May 4, 2024
Dear SEC, I am writing to express vehement opposition to the proposed rule change submitted by the Options Clearing Corporation (OCC). This proposal, if approved, would significantly undermine the integrity of fair and orderly markets, and it is imperative that it be rejected. The OCC's request to unilaterally reduce margin requirements for clearing members facing default is deeply troubling. Such a move would essentially institutionalize fraudulent practices and moral hazard on a systemic scale. Moreover, the lack of transparency surrounding this proposal, evidenced by extensive redactions of critical information, is cause for serious concern. Without full public disclosure, there can be no meaningful review or accountability, further eroding trust in our financial system. Furthermore, the details that have been revealed paint an even more alarming picture. The OCC's attempt to shift blame onto regulators for purportedly restricting its risk controls is unacceptable. Granting permission to weaken risk controls and arbitrarily waive margin calls for undercapitalized clearing members is tantamount to financial malpractice. It effectively privatizes profits while socializing losses, at the expense of other investors who are unfairly burdened with long-tail risks. The proposal also exposes the OCC's dangerously overleveraged and undercapitalized position, posing a systemic risk to the entire financial system. Rather than addressing this vulnerability, the OCC seeks to exacerbate it by seeking greater leeway in bending risk parameters for its dysfunctional members. This perpetuates the "too big to fail" mentality that undermines market stability and public trust. In light of these concerns, I urge the SEC to reject the proposed rule change and instead implement measures that prioritize market integrity and investor protection. Specifically, I recommend: Mandating higher margin requirements that accurately reflect the risks incurred by clearing members. Subjecting the OCC to rigorous external audits and oversight to ensure accountability. Holding the OCC accountable for bearing losses below clearing members' "skin-in-the-game." Establishing a credible process for promptly addressing insolvent clearing members to prevent systemic contagion. Promoting a decentralized market structure that disperses systemic vulnerability and eliminates single points of failure. In conclusion, the proposed rule change by the OCC represents a dangerous departure from regulatory responsibility and must be unequivocally rejected. The SEC has a duty to uphold its principles and safeguard the integrity of our markets. I urge you to take decisive action in opposing this proposal and charting a course toward accountable and transparent financial markets. Thank you for your attention to this matter. Sincerely, Kristoffer Svendsen