Feb. 5, 2024
Thank you for the opportunity to comment on this proposal. I express strong opposition to the OCC rule proposal based on transparency issues and the inherent risk it poses to the financial system. The redacted details in the proposal hinder public understanding and engagement, preventing a meaningful review. The reliance on idiosyncratic and global control settings to reduce margin requirements for Clearing Members raises significant concerns. This approach, repeated over 200 times in less than four years, seems too frequent to be considered idiosyncratic, creating an uneven playing field for market participants, especially retail investors. Moreover, the proposal's acknowledgment that a single Clearing Member default could trigger a cascade of failures poses a systemic risk, essentially treating certain Clearing Members as "Too Big To Fail." This undermines fair competition and accountability in the market. Instead, I propose a shift towards enforcing stricter margin requirements to encourage Clearing Members to manage their portfolios responsibly, accounting for stressed market conditions and long-tail risks. In addition, introducing external auditing and supervision as a "fourth line of defense," similar to the model used in financial institutions, can provide an extra layer of oversight. Enhanced public reporting of audit results would contribute to transparency and ensure that risks are identified and managed proactively. Furthermore, I recommend adjusting the loss allocation waterfall by prioritizing Clearing fund deposits of non-defaulting firms over OCC's pre-funded financial resources. This change in the order of loss allocation would incentivize Clearing Members to monitor each other and encourage responsible risk management, as their deposits would be at risk after those of a suspended firm are exhausted. This adjustment would also enhance protection for the OCC, a Systemically Important Financial Market Utility (SIFMU), ultimately benefiting the public by reducing the risk of having to bail out a critical clearing agency. In conclusion, a fair, transparent, and resilient market is crucial for the well-being of all investors. I appreciate the opportunity to comment and urge careful consideration of these recommendations to address the concerns raised in the OCC rule proposal. Sincerely,