Feb. 7, 2024
I am a retail investor. I have various concerns regarding the OCC rule proposal, I do not endorse its approval. My primary worry pertains to the lack of transparency within our financial system, exemplified by this rule proposal. The extensive redactions in Exhibit 5 and the limited details provided in supporting information (e.g., Exhibit 3) hinder public review, making it challenging for the public to thoroughly assess and comment on the proposal. Given the absence of a comprehensive public review, rejecting the proposal on this basis alone is warranted. This OCC rule proposal appears crafted to shield Clearing Members from potential losses by routinely endorsing reductions in margin requirements as requested by Clearing Members. The OCC collects margin collateral to address market risks associated with Clearing Members' positions, using the STANS system to calculate margin requirements. However, the proposal acknowledges the procyclical nature of the system, leading to increased margin requirements during volatile periods. To mitigate this, the OCC has implemented idiosyncratic and global control settings, significantly reducing aggregate margin requirements in various instances. This frequent reduction in margin calls for Clearing Members, coupled with global control settings triggered by significant events, creates an uneven playing field for market participants, including retail investors. Therefore, rejecting the proposal and enforcing consistent margin requirements for Clearing Members, similar to other investors, is essential. The proposal also establishes a conflict of interest for the Financial Risk Management (FRM) Officer, whose role ostensibly involves protecting the OCC's interests. However, the situation outlined in the proposal, where a Clearing Member's failure exposes the OCC to financial risk, necessitates the FRM Officer's protection of the Clearing Member to safeguard the OCC. This undermines the intended protection from market risks associated with Clearing Members' positions provided by margin collateral. Rejecting the proposal and ensuring the enforcement of adequate margin requirements is crucial to protecting the OCC and minimizing the potential need for bailouts. In light of these concerns, I propose the following modifications: Firstly, increase and enforce margin requirements proportionate to the risks associated with Clearing Member positions, discouraging excessive risk-taking by Clearing Members. Secondly, implement external auditing and supervision as a "fourth line of defense" with enhanced public reporting to identify and manage risks before they become systemically significant. Lastly, adjust the order of the OCC's Loss Allocation waterfall to prioritize Clearing fund deposits of non-defaulting firms over OCC's pre-funded financial resources, encouraging responsible risk management among Clearing Members. I appreciate the opportunity to provide feedback. I vehemently oppose the SR-OCC-2024-001 proposal and I believe the suggested modifications will contribute to a fair, transparent, and resilient market that benefits all investors. Sincerely, A Concerned Retail Investor Dan Torres