May 4, 2024
Dear Commissioners, I am writing to express my concerns regarding the proposed rule change (SR-OCC-2024-001) by the Options Clearing Corporation (OCC) to adjust parameters for calculating margin requirements during periods of high market volatility. As an individual investor with long-standing participation in the financial markets, I value the stability and fairness that robust regulatory frameworks provide. The proposed rule aims to codify the calculation methodology for margin thresholds, which I believe could inadvertently shield risky financial positions during periods of significant market volatility. By allowing for the adjustment of margin requirements based on fluctuating market conditions, the proposal could weaken the traditional risk management function of margin calls. This adjustment could potentially allow holders of imprudent risks to circumvent necessary corrective actions, thereby fostering larger, unchecked positions that might contribute to broader market instability. Another significant concern is the lack of transparency observed in the redacted materials associated with the proposed rule. The obscured details within these documents limit stakeholders' ability to conduct a thorough and informed analysis of the rule’s potential impacts. Transparency is essential not only for trust-building among market participants but also for ensuring a comprehensive understanding and evaluation of the new regulations proposed by the OCC. Furthermore, the proposal places considerable responsibility on the shoulders of the Financial Risk Management (FRM) Officer, whose role is to safeguard the interests of the OCC. However, prioritizing the organization's interests could, at times, conflict with the broader well-being of the financial markets. Such a conflict of interest requires careful examination and management to ensure that the FRM Officer's duties do not undermine the health and fairness of the market. Given these concerns, I urge the SEC to reconsider the implications of this proposed rule. It is critical that any adjustments to margin requirements not only address risks during high volatility but also align with the broader interests of market integrity and stability. To this end, I propose the following: 1. Enhance Transparency: Ensure all relevant materials are fully accessible to the public to facilitate more informed discussions and evaluations. 2. Revise Loss Allocation Frameworks: Consider prioritising Clearing Fund deposits of non-defaulting firms over OCC’s pre-funded resources to reinforce fairness and equity. 3. Establish Independent Reviews: Introduce mechanisms for independent review to evaluate the impact of control settings, balancing the interests of the OCC and the market. These measures would provide greater protection against market instability, enhance the regulatory framework's transparency, and ensure a more equitable approach to risk management. I trust that the SEC will consider these issues carefully and work towards a regulation that not only manages risk appropriately but also upholds the integrity and fairness of the financial market. Thank you for considering my views on this critical matter. Sincerely, Curtis Hodges