Feb. 27, 2024
Dear Members of the Securities and Exchange Commission, I am writing to convey my apprehensions about Rule SR-OCC-2024-001, which suggests changes to margin thresholds, particularly during times of high volatility. I believe that certain aspects of this rule raise important questions and introduce risks. The application of "idiosyncratic volatility control settings" to modify margin thresholds during high volatility introduces a risk due to the lack of transparency in the calculation and implementation process. Without explicit guidelines on how these settings are determined, there is a possibility for arbitrary or ad-hoc adjustments, allowing the Options Clearing Corporation (OCC) to change the criteria whenever Clearing Members need assistance. This flexibility raises concerns about fairness, as it may create a situation where the rules can be altered based on individual circumstances, potentially favoring certain market participants or introducing an element of unpredictability. Such a lack of transparency undermines the integrity of financial markets by eroding trust among participants. Financial markets thrive on clear and consistent rules that are applied uniformly to ensure a level playing field. When rules can be modified opaquely, it creates uncertainty and diminishes confidence in the regulatory framework. Maintaining trust is essential for the effective functioning of financial markets, and transparency in rule-making and enforcement is a key factor in upholding the integrity of the overall financial system. The proposal's supporting evidence, particularly regarding the calculation of margin thresholds, is worryingly redacted. This lack of disclosure undermines the principles of transparency and accountability that are crucial in regulatory frameworks. As stakeholders, we need detailed information on how these adjustments will be made to ensure fair and equitable treatment of all market participants. Furthermore, the proposal grants unchecked authority to the Financial Risk Management (FRM) Officer to make unilateral decisions during periods of high market stress. This authority, while ostensibly intended to protect the interests of the OCC, raises questions about potential conflicts of interest. The FRM Officer is entrusted with safeguarding both the OCC's interests and those of at-risk Clearing Members, creating a potential conflict that needs to be addressed and changed. In light of these concerns, I urge the Securities and Exchange Commission to thoroughly review and reconsider the implications of Rule SR-OCC-2024-001. Clear guidelines, transparency in calculations, and checks and balances on discretionary authority are essential for maintaining the integrity and stability of the financial markets. Thank you for your attention to this matter. I trust that the SEC will carefully consider these concerns and take appropriate actions to address the potential risks associated with this rule. Sincerely, Henry