin calls, traditionally a protective measure, compel investors to inject funds or securities to cover potential losses when their positions dip below a certain threshold. The proposed limitations on margin calls during volatile periods may permit investors with imprudent risks to sidestep necessary adjustments. This absence of a robust risk management mechanism raises the specter of unbridled growth in risky positions, posing a substantial threat to market stability in the long run. The role of the Financial Risk Management (FRM) Officer is another cause for concern. Entrusting significant responsibility to an individual whose primary duty is to safeguard OCC's interests creates an inherent conflict of interest. The potential misalignment of OCC's interests with the broader market's well-being is troubling, particularly when the proposal acknowledges significant variations in risk factor coverage under idiosyncratic control settings. This demands a meticulous examination. Compounding these concerns is the glaring lack of transparency in the redacted materials accompanying the proposal. Transparency is the bedrock of trust, and the obscured nature of these materials severely limits our ability to comprehensively evaluate the efficacy of the proposed rule. This lack of transparency not only raises questions about the diligence of the evaluation process but also stifles the potential for informed public discourse. In light of these apprehensions, I implore you to reconsider the OCC's loss allocation framework. The current structure places Clearing Fund deposits of non-defaulting firms as the fourth layer of defense, following OCC's pre-funded financial resources. I propose a shift to prioritize Clearing Fund deposits over OCC's resources, ensuring a fair and transparent risk management structure that empowers non-defaulting Clearing Members and contributes to a more balanced financial ecosystem. To address these concerns, I propose additional safeguards and modifications to the rule: Independent Review Mechanism: Consider implementing an independent review mechanism to assess the impact of control settings on both OCC's interests and the broader market. This measure ensures transparency, accountability, and an unbiased evaluation of risk management practices. Enhanced Transparency Requirements: Prioritize enhanced transparency requirements, advocating for increased transparency in reporting and decision-making processes related to risk management measures. Strengthening oversight mechanisms with a more active role for regulatory bodies contributes to accountability in risk management practices. Incorporate Public Input: Actively involve the public through consultations and hearings to foster inclusivity and democratic decision-making in the rulemaking process. Industry-Wide Standards: Encourage the establishment of industry-wide standards and best practices in collaboration with stakeholders, emphasizing a commitment to market stability. Public Accessibility of Stress Testing Results: Advocate for public accessibility of stress testing results to showcase the effectiveness of risk management measures. External Oversight Committee: Consider establishing an external oversight committee comprised of industry experts for impartial evaluation and scrutiny of risk management practices. In conclusion, as a dedicated investor, I am resolute in my commitment to fostering a financial environment that prioritizes fairness, transparency, and the well-being of all market participants. I trust that the SEC will diligently consider these concerns during the rulemaking process, working towards a rule that not only addresses risk management but also upholds the broader principles of market integrity. Sincerely, A Committed Investor