Mar. 3, 2024
Feedback on Proposed Rule Change SR-OCC-2024-001 Dear Securities and Exchange Commission, I am reaching out to share my apprehensions regarding the proposed adjustments to margin requirement calculations during heightened market volatility, as outlined in the Options Clearing Corporation's (OCC) proposed rule change. As a committed long-term investor concerned about the stability and fairness of financial markets, I welcome the opportunity to contribute my insights on this important matter. Upon reviewing the proposed rule change, several potential issues have come to my attention that merit careful consideration. The proposed rule change (SR-OCC-2024-001) by the OCC, which seeks to formalize the methodology for calculating margin thresholds, is concerning due to its potential inadvertent shielding of risky financial positions during periods of elevated market volatility. By institutionalizing the ability to adjust margin requirements based on market conditions, there is a risk of curtailing the normal risk management mechanism of margin calls. This could allow investors with imprudent risks to evade necessary adjustments, potentially leading to larger losses and posing risks to long-term market stability. One particular area of concern is the role assigned to the Financial Risk Management (FRM) Officer. Placing significant responsibility on this individual, whose primary obligation is to safeguard OCC's interests, creates an inherent conflict of interest. The proposal acknowledges a scenario where risk factor coverage may significantly differ under various control settings, underscoring the need for careful scrutiny. Moreover, the lack of transparency in the redacted materials accompanying the proposal is troubling. Transparency is paramount for fostering trust among investors and the public. Redacted materials limit our ability to fully assess the effectiveness of the proposed rule and participate in informed public discourse. While recognizing the OCC's intent to mitigate risks during periods of high volatility, it is crucial to ensure that risk management measures do not inadvertently shield unsound investments. Adjusting parameters for calculating margin requirements is essential for market stability, but it must be done in a manner that aligns with broader market interests. In light of these concerns, I recommend a reassessment of the OCC's loss allocation framework. The current structure places Clearing Fund deposits of non-defaulting firms as the fourth layer of defense, following the OCC's pre-funded financial resources. To promote fairness, I suggest prioritizing Clearing Fund deposits over the OCC's pre-funded resources, ensuring a more equitable distribution of losses and bolstering market resilience. Additionally, I propose additional safeguards and modifications to the rule, including an independent review mechanism to evaluate the impact of control settings on both OCC's interests and the broader market. This measure would enhance transparency and accountability within the regulatory framework, fostering public trust and confidence. In conclusion, I urge the SEC to thoroughly consider these concerns during the rulemaking process and strive to develop a rule that prioritizes fairness, transparency, and the well-being of all market participants. Sincerely, Ian Carlo Herrera Sierra Quintero Virus-free.www.avast.com