Feb. 20, 2024
Hello, As an average retail investor, I was disappointed to see a recent rule amendment being put forth by the OCC for "idiosyncratic" margin requirements. Looking into the details of this proposal, I feel this amendment is an unacceptable risk for the larger investing public as I've outlined with my points below: Destabilizing Markets: Reducing margin requirements for a single security with substantial price jumps may impact overall market stability, as it implies a lower financial cushion for potential risks associated with that security. If a security is changing value rapidly, what gives the OCC the right to arbitrarily designate it "idiosyncratic" rather than appropriately adjusting the risk margins involved as our rules-based management is supposed to function? Moral Hazard & Systemic Risk: If Clearing Members perceive that the OCC is readily willing to reduce margin requirements in times of volatility, it may create a moral hazard by incentivising excessive risk-taking, knowing that potential losses would be mitigated by the OCC. This leads to systemic risk for the entire market, as a problem that could have been averted by correctly applying our current risk management rules, instead could lead to an exponentially larger risk if the OCC arbitrarily declares it a transient issue. Fairness & Equity: Such discretionary reduction of margin requirements may raise concerns about fairness among Clearing Members. If some members receive preferential treatment, it could lead to an uneven playing field and impact market integrity. There should be one set of rules for markets - not one set on paper for the poor investing public, and another unspoken ruleset for the rich attainable through lobbying and connections. Transparency & Abuse: The lack of transparency in the criteria and decision-making process for implementing idiosyncratic control settings raises questions about how and when such reductions are justified. Guidelines and transparency are essential for maintaining market confidence, and without this clarity for the current proposed amendment there is a risk of potential abuse. Misuse of the idiosyncratic control settings may open avenues for manipulation or strategic exploitation of the system. Overuse: The rule amendments implies that these idiosyncratic margin adjustments would be used sparingly and only in times of necessary market emergency. However, recent history tells a very different story - with the OCC making this “idiosyncratic” choice over 200 times in less than 4 years (from December 2019 to August 2023). These decisions have consisted of varying durations up to 190 days, with a median duration of approximately 10 days. By choosing to waive away margin calls for Clearing Members over 50 times a year on average - the OCC fails to meet even the basic definition of "idiosyncratic". This history of usage in no way indicates that further leniency for margin calculations would be used appropriately. As an everyday investor who already feels disadvantaged in comparison to large institutional investors with the clear information & expertise gap involved, I find this rule amendment wholly unbalanced. Please reconsider such a rule change, as it would disproportionately affect those like myself as well as the market as a whole through systemic risk. Sincerely, Gregory Scott Wilson