Feb. 9, 2024
Thank you for the opportunity to comment on the proposed rule change 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 of High Volatility." I write to express my strong opposition to this proposal. My concerns center on the proposal's impact on market transparency and fairness, particularly for retail investors who stand to face disproportionate risks without sufficient safeguards. The lack of detailed disclosure within the proposal impedes public scrutiny and informed commentary. The significant redactions limit the ability of the public to understand the full implications of these changes, undermining the process of regulatory oversight. On this basis alone, I believe the proposal should not proceed without a more transparent and inclusive review process. The proposed adjustments to margin requirements during volatile periods appear to favor clearing members by allowing for discretionary reductions in margin calls. This practice could exacerbate market imbalances, placing undue risk on retail investors who lack similar flexibilities. A more equitable approach would enforce stringent, well-defined margin requirements across all market participants. The rationale given for these discretionary measures — preventing a cascade of defaults among clearing members — highlights a systemic issue. Clearing members deemed "too big to fail" due to their potential systemic impact should not be shielded from the consequences of inadequate risk management. Instead, the focus should be on promoting robust risk management practices that prevent such vulnerabilities. Furthermore, the rule proposal potentially introduces a conflict of interest for the Financial Risk Management (FRM) Officer, whose role may be compromised by the need to balance OCC interests with the financial stability of clearing members. Ensuring that margin requirements fulfill their role as a protective measure against market volatility is paramount. The current proposal, however, seems to weaken this protective mechanism in favor of mitigating immediate risks to clearing members at the expense of long-term market stability. Given the implications for the OCC's own financial resources and the broader market ecosystem, it is crucial that the proposal be reconsidered. The primary line of defense in a default scenario should not be diluted by measures that reduce margin collateral requirements for at-risk clearing members. In light of these concerns, I urge the OCC to: - Reevaluate the proposal with an emphasis on transparency, allowing for comprehensive public review and comment. - Implement stricter margin requirements that reflect the actual risks posed by clearing member positions, particularly under stressed market conditions. - Encourage clearing members to adopt risk management practices that adequately prepare them for volatile periods without relying on systemic bailouts. I appreciate the opportunity to contribute to this important discussion and am available for further dialogue on how best to address these issues. Ensuring the stability and fairness of our financial markets requires careful consideration of the impacts of such rule changes, and I believe that, with thoughtful revision, a more equitable solution can be achieved. Thank you for your attention to these matters. Sincerely, Alex Batko