Mar. 1, 2024
The Options Clearing Corporation's (OCC) proposed rule change (SR-OCC-2024-001 34-99393) raises serious concerns regarding transparency, risk management, and market fairness. As a retail investor, I believe the proposal, as currently formulated, poses potential risks to the financial system and requires revision to ensure adequate safeguards. In-Depth Look at SR-OCC-2024-001 Independent analysis of SR-OCC-2024-001 reveals that it grants the OCC authority to adjust specific, undisclosed parameters within its model during periods of high market volatility. These adjustments are triggered when predefined thresholds, known as "global control settings," are breached. This empowers the OCC to manipulate internal factors during specific market conditions and events to supposedly stabilize its operations. Key Issues with the Proposal Lack of Transparency: The proposal includes significant redactions, hindering informed public comment and raising questions about the OCC's commitment to open oversight, especially considering their critique of US regulatory oversight. Increased Systemic Risk: Reducing margin requirements during high volatility contradicts the core function of margin: risk mitigation. This increases the possibility of a domino effect of clearing member failures if they cannot meet even reduced margin requirements during periods of stress. Unfairness to Retail Investors: The proposal may disproportionately burden retail investors. While retail investors face the full consequences of market volatility, the OCC appears to routinely shield clearing members through margin adjustments, creating an uneven playing field. Conflict of Interest: Granting significant authority to the Financial Risk Management (FRM) Officer to approve these adjustments raises concerns. The FRM Officer is obligated to safeguard both the OCC's interests and potentially risky clearing members, creating a potential conflict of interest. Recommendations for Improvement Withdraw and revise SR-OCC-2024-001. Openly address concerns regarding transparency, systemic risk, and potential conflicts of interest. Emphasize stricter margin requirements in proportion to risk. This would incentivize responsible risk management practices among clearing members and mitigate the potential for a domino effect of clearing member failures. Institute external auditing and robust public reporting for the OCC. These measures would ensure better oversight of this SIFMU's decision-making and promote transparency. Consider modifications to the loss allocation waterfall. Prioritizing the OCC's resources and the Clearing Fund of non-defaulting members would incentivize stronger mutual oversight within the clearing system. The protection of retail investors and overall market stability hinges on robust and transparent regulation. I urge the SEC and the OCC to prioritize these principles and collaborate on a revised approach that promotes a fairer, safer, and more resilient financial system. Yours in expectation, Concerned Investor