Mar. 2, 2024
To whom it may concern, I am writing to express my concerns regarding the Options Clearing Corporation's (OCC) proposed changes to its rules, specifically aimed at codifying the process for adjusting margin requirements during periods of elevated volatility. The OCC plays a pivotal role in our financial markets, and as such, it bears the responsibility to engage with the public and consider the broader implications of its decisions. The request to avoid a public comment period on these significant changes raises questions about their alignment with the public interest. The proposed adjustments could potentially embed systemic risks within our financial system. For example, the OCC's past implementations of global control settings across various financial instruments in response to market volatility have seemingly enabled market participants to assume disproportionate levels of risk. This not only undermines the stability of the financial system but also encourages risk-taking behavior. What is the point of having 200 pages of redacted risk procedures when the OCC doesn't even have a competitor? What possible material harm could the OCC incur with transparency of their risk management. Moreover, the authority granted to Financial Risk Management (FRM) Officers to activate and discontinue these high volatility controls is concerning. Such discretionary power could lead to preferential treatment of certain Clearing Members, thereby introducing bias and manipulation into the margin setting process. Was a bias present in their previous judgments? What would prevent the following scenario under this proposal? FRM officer activates margin call on selected member(s). Repurchase agreements are opened with various liquidity facilities like pension or insurance funds, which the OCC previously requested UNLIMITED access to. OCC sells collateral of the defaulting member(s) which has the same assets as the repurchase agreement naturally reducing the market price on those assets. The OCC closes the repurchase agreement, buying back it's assets for pennies on the dollar. The lack of transparency surrounding these proposed changes, evidenced by the redaction of substantial portions of the rule documentation, further complicates the situation. Without full disclosure, stakeholders are unable to fully assess the fairness, rationale, and potential impact of these changes. Given these issues, I strongly urge the SEC to reject this proposal. It is imperative that the OCC opens these proposals for public scrutiny and comment. Additionally, a comprehensive and transparent account of the intended changes, along with a detailed analysis of their potential risks and benefits, is essential for maintaining trust and integrity in the decision-making process. When I see the OCC requesting unlimited access to pension and insurance funds and arbitrary adjusting and maybe even waiving margin requirements, the only conclusion that I can come to is that one or more members of the OCC are insolvent. I have allocated my portfolio accordingly. Sincerely, Andrew Melnychuk