May 5, 2024
Dear SEC Representative, I am writing to express my strong opposition to the proposed rule change by the Options Clearing Corporation (OCC) outlined in SR-OCC-2024-001. As a retail investor, I deeply value transparency and fairness in our financial markets, and I believe this proposed rule change threatens these principles. My concerns with the OCC's proposal are multifaceted. Firstly, the lack of transparency in the proposal, particularly with significant redactions, undermines the ability of the public to thoroughly review and provide meaningful feedback. Transparency is essential for maintaining trust and integrity in our financial system. Moreover, I am deeply troubled by the OCC's reliance on reducing margin requirements for clearing members during periods of high volatility. This approach appears to prioritize the protection of clearing members over the broader market, potentially increasing systemic risk and exposing other market participants to undue harm. I also question the role of the Financial Risk Management Officer within the OCC, as their responsibility to protect clearing members may create a conflict of interest. Additionally, the OCC's reliance on its own pre-funded resources in the event of a default raises concerns about the fair allocation of losses and the protection of non-defaulting members. In light of these concerns, I urge the SEC to reject the proposed rule change. If the SEC either allows or does not object to this proposal, then the SEC effectively demonstrates a willingness to provide liquidity by any means possible [21]. The combination of this current OCC proposal with SR-OCC-2022-802 and SR-OCC-2022-803 facilitates an immense uncapped reallocation of liquidity from the OCC’s Non-Bank Liquidity Facility to the OCC; under the control of the OCC. While the FRM Officer is an administrative rubber stamp for approving margin reductions as described above, the OCC’s FRM Officer retains authority “to maintain regular control settings in the case of exceptional circumstances” [22]. In effect, under undisclosed or redacted exceptional circumstances, the OCC’s FRM Officer has the authority to not rubber stamp a margin reduction thereby resulting in a margin call for a Clearing Member; which may lead to a potential default or suspension of the Clearing Member unable to meet their obligations to the OCC. With control over when a Clearing Member will not receive a rubber stamp margin reduction, the OCC can preemptively activate Master Repurchase Agreements (enhanced by SR-OCC-2022-802) to force Non-Bank Liquidity Facility Participants (including pension funds and insurance companies) to purchase Clearing Member collateral from the OCC under the Master Repurchase Agreements in advance of a significant Clearing Member default “as an alternative to selling Clearing Member collateral under what may be stressed and volatile market conditions” [23 at 15] (i.e., conditions that may arise with a significant Clearing Member default large enough to pose a financial risk to the OCC and other Clearing Members). The OCC’s Master Repurchase Agreements further allows the OCC to repurchase the collateral on-demand [23 at pages 5 and 24 at pages 5-6] which allows the OCC to repurchase collateral during the stressed and volatile market conditions arising from the Clearing Member default; almost certainly at a discount. Thank you for considering my perspective on this matter. I trust that the SEC will carefully evaluate the implications of the proposed rule change and make decisions that uphold the principles of fairness and transparency in our financial markets. Sincerely, Tae yong Kim