Feb. 8, 2024
I am a household investor based in New Zealand, and I wholeheartedly oppose the proposed rule change described in SR-OCC-2024-001 34-99393. I provide the following quotes from the proposal and my refutations: In its role as a clearing agency, OCC guarantees the performance of its Clearing Members for all transactions cleared by OCC by becoming the buyer to every seller and the seller to every buyer (or the lender to every borrower and the borrower to every lender, in the case of stock loan transactions). Firstly, does this not negate the purpose of a securities market as a whole? What does this function mean for price discovery and movement as visible to retail and household investors? In its role as guarantor for all transactions cleared through OCC, one of the more material risks related to a Clearing Member’s failure to perform is credit risk arising from the activity of the Clearing Members whose performance OCC guarantees. If it is not able to absorb those risks, it should not be guaranteeing the Member. Is the Member not required to manage their own risk? Why is the OCC guaranteeing a Member's performance in the first place? Shouldn't that be attributable to the due diligence of their selected positions? For example, on April 28, 2023, FRM implemented idiosyncratic control settings with respect to a risk factor for a security that experienced multi-day jumps in stock price,36 including from $6.72 to $20 on April 27, 2023 and from $20 to $108.20 on April 28, 2023, which resulted in corresponding short coverage levels under regular control settings increasing from 98% to 5695%. After implementing idiosyncratic control settings for that risk factor, aggregate margin requirements decreased $2.6 billion. And what did this mean for those with short positions outside of the OCC's clearing members? Or those who had long positions who then likely had their stock price momentum squashed by the controls being relaxed? A margin requirement lowered by $2.6 billion on a single security. What would happen if the entire market underwent such volatility? Who takes the hit: the Clearing Member/s, the OCC, or someone else entirely? We actually know the answer to this already: look back to 2008. How many on Wall St lost their careers? Written comments were not and are not intended to be solicited with respect to the proposed change and none have been received. Forgive my sarcasm, but: champion of democracy, right here. In short, the OCC is already too wide of a safety net for its Members, and its power over the financial markets need to be restrained, not given further leeway to reduce the requirements of its Members. The lack of transparency in this proposal as to HOW their controls have been / are being / will be adjusted in times of volatility, and how all attached evidence has been redacted for the public only serves to shine light on this abuse of power at the expense of other players in the market such as household investors like myself. Steve Nodwell NZ investor