May 5, 2024
Summary of Concerns Regarding SR-OCC-2024-001 As a retail investor, I appreciate the opportunity to comment on SR-OCC-2024-001, concerning the OCC's process for adjusting certain margin calculation parameters during high-volatility periods. I support the SEC's grounds for disapproval and have significant concerns about the OCC's proposed rule, which could affect market stability and transparency. Lack of Transparency One of the major issues with the proposed rule is the lack of transparency. Much of the information in the proposal is heavily redacted, preventing the public from conducting a meaningful review. This lack of transparency raises concerns about the OCC's governance and its ability to protect investors. Risk of Systemic Failure The proposal aims to protect clearing members from financial risks by reducing margin requirements during periods of high volatility. However, this approach could increase systemic risk. An increase in margin requirements is often a signal of high-risk environments. Reducing these requirements could stress the financial system and lead to a cascade of defaults, undermining market stability. Favoritism and Moral Hazard The OCC's rule proposal appears to favor clearing members over other investors, creating a moral hazard. It proposes measures that allow clearing members to avoid margin calls through "idiosyncratic" and "global" control settings, potentially shifting the risk to non-bank liquidity facilities, pension funds, and insurance companies. This could result in a "too big to fail" scenario, where the OCC is at risk of financial instability due to poorly managed risks. Conflicts of Interest The proposed rule creates a conflict of interest for the OCC's Financial Risk Management (FRM) Officer, who might be compelled to approve margin reductions to avoid defaults. This undermines the OCC's role in ensuring market stability and exposes it to higher financial risks. Additionally, the FRM Officer's discretion to reduce margin requirements can lead to inconsistent enforcement, further destabilizing the market. Recommendations for the SEC Given these concerns, I recommend the SEC take the following actions: 1. **Reject the proposed rule**: The proposal's approach to margin requirements poses significant risks to market stability and investor protection. 2. **Increase and enforce margin requirements**: This would encourage clearing members to manage their portfolios responsibly, reducing the risk of systemic failures. 3. **Implement external auditing and supervision**: A "fourth line of defense" with enhanced public reporting could improve transparency and accountability. 4. **Change the loss allocation waterfall**: Shifting the loss allocation to encourage clearing members to police each other would increase market stability. 5. **Encourage market redundancy**: Reducing "single points of failure" and promoting competition among clearing agencies would increase market resilience. Conclusion The SEC should uphold its mission to maintain fair, orderly, and efficient markets. The proposed rule undermines these principles by prioritizing clearing members over investor protection and increasing systemic risk. I urge the SEC to reject this proposal and take steps to ensure the safety and stability of our financial system. Thank you for the opportunity to comment and for considering my input on this critical matter. Sincerely, A concerned retail investor. Sent from my iPhone