May 4, 2024
Dear Sir/Madam, Thanks to over 2,500+ retail investors, the SEC has recognized the OCC Proposal to Reduce Margin Requirements as a bad idea. Let's keep the pressure on and ensure it gets rejected entirely. The SEC's notice of potential disapproval (SR-OCC-2024-001 34-100009, Federal Register) is a positive step. However, the fight's not over. The OCC and its allies (Wall Street, Kenny's friends) can still lobby the SEC for approval during the comment period. We need to make our voices heard again. Transparency Concerns: A major concern is the lack of transparency in this rule proposal, reflecting a broader issue in our financial system. Key details are redacted in Exhibit 5 and supporting documents (e.g., Exhibit 3), hindering public review and informed commentary. Without transparency, this proposal should be rejected outright. A SIFMU Hiding Behind Regulators? The OCC blames U.S. regulators for not requiring them to enact prescriptive procyclicality controls (Federal Register). Procyclicality means margin requirements increase during stressed market conditions. The OCC argues such increases could threaten their members' liquidity, potentially exposing the OCC itself to financial risks. Given the OCC's designation as a Systemically Important Financial Market Utility (SIFMU), a failure of which could destabilize the entire financial system, everyone deserves transparency. The fact the OCC, an SRO, blames regulators for not requiring safeguards against its own potential failures raises serious concerns about the effectiveness of both the OCC and current regulations. This Rule Seems Designed to Protect Risky Clearing Members: This proposal appears to prioritize protecting Clearing Members from potential losses by automatically reducing margin requirements. This increases risk for the OCC and the entire financial system. Here's how: * The OCC collects margin collateral from Clearing Members to address market risks associated with their positions (Federal Register). * The OCC's proprietary system, STANS, calculates margin requirements with various models. One model might generate "procyclical" results, meaning margin requirements rise with volatility, potentially threatening member stability. (Federal Register) * Increased margin requirements could make it harder for Clearing Members to meet their obligations to the OCC. If a Clearing Member defaults, the OCC could face losses and be forced to tap the Clearing Fund, potentially impacting non-defaulting members. (Federal Register) The Root of the Problem: Undercapitalized Clearing Members The core issue seems to be that Clearing Members, as a whole, are inadequately capitalized or over-leveraged. A single Clearing Member failure could trigger a domino effect due to insufficient risk management, especially during periods of high volatility. In simpler terms, a bad bet by one Clearing Member could snowball into a systemic financial crisis. The OCC's solution of reducing margin requirements via "idiosyncratic" and "global" control settings is a band-aid solution. They highlight a single instance where they reduced aggregate margin requirements by $2.6 billion to avoid a margin call. Thank you