Feb. 8, 2024
Gary, Thank you for the opportunity to provide feedback on SR-OCC-2024-001 34-99393, titled "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." I strongly oppose the OCC's rule proposal and do not support its approval for several reasons. Firstly, there's a concerning lack of transparency in the financial system, exemplified by this proposal, as critical details are redacted, hindering public review and meaningful commentary. This lack of transparency alone warrants rejection of the proposal. Moreover, these rules create an unjust marketplace favoring Clearing Members over other investors, particularly retail investors, who bear the brunt of long-tail risks while Clearing Members are granted repeated margin requirement waivers. Consequently, this proposal should be discarded, and Clearing Members should be subject to standardized margin requirements. The rationale behind the proposed rule, citing potential cascading defaults, essentially designates Clearing Members as "Too Big To Fail." Rejecting the proposal would hold Clearing Members accountable for managing their portfolio risks, naturally deterring excessive leverage and inadequate capitalization. Additionally, the proposal creates a conflict of interest for the Financial Risk Management (FRM) Officer, who is tasked with protecting both OCC's and Clearing Members' interests. This conflict undermines market risk protection provided by margin collateral, further necessitating rejection of the proposal. Furthermore, the proposal's concern for potential liquidity issues exposes a flawed logic, as it reduces the first line of protection for the OCC — margin collateral from at-risk Clearing Members. Approving this proposal would exacerbate pro-cyclical margin requirements and jeopardize OCC's financial stability. In light of these issues, I suggest increasing and enforcing margin requirements based on Clearing Member positions' associated risks instead of reducing them. This approach would encourage Clearing Members to prudently manage their portfolios, minimizing systemic risks and avoiding privatizing profits while socializing losses. Marshall Dias