Feb. 6, 2024
Dear Securities and Exchange Commission, I'm writing to share my concerns about the proposed rule change by the Options Clearing Corporation (OCC) regarding margin requirements during high market volatility. As someone deeply invested in the stability and fairness of the financial market, I value the chance to provide insights on this issue. Upon reviewing the proposed rule change, I've noticed potential discrepancies that need careful consideration. The OCC's proposed rule change (SR-OCC-2024-001), which aims to formalize margin threshold calculations, worries me because it might unintentionally shield risky financial positions during volatile times. By allowing adjustments to margin requirements based on market conditions, the proposal could limit the normal risk management mechanism of margin calls, potentially allowing investors with imprudent risks to avoid necessary adjustments. This lack of an effective risk management mechanism, coupled with the OCC's history of frequent "idiosyncratic" and "global" control settings, raises concerns about the unchecked growth of risky positions, which could lead to larger losses and risks to long-term market stability. One particular concern is the role of the Financial Risk Management (FRM) Officer. Placing significant responsibility on this individual, whose primary duty is to safeguard OCC's interests, raises a conflict of interest, as protecting OCC’s interests may not always align with the broader market’s well-being. Additionally, the lack of transparency in the redacted materials accompanying the proposal limits our ability to fully evaluate its effectiveness, raising questions about the thoroughness of the evaluation process and diminishing opportunities for informed public discourse. While acknowledging OCC's intent to mitigate risks during high volatility periods, it's essential to ensure that risk management measures don't inadvertently shelter bad bets. Adjusting parameters for calculating margin requirements is crucial for market stability, but it must align with broader market interests. Considering the concerns highlighted in the OCC Rule proposal, particularly regarding reducing margin requirements during stressed market conditions and the potential cascade of Clearing Member failures, I recommend a reconsideration of the OCC's loss allocation framework. The current structure places Clearing Fund deposits of non-defaulting firms as the fourth layer of defense in the event of market stress, following the OCC's pre-funded financial resources. To address potential disparities and promote fairness, I propose prioritizing Clearing Fund deposits of non-defaulting firms over the OCC's pre-funded resources. This adjustment ensures that Clearing Members' contributions play a more immediate and prominent role in covering losses, aligning with principles of equity and transparency in the OCC's risk management structure. In light of these concerns, I propose additional safeguards and modifications to the rule. For example, considering an independent review mechanism to assess the impact of control settings on both OCC's interests and the broader market is crucial to reinforce transparency and accountability within the regulatory framework. To conclude, as an engaged investor, I am committed to fostering a financial environment that prioritizes fairness, transparency, and the well-being of all market participants. I trust that the SEC will thoroughly consider these concerns during the rulemaking process and work towards a rule that not only addresses risk management but also upholds the broader principles of market integrity. Sincerely, Emanuel Stokelj