Mar. 5, 2024
Subject: Comments on SR-OCC-2024-001 34-99393 Dear rule-comments@sec.gov, I appreciate the opportunity to provide feedback on SR-OCC-2024-001 34-99393 titled "Proposed Rule Change by The Options Clearing Corporation Concerning Its Process for Adjusting Certain Parameters in Its Proprietary System for Calculating Margin Requirements During Periods When the Products It Clears and the Markets It Serves Experience High Volatility." As a retail investor, I have several reservations regarding the OCC's rule proposal and do not endorse its approval. I am grateful for the chance to express my concerns. My foremost concern revolves around the lack of transparency evident in this proposal and others within our financial system. The extensive redaction of details in Exhibit 5, coupled with limited supporting information (e.g., Exhibit 3), impedes public scrutiny and renders meaningful review and commentary impossible. Consequently, I advocate for the rejection of this proposal on the basis of inadequate public review alone. Public scrutiny gains paramount importance, especially considering the OCC's attribution of blame to U.S. regulators for not mandating the adoption of prescriptive procyclicality controls. Given the potential repercussions of procyclicality, such as increased margin requirements in times of market stress, transparency becomes imperative. The OCC's designation as a Systemically Important Financial Market Utility (SIFMU) underscores the necessity for transparency to safeguard the stability of the U.S. financial system. The OCC's attribution of blame to U.S. regulators further erodes trust in both the SRO and regulatory bodies entrusted with overseeing our financial markets. The proposal seems tailored to shield Clearing Members from the risks associated with potentially costly trades by routinely endorsing reductions in margin requirements as requested by Clearing Members. This strategy poses heightened risks to the OCC and, consequently, to the stability of the financial system. By routinely implementing "idiosyncratic" and "global" control settings to mitigate risks for Clearing Members, the proposal creates an unfair playing field for other market participants, including retail investors. Moreover, the proposal institutionalizes a conflict of interest for the Financial Risk Management (FRM) Officer, whose role ostensibly involves protecting the OCC's interests. However, the necessity to shield Clearing Members from failure paradoxically compels the FRM Officer to prioritize the interests of Clearing Members over those of the OCC. This conflict undermines the effectiveness of margin collateral in mitigating market risks associated with Clearing Members' positions. Given these concerns, I propose the following modifications: Enforce margin requirements commensurate with the risks associated with Clearing Member positions to discourage excessive risk-taking and leverage. Implement external auditing and supervision, akin to the "fourth line of defense" model for financial institutions, with enhanced public reporting to proactively manage systemic risks. Reorder the Loss Allocation waterfall to prioritize Clearing fund deposits of non-defaulting firms before OCC's own pre-funded financial resources, thereby incentivizing Clearing Members to monitor each other's risk management practices and minimizing the risk of bailouts for systemically important clearing agencies. Thank you for considering my comments. A fair, transparent, and resilient market benefits all investors. Sincerely, William Lee A Concerned Retail Investor