Feb. 5, 2024
Dear SEC, I am writing to provide a comprehensive assessment and express my reservations regarding the SR-OCC-2024-001 34-99393 rule proposal. My concerns revolve around the evident lack of transparency, potential systemic risks, and the perceived conflict of interest within the Options Clearing Corporation's (OCC) proposed rule change. The redacted details in Exhibit 5 and supporting information significantly impede public review, preventing stakeholders from gaining a full understanding of the proposal's implications. Transparency is paramount, especially when addressing a rule that touches on aspects critical to the stability of the US financial system. The proposed rule's approach to safeguarding Clearing Members from potentially costly trades, primarily through frequent reductions in margin requirements, raises concerns about market fairness. This strategy may inadvertently create an unequal playing field, disproportionately affecting retail investors and other market participants who bear the brunt of long-tail risks while the OCC repeatedly waives margin calls for Clearing Members. Moreover, the proposal's acknowledgment of systemic risks, where the failure of a single Clearing Member could trigger a cascade, is disconcerting. The reliance on idiosyncratic and global control settings introduces a potential conflict of interest for the Financial Risk Management Officer, who may be compelled to protect Clearing Members at the expense of the OCC's interests. To address these concerns and enhance the proposed rule, I suggest the following modifications: 1. Increase and rigorously enforce margin requirements based on the risks associated with Clearing Member positions, creating a deterrent against excessive risk-taking. 2. Implement external auditing and supervision as a "fourth line of defense," ensuring transparency and effective risk management practices, with enhanced public reporting to keep stakeholders informed. 3. Rearrange the order of loss allocation in the OCC's Loss Allocation waterfall, prioritizing Clearing fund deposits of non-defaulting firms before OCC's pre-funded financial resources. These modifications are crucial for fostering market fairness, transparency, and resilience. I appreciate your consideration of these detailed comments and trust they will contribute meaningfully to the ongoing evaluation of the rule proposal. Sincerely, A concerned household investor.