Feb. 8, 2024
Dear Securities and Exchange Commission, I'm reaching out to share my concerns about the proposed rule change by the Options Clearing Corporation (OCC) regarding the adjustment of parameters for calculating margin requirements during periods of high market volatility. As a long-term household investor invested in the stability and fairness of the financial market, I appreciate the opportunity to provide insights on this matter. Upon reviewing the proposed rule change, several potential discrepancies caught my attention. The OCC's proposed rule change (SR-OCC-2024-001), aimed at formalizing the calculation methodology for margin thresholds, raises concerns about inadvertently shielding risky financial positions during volatile market conditions. By allowing adjustments to margin requirements based on market conditions, the proposal may limit the effectiveness of margin calls, potentially enabling investors with imprudent risks to avoid necessary adjustments. This lack of an effective risk management mechanism, coupled with the OCC's frequent implementation of "idiosyncratic" and "global" control settings, raises concerns about unchecked growth of risky positions, contributing to larger losses and posing risks to long-term market stability. One particular concern is the role of the Financial Risk Management (FRM) Officer. The proposal places significant responsibility on this individual, whose primary duty is to safeguard OCC's interests. This creates an inherent conflict of interest, as protecting OCC’s interests may not always align with the broader market’s well-being. Additionally, the lack of transparency in the redacted materials accompanying the proposal limits our ability to fully evaluate the effectiveness of the proposed rule. Transparency is crucial for fostering trust among investors and the public, and the current lack thereof raises questions about the thoroughness of the evaluation process. While acknowledging the OCC's intent to mitigate risks during high volatility periods, it is imperative to ensure that risk management measures do not inadvertently shelter bad bets. Adjusting parameters for calculating margin requirements is crucial for market stability, but this must be done in a way that aligns with broader market interests. As outlined in the proposal, the current structure places Clearing Fund deposits of non-defaulting firms as the fourth layer of defense in the event of market stress, following the OCC's own pre-funded financial resources. This arrangement implies that the OCC anticipates losses to exhaust the first three layers, including its pre-funded resources, before reaching non-defaulting Clearing Members' contributions. To address this potential disparity and promote fairness, I propose that Clearing Fund deposits of non-defaulting firms be prioritised over the OCC's pre-funded resources. This adjustment ensures that Clearing Members' contributions play a more immediate and prominent role in covering losses, aligning with principles of equity and transparency in the OCC's risk management structure. Such a modification would provide additional protection to non-defaulting Clearing Members and contribute to a more balanced and resilient financial ecosystem. I propose additional safeguards and modifications to the rule, including enhanced transparency requirements, strengthening oversight mechanisms, and encouraging industry-wide standards and best practices. These suggestions collectively aim to fortify oversight, enhance transparency, and uphold accountability, thereby ensuring the integrity and fairness of our financial markets. As an engaged investor, I trust that the SEC will thoroughly consider these concerns during the rulemaking process and work towards a rule that addresses risk management while upholding broader principles of market integrity. Sincerely, A Concerned Retail Investor