Feb. 7, 2024
Thank you for allowing comments regarding SR-OCC-2024-001 34-99393 - “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” from the public. Having read the document, I am left with great concerns and do not support its approval. Our public markets have already historically suffered from a severe lack of transparency and equality, being manipulated from the inside by actors that seek to benefit themselves by preying on others and hold positions that allow them to do so largely in secret or without regulation. By piecing together public information these activities come to light and further investigation shows how huge risks are taken at the expense of the broader market, risks that are funded by general investors who receive none of any gains that are had as a result. Exhibits 3 and 5 of SR-OCC-2024-001 total 208 pages that are entirely redacted from public view, aside from the section descriptions in the table of contents. Two hundred and eight pages of proposed changes that the public are not allowed to see and understand. That alone should be grounds for dismissing the proposal in its entirety. OCC already blames “U.S. regulators [for choosing] not to adopt the types of prescriptive procyclicality controls codified by financial regulators in other jurisdictions.” and runs rogue by that freedom, now requesting even more shielding to risky and self-serving operations. If given the ability to decide how much risk they will be responsible for (not to be confused with how much risk they are taking) market actors will undoubtedly proceed with the behaviors that have sparked such historic financial turmoil as has been seen over the past few years, with even less regard for the potential consequences to our markets or society than they have now. While it is obviously a bad thing to bring about the necessity of or to be a target of a margin call, they and other risk management requirements are in fact very good to have in place to maintain market stability. The proposal leaves a large potential to undermine these risk management tools which can lead to huge, unchecked risk exposure. Any proposed change to policy should detail what is changing (again, a big problem with much of this being redacted) and how it balances risk management with fair market interests. With the OCC designated as a SIFMU whose failure or disruption could threaten the stability of the US financial system, everyone dependent on the US financial system is entitled to transparency. As the OCC is classified as a self-regulatory organization, the OCC blaming U.S. regulators for not requiring the SRO adopt regulations to protect itself makes it apparent that the public cannot fully rely upon the SRO and/or the U.S. regulators to safeguard our financial markets. This particular OCC rule proposal appears designed to protect Clearing Members from realizing the risk of potentially costly trades. A systemic risk exists because Clearing Members as a whole are insufficiently capitalized and/or over-leveraged such that a single Clearing Member failure (e.g., from insufficiently managing risks arising from high volatility) could cause a cascade of Clearing Member failures. Clearing Members are all risking more than they can afford to lose. Approving the proposal would allow the use of “idiosyncratic” and “global” controls to be used to minimize risk to Clearing Members by lowering margin requirements during times of market stress. By changing the rules as the game is played, you destroy any foundation of a fair marketplace for anyone engaged in it. Footnotes in the document detail that the OCC has made an “idiosyncratic” decision to waive away risk responsibility more than 200 times in the past 4 years, which is too often to consider idiosyncratic anymore. To see this in the face of strict rules being held to other market participants is insulting and infuriating. Clearing Members should be held to the same rules and regulations as any other market participant, and if they cannot effectively balance their portfolio’s risks they should be allowed to fail and let another, more responsible party take their place. The unnatural protections given to Clearing Members thus far have helped to drive our economy and society into a terrible place. Proposal SR-OCC-2024-001 34-99393 should be denied as it stands. However, if modified properly, it could turn into a beneficial change. If margin requirements for Clearing Members were increased and the consequences for realized risks were assigned firstly to Members, then the OCC’s financial resources would not be the first line of defense against a defaulting Member. In fact, being held to a tighter standard would be, as the incentive of not failing would be much greater for each individual Clearing Member. Regulatory controls need to be implemented and overseen by third parties to ensure that the activities within any given portfolio are not running out of control with risk that will have to be absorbed by the OCC or the greater financial system. I am sure that there are other ways the proposal would benefit from change as well, and once that is done and it is presented for public review in its entirety and without redacted information, it may be suitable for approval. Until then, it cannot be seen as anything other than a negative change for the markets and people at large. Again, thank you for allowing public comment on this proposal, and I hope to see better changes enacted in our financial system to properly manage risk in a way that isn’t simply crowdfunding market gains into one corporation that has no desire to benefit our society. We deserve transparency, fairness, and stability. Sincerely, A Concerned and Angry Retail Investor