Feb. 7, 2024
I appreciate the opportunity to provide feedback on SR-OCC-2024-001 34-99393, titled "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." I harbor significant concerns regarding the OCC's rule proposal and staunchly oppose its approval. My primary apprehension lies in the lack of transparency evident in this proposal, exacerbated by the significant redaction of details and supporting information, thereby inhibiting meaningful public review and commentary. This lack of transparency alone warrants rejection of the proposal. Furthermore, I assert that these rules create an unfair marketplace for market participants, particularly retail investors, who are disproportionately impacted by long-tail risks while Clearing Members enjoy repeated margin requirement reductions, effectively shielded from the consequences of their actions. I advocate for Clearing Members to be subject to stringent margin requirements akin to other investors. The proposed rule also establishes a conflict of interest for the Financial Risk Management Officer, tasked with safeguarding the OCC's interests while simultaneously protecting Clearing Members from failure, which compromises the integrity of risk management protocols. Additionally, the proposal's inclination towards rubber-stamping margin requirement reductions for at-risk Clearing Members undermines the protection against market risks afforded by margin collateral, increasing the likelihood and magnitude of potential bailouts. In light of these concerns, I propose modifications including the enforcement of margin requirements commensurate with the risks associated with Clearing Member positions, discouraging excessive risk-taking and incentivizing portfolio adjustments to accommodate stressed market conditions. This would mitigate the tendency for Clearing Members to become "Too Big To Fail" and pressure the OCC into implementing ad-hoc controls, thereby privatizing profits and socializing losses.