Feb. 5, 2024
Dear SEC, I am writing to express my concerns and reservations regarding the proposed rule change by the Options Clearing Corporation (OCC), as outlined in File No. SR-OCC-2024-001. As a dedicated investor deeply committed to the stability and integrity of our financial markets, I believe it is imperative to address potential risks associated with the proposed adjustments to margin requirements during periods of high market volatility. Upon thorough review of the proposed rule change, I have identified several areas of concern that merit careful consideration and evaluation. My apprehensions primarily revolve around the potential impact on market stability, the lack of transparency in redacted materials, and the inherent conflict of interest associated with the role of the Financial Risk Management (FRM) Officer. Firstly, the proposed rule change, aimed at codifying the calculation methodology for margin thresholds, raises concerns about inadvertently shielding risky financial positions during periods of heightened market volatility. By formalizing the ability to adjust margin requirements based on market conditions, the proposal may limit the effectiveness of normal risk management mechanisms, potentially allowing investors with imprudent risks to evade necessary adjustments. This lack of an effective risk management mechanism, coupled with the OCC's history of implementing frequent and wide-ranging control settings, raises concerns about the unchecked growth of risky positions and poses a threat to the long-term stability of our financial markets. A specific concern arises from the significant responsibility placed on the Financial Risk Management (FRM) Officer. This individual, whose primary duty is to safeguard OCC's interests, may face an inherent conflict of interest, as protecting OCC’s interests may not always align with the broader market’s well-being. The proposal itself acknowledges scenarios where risk factor coverage differs significantly under idiosyncratic control settings compared to regular control settings, warranting further scrutiny and evaluation. Compounding these concerns is the lack of transparency in the redacted materials accompanying the proposal. Transparency is a cornerstone of fostering trust among investors and the public. The redacted nature of the materials limits our ability to fully evaluate the effectiveness of the proposed rule, raising questions about the thoroughness of the evaluation process and diminishing the opportunity for informed public discourse. While acknowledging the OCC's intent to mitigate risks during high volatility periods, it is crucial to ensure that risk management measures do not inadvertently shelter risky positions. Adjusting parameters for calculating margin requirements is undoubtedly crucial for market stability, but this must be done in a way that prioritizes transparency, fairness, and the broader market's well-being. In light of the aforementioned concerns, I urge the SEC to thoroughly reconsider the proposed rule change. I propose the following modifications and safeguards to address these concerns: Reevaluation of the Loss Allocation Framework: Prioritize Clearing Fund deposits of non-defaulting firms over OCC's pre-funded resources, ensuring a more immediate and prominent role for Clearing Members' contributions in covering losses. Independent Review Mechanism: Introduce an independent review mechanism to assess the impact of control settings on both OCC's interests and the broader market, mitigating potential conflicts of interest and fostering public trust. Enhanced Transparency Requirements: Advocate for increased transparency in reporting and decision-making processes related to risk management measures, allowing for a more comprehensive evaluation of margin calculations and adjustments. Strengthened Oversight Mechanisms: Encourage a more active role for regulatory bodies in overseeing risk management practices, contributing to greater accountability in the financial industry. Public Input and Consultations: Incorporate public input through consultations and hearings to foster inclusivity and democratic decision-making in the rulemaking process. Industry-Wide Standards and Best Practices: Promote the establishment of industry-wide standards and best practices in collaboration with stakeholders to reinforce 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 and enhance transparency. External Oversight Committee: Consider the establishment of an external oversight committee, comprised of industry experts, to ensure impartial evaluation and scrutiny of risk management practices. These recommendations collectively aim to fortify oversight, enhance transparency, and uphold accountability, thereby ensuring the integrity and fairness of our financial markets. In conclusion, as an engaged investor committed to fostering a financial environment that prioritizes fairness and transparency, I trust that the SEC will carefully consider these concerns during the rulemaking process. I believe that a balanced and well-considered rule is essential for maintaining the stability and integrity of our financial markets. Thank you for your attention to this matter, and I appreciate your dedication to ensuring the well-being of our financial system. Sincerely, Luke Dang, CPA