Mar. 4, 2024
Dear Members of the Securities and Exchange Commission, I appreciate the opportunity to provide feedback on the rule proposal "SR-OCC-2024-001." As a retail investor actively engaged in the US financial market and a staunch advocate for fair and transparent markets, I am writing to express my strong reservations and opposition to the outlined rule. My primary concern revolves around the level of opacity introduced by the redacted details within the proposal, particularly regarding the calculation of parameters and margin thresholds. This lack of transparency inhibits market participants from comprehensively evaluating the fairness and efficacy of the proposed measures. This opacity also raises doubts about the transparency of the OCC's risk management process, hindering our ability to ev en understand let alone support the rule. Transparency is paramount for market participants to assess the fairness and effectiveness of risk management measures. The consistent use of "idiosyncratic" control settings (over 200 a short span of four years) prompts questions about their uniform application and potential systemic risks, especially during high volatility periods. The frequent waiver of margin calls for Clearing Members raises concerns about the robustness of the risk management framework. Such a dynamic and reactive approach may compromise the stability and predictability of the OCC's risk management practices, potentially rendering Clearing Members "Too Big To Fail." This, in my view, poses an unacceptable risk to the overall stability of the financial system. U.S. citizens have seen exactly how "Too Big To Fail" turned out in the years following the market implosion of 2008 and many do not wish to see those results duplicated. This proposal seems to be encouraging a repeat of the previous approach which privatized gains for big banks and socialized the losses incurred as a result of reckless Wall Street behavior. Relying on GARCH parameters for risk forecasting and margin requirement setting assumes the accuracy and relevance of these parameters. Any deficiencies in the model could lead to woefully inadequate risk coverage. Furthermore, concentrating decision-making authority in a single individual, such as the FRM Officer, for approving idiosyncratic control settings introduces a glaring risk of conflicts of interest and/or potential for the abuse of power. This undermines the fairness and security of the proposed "solution". The discretionary power given to the FRM Officer to adjust the duration of idiosyncratic control settings based on unforeseen situations introduces an element of uncertainty, conflicting with the outlined general guidelines. Additionally, the proposal's exposure of the OCC to financial risks in the event of a sufficiently large Clearing Member default poses a concern. Depleting pre-funded financial resources before utilizing clearing fund deposits may jeopardize the stability of the OCC, especially during prolonged periods of economic downturns or systemic events. If approved, the rule could undermine the first line of protection outlined in OCC's default rules and procedures—margin collateral from at-risk Clearing Members. This contradicts the conventional risk management strategy of increasing collateral for higher-risk scenarios. The OCC's focus on potential liquidity issues for non-defaulting Clearing Members raises serious doubts about the sustainability of its risk management approach. Thank you for considering my concerns on this critical matter. Addressing these issues is crucial for fostering a more transparent and resilient financial system that serves the best interests of all market participants. Clear guidelines, transparent calculations, and checks on discretionary authority are essential for maintaining the integrity and stability of the financial markets. But nothing I have written here should be news to anybody. The SEC is fully aware that this proposal is not in the interest of fairer and more transparent markets. Anyone who has given the proposal even the most cursory reading will recognize the gigantic loopholes it provides for potential malfeasance. If it does pass, retail investors and the public at large will be asked to endure the consequences of this questionable piece of legislation. Would be great if the SEC chose to do what is right and actually live up to its original mandate, but few of us will be holding our breath hoping for such an outcome. Sincerely, An Anonymous U.S. Investor Sent with Proton Mail secure email.