Feb. 6, 2024
2/5/24 Securities and Exchange Commission Office of the Secretary 100 F Street, NE Washington, DC 20549 Subject: Public Comment on Proposed Rule Change by the Options Clearing Corporation (OCC) Regarding Margin Requirement Adjustments Dear Commissioners, I am writing to express my concerns about the proposed rule change submitted by the Options Clearing Corporation (OCC) to adjust parameters for calculating margin requirements during periods of high market volatility. While the intention to manage and mitigate risk in volatile markets is understood, the proposal raises significant concerns regarding its potential impact on market stability, transparency, and inherent conflicts of interest. Main Concerns The proposed rule change may inadvertently shield risky positions at times when the market's ability to absorb such risks is compromised. Such shielding could exacerbate market volatility rather than dampen it. Moreover, the proposed changes introduce a conflict of interest in the role of the Financial Risk Management (FRM) Officer, potentially compromising the objective assessment of financial risks. The lack of transparency, evidenced by redacted materials accompanying the proposal, further complicates stakeholders' ability to fully understand and assess the implications of these changes. Evaluation of Risk Management Mechanism Risk management mechanisms, such as margin calls, play a crucial role in maintaining market stability by ensuring that positions are adequately collateralized. The proposed adjustments could undermine these mechanisms, allowing for unchecked risk exposure that could threaten the broader financial ecosystem. It is vital that any adjustments to risk parameters are balanced and consider both risk management and market interests holistically. Specific Recommendations I recommend a reassessment of the loss allocation framework to ensure that Clearing Fund deposits are prioritized over the OCC's pre-funded resources. This would align the OCC's practices with industry standards and enhance the robustness of market stability mechanisms. Additionally, implementing an independent review mechanism for the evaluation of control settings would safeguard against potential biases and conflicts of interest. Additional Safeguards and Modifications To address the concerns related to transparency, I advocate for the provision of non-confidential summaries of the redacted materials to allow stakeholders to make informed assessments of the proposed changes. Strengthening oversight mechanisms and incorporating public input into the decision-making process are crucial steps towards ensuring that the rule changes serve the broader market's interest. Moreover, establishing industry-wide standards and best practices, including public accessibility to stress testing results, would underscore the effectiveness of risk management measures and foster greater market confidence. Industry-Wide Standards and Best Practices Collaboration with stakeholders to establish and adhere to industry-wide standards and best practices is essential for maintaining a stable and transparent market environment. Such collaboration would ensure that risk management measures are both effective and publicly verifiable, enhancing the overall integrity of the financial system. Conclusion In conclusion, while the goal of adjusting margin requirements during volatile market periods is commendable, it is imperative that such changes are implemented with careful consideration of their potential impacts on market stability, transparency, and fairness. I am confident in the Securities and Exchange Commission's ability to thoroughly consider these concerns during the rulemaking process and to ensure that any adopted measures prioritize the financial environment's integrity and the well-being of all market participants. Thank you for considering my comments on this matter. I look forward to the SEC's actions to ensure a fair, transparent, and stable financial market for all. Sincerely, Lars Ladewig