Feb. 7, 2024
Dear Regulators I am writing to express my concerns and provide feedback on the proposed rule change, SR-OCC-2024-001, entitled "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." As a retail investor, I appreciate the opportunity to contribute my insights on this matter. However, I find several aspects of the OCC rule proposal worrisome and cannot support its approval. I believe there are significant transparency issues evident in the redacted details of Exhibit 5 and supporting information in Exhibit 3, hindering public review and making it impossible for meaningful feedback. Therefore, I urge the rejection of this proposal based on the lack of a thorough public review. The proposal points out the failure of U.S. regulators to mandate prescriptive procyclicality controls, leading the OCC to adopt its own measures. Given the potential risks associated with increasing margin requirements during stressed market conditions, it is crucial for the public to have a clear understanding of the proposed changes. Transparency becomes even more critical as the OCC is designated a SIFMU, and any disruption could impact the stability of the U.S. financial system. The fact that the OCC, as a self-regulatory organization, attributes blame to U.S. regulators raises concerns about the reliability of the regulatory framework in safeguarding our financial markets. Furthermore, the rule proposal, designed to protect Clearing Members from potential losses, seems to favor reducing margin requirements through idiosyncratic and global control settings. This approach, aimed at preventing systemic financial crises, raises questions about fairness in the marketplace. The frequency of such adjustments, as highlighted by the OCC's actions over the past few years, appears excessive and could lead to an uneven playing field for retail investors compared to Clearing Members. The proposal's emphasis on avoiding systemic risks through margin reduction procedures creates an environment where Clearing Members may become de facto "Too Big To Fail." This undermines the natural disincentive against excessive leverage and insufficient capitalization, as Clearing Members seem shielded from the consequences of their risky decisions. Additionally, the rule proposal introduces a conflict of interest for the Financial Risk Management (FRM) Officer, whose role in protecting both the OCC and Clearing Members may compromise the effectiveness of margin requirements as a safeguard against market risks. In light of these concerns, I propose the following modifications: 1. Increase and enforce margin requirements to align with the risks associated with Clearing Member positions, discouraging excessive risk-taking. 2. Implement external auditing and supervision, akin to the "fourth line of defense" model in financial institutions, with enhanced public reporting to identify and manage risks proactively. 3. Adjust the order of loss allocation to prioritize Clearing fund deposits of non-defaulting firms before OCC's own pre-funded financial resources, encouraging mutual oversight among Clearing Members and minimizing financial risk to the OCC. I appreciate your consideration of these proposed modifications to ensure a fair, transparent, and resilient market for all investors. Thank you for providing the opportunity to voice my concerns, and I trust that you will carefully evaluate the implications of this rule change. Sincerely, Victoria woodson