Mar. 3, 2024
Dear Sir/Madam, I am writing to express my concerns regarding the proposed rule change SR-OCC-2024-001 34-99393 by The Options Clearing Corporation (OCC), titled "Proposed Rule Change Concerning Its Process for Adjusting Certain Parameters in Its Proprietary System for Calculating Margin Requirements During High Volatility Periods." As a retail investor, I believe this proposal lacks transparency and poses potential risks to the financial system, and therefore, I do not support its approval. One of my primary concerns is the significant redactions in the proposal's details, particularly in Exhibit 5, which hinder public review and meaningful commentary. The lack of transparency is concerning, especially given the proposal's reference to U.S. regulators' failure to require prescriptive procyclicality controls. This lack of clarity undermines the ability of stakeholders, including retail investors like myself, to fully understand and evaluate the implications of the rule change. The proposal appears to prioritize the protection of Clearing Members from the risks of costly trades by potentially reducing margin requirements. This approach could increase risks to the OCC and, by extension, the stability of the financial system. The frequent use of "idiosyncratic" and "global" control settings to reduce margin requirements raises questions about the overall risk management strategy and its fairness to other market participants. Furthermore, the rule proposal seems to create a conflict of interest for the Financial Risk Management Officer, whose role should be to protect the OCC's interests rather than facilitate the reduction of margin requirements for at-risk Clearing Members. This conflict could undermine the effectiveness of margin collateral in protecting against market risks. In light of these concerns, I suggest the following modifications to the rule proposal: Increase and enforce margin requirements commensurate with the risks associated with Clearing Member positions, encouraging prudent risk management and portfolio positioning for stressed market conditions and long-tail risks. Implement external auditing and supervision as a "fourth line of defense" with enhanced public reporting to ensure risks are identified and managed effectively. Reorder the OCC's Loss Allocation waterfall to prioritize the use of Clearing Fund deposits of non-defaulting firms before OCC's own pre-funded financial resources, promoting mutual oversight among Clearing Members and enhancing protection for the OCC. In conclusion, I urge the SEC to carefully consider these concerns and modifications to ensure a fair, transparent, and resilient market for all investors. Thank you for the opportunity to comment. Sincerely, John D. Miller A Concerned Retail Investor