Mar. 2, 2024
Dear SEC/Relevant Regulatory Body, I'm e-mailing to show my deep concerns about the proposed rule change SR-OCC-2024-001 by the Options Clearing Corporation (OCC), which is trying to change parameters for calculating margin requirements during times of high market volatility. As an investor in the financial markets and a concerned citizen, I believe it is crucial to address several apprehensions regarding this proposal to ensure market stability, transparency, and the well-being of all stakeholders. First and foremost, the lack of transparency surrounding the specific details of the proposed adjustments, particularly related to the calculation of parameters and margin thresholds, is concerning. The redaction of such critical information prevents market participants from adequately assessing the fairness and effectiveness of these measures, raising doubts about the transparency of the OCC's risk management processes. Furthermore, the consistent use of idiosyncratic control settings, totaling over 200 within a span of less than four years, raises questions about their uniform application and effectiveness under varying circumstances. The reliance on such settings, particularly during periods of high volatility, poses potential systemic risks, as evidenced by the OCC waiving margin calls for Clearing Members over 50 times a year. This frequency of adjustments may indicate a lack of robustness in the overall risk management framework and could lead to market instability. Moreover, the proposal appears to make Clearing Members, even those poorly managing risks, de facto "Too Big To Fail," thereby risking financial system stability. This contradicts principles of accountability and undermines the integrity of the risk management framework. Additionally, the concentration of significant decision-making authority in a single individual, such as the Financial Risk Management (FRM) Officer, may create conflicts of interest or potential abuse of power in their role. The discretionary power given to the FRM Officer introduces an element of uncertainty and undermines the predictability of risk management practices. The reliance on GARCH parameters for forecasting risk and setting margin requirements also poses inherent risks, as any shortcomings or miscalculations in the model could lead to inadequate risk coverage. Moreover, the proposal exposes the OCC to financial risks by potentially depleting its pre-funded financial resources in the event of a sufficiently large Clearing Member default, thus undermining the first line of protection outlined in OCC's default rules and procedures. In light of these concerns, I urge SEC/Relevant Regulatory Body to thoroughly reconsider the proposed rule change SR-OCC-2024-001. I believe it is essential to prioritize transparency, risk mitigation, and the broader market's well-being in any regulatory decision-making process. As such, I propose the following improvements to the current rule proposal: 1.Strengthen and enforce margin requirements in alignment with the risks inherent in Clearing Member positions, rather than reducing these requirements. 2.Introduce external auditing and supervision as a "fourth line of defense," enhancing transparency and proactive risk management. 3.Incorporate public input through consultations and hearings in the rule-making process. 4.Advocate for public accessibility of stress testing results. 5.Consider establishing an external oversight committee to ensure impartial evaluation and scrutiny of risk management practices. 6.Reorder the Loss Allocation waterfall to prioritize Clearing fund deposits of non- defaulting firms. 7.Enhance transparency requirements and strengthen oversight mechanisms. By implementing these suggestions, we can enhance transparency, accountability, and risk management in the financial markets, ultimately safeguarding market stability and the interests of all stakeholders. Thank you for considering my concerns. I look forward to your thorough review and deliberation on this matter. Sincerely, Kango