Feb. 5, 2024
Subject: Formal Comments on SR-OCC-2024-001: Proposed Rule Change by The Options Clearing Corporation Dear CEC, I appreciate the opportunity to provide formal comments on SR-OCC-2024-001, entitled "Proposed Rule Change by The Options Clearing Corporation Concerning Its Process for Adjusting Certain Parameters in Its Proprietary System for Calculating Margin Requirements During Periods When the Products It Clears and the Markets It Serves Experience High Volatility." As a retail investor, I have several concerns regarding the OCC rule proposal, and I would like to express my reservations while also conveying my lack of support for its approval. My primary concern revolves around the lack of transparency within the financial system, exemplified by the redacted details in the proposed rule, specifically in Exhibit 5 and supporting information (e.g., Exhibit 3). The extensive redactions hinder public review and impede meaningful commentary on the proposal. Without the opportunity for a comprehensive public review, I contend that the proposal should be rejected on this basis alone. Public review assumes particular importance given the OCC's assertion that U.S. regulators failed to mandate prescriptive pro cyclicality controls. The potential for increased margin requirements during stressed market conditions and its impact on Clearing Members' ability to meet obligations to the OCC poses significant risks to market stability. The OCC's classification as a Systemically Important Financial Market Utility (SIFMU) underscores the need for transparency and regulatory oversight. The rule proposal appears to be tailored to shield Clearing Members from the risks associated with potentially costly trades by routinely reducing margin requirements, as indicated by the OCC's use of "idiosyncratic" and "global" control settings. This approach, executed over 200 times in less than four years, raises concerns about its frequency and its potential impact on market fairness. The proposed rules create an uneven playing field, favoring Clearing Members at the expense of other market participants, including retail investors. Furthermore, the rule proposal establishes a conflict of interest for the Financial Risk Management (FRM) Officer. While ostensibly tasked with protecting the OCC's interests, the FRM Officer's role in mitigating risks associated with Clearing Member defaults necessitates a conflicting responsibility to safeguard the Clearing Members. This inherent conflict compromises the effectiveness of margin requirements in mitigating market risks. In light of these concerns, I propose the following modifications: 1. Increase and enforce margin requirements commensurate with risks associated with Clearing Member positions, discouraging excessive risk-taking. 2. Implement external auditing and supervision as a "fourth line of defense," enhancing public reporting to identify and manage risks before they become systemic. 3. Swap 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. I appreciate your attention to these matters and believe that implementing these modifications would contribute to a fair, transparent, and resilient market for all investors. Sincerely, Michele Carter Concerned Retail Investor