Feb. 9, 2024
To Whom It May Concern: I appreciate the opportunity to provide feedback on the proposed rule change SR-OCC-2024-001 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 have several concerns regarding the OCC rule proposal and strongly oppose its approval. My primary concern revolves around the lack of transparency within our financial system, exemplified by this rule proposal. The redaction of critical details and supporting information inhibits public review and meaningful commentary. Consequently, I believe this proposal should be rejected on these grounds alone. Moreover, these rules establish an unjust marketplace for participants, particularly retail investors. Clearing Members benefit from repeated margin requirement reductions, while other investors are subjected to long-tail risks without such leniency. Therefore, I advocate for the rejection of this proposal and urge for Clearing Members to adhere to standardized margin requirements. The rationale provided by the OCC for these special margin reduction procedures, aimed at preventing systemic failure due to Clearing Member defaults, inadvertently promotes a “Too Big To Fail” scenario. Clearing Members are shielded from the consequences of inadequate risk management, perpetuating a cycle of excessive leverage and insufficient capitalization. Consequently, I propose the rejection of this rule proposal and advocate for Clearing Members to face accountability for their risk management practices. Furthermore, the proposed rule introduces a conflict of interest for the Financial Risk Management Officer, who is tasked with safeguarding the OCC’s interests. However, the necessity to shield Clearing Members from failure undermines the officer’s fiduciary responsibility. This conflict compromises the effectiveness of risk mitigation measures, rendering the OCC vulnerable to financial risks. By rubber-stamping margin requirement reductions for Clearing Members at risk of failure, the proposed rule undermines the protective function of margin collateral. Consequently, I advocate for the rejection of this proposal and emphasize the importance of enforcing adequate margin requirements to safeguard the OCC and mitigate the need for bailouts. Considering the aforementioned concerns, I recommend the following modifications: 1. Increase and enforce margin requirements proportionate to the risks associated with Clearing Member positions. 2. Encourage Clearing Members to structure their portfolios to withstand market stress and long-tail risks. The current proposal incentivizes Clearing Members to pursue excessive risk-taking, potentially compromising the stability of the OCC. Therefore, I urge for amendments to address these concerns before approval. Thank you for considering my comments. Sincerely, Ed Martinez Retail Investor