May 4, 2024
The proposed rule change by the Options Clearing Corporation (OCC) represents a severe threat to fair and orderly markets and must be strongly opposed. Allowing the OCC to unilaterally reduce margin requirements for clearing members facing default risks is equivalent to institutionalizing fraud and moral hazard on a systemic level. The lack of transparency, including extensive redactions of critical information, is sufficient reason to reject this proposal outright. Without full public disclosure, there can be no meaningful review or accountability, fueling public distrust in the financial system. Furthermore, the details that have been revealed are deeply concerning. The OCC is shifting blame onto regulators for not allowing it to weaken its risk controls sufficiently, essentially requesting permission to increase systemic failures. This goes against the purpose of a self-regulatory organization meant to protect market integrity. The proposed ability to waive margin calls for undercapitalized clearing members is an attempt to privatize profits while socializing losses, disregarding proper risk management practices. Additionally, the proposal fails to address the core issue of overleveraged and undercapitalized clearing members, instead giving the OCC more leeway to bend risk parameters. This perpetuates the "too big to fail" doctrine and undermines financial resilience. The recent "skin in the game" capital contribution imposed by the OCC is disingenuous, as it now seeks looser safeguards to force liquidity backstops from pensions and insurers. This proposal threatens the savings of millions and undermines the SEC's responsibilities to protect investors and ensure transparent governance. Instead, regulators must mandate higher margin requirements, subject the OCC to external audits, shift loss-bearing responsibilities, establish a process for swiftly addressing insolvent clearing members, and disperse systemic vulnerability across decentralized market structures. In summary, this proposal epitomizes the flaws in modern finance's reliance on moral hazard and socialized risk-taking. Regulators must unequivocally reject it and uphold principles of accountability and market integrity.