May 7, 2024
As a retail investor, I support the SEC's grounds for disapproval of SR-OCC-2024-001 (Release No. 34-100009) because of concerns regarding the lack of transparency in the OCC rule proposal. The proposal's redacted details hinder public review, and its reliance on margin reductions for Clearing Members increases financial risks for the OCC and the market. There is no such thing as too much transparency. We should be asking ourselves why entities like this would choose to artificially suppress the access to readily available, instantaneously transmittable information. Especially due to modern technology, there should be no information that the SEC or the public, does not have access to. The proposal, which blames U.S. regulators for not implementing prescriptive controls, exposes systemic risks and indicates a flawed approach to risk management. By repeatedly reducing margin requirements, the OCC fosters a "Too Big To Fail" mentality among Clearing Members, exacerbating systemic vulnerabilities. We cannot ask for reduced risk, whilst simultaneously enabling the same bad practices that increase risk. We need to ensure that we have effective preventative measures that help increase investor confidence and trust, and increase the reliability and strength of our markets. And we must ensure that our regulatory officials have the power, tools, and resources necessary to uphold these regulations and apply meaningful and lasting consequences that actually incentivize the right choices rather than allowing things to be looked at as "the cost of doing business." Moreover, the proposal's provisions regarding margin reductions and the FRM Officer's role create conflicts of interest and fail to prioritize market stability and investor protection. As the American public has seen time and time again, we do not need anymore room for conflicts of interest and corruption. Areas of concern: Lack of transparency: The significant redactions in the OCC's rule proposal hinder public review and comment, undermining transparency in the regulatory process. Systemic risk: Reducing margin requirements for clearing members could lead to cascading failures, posing a systemic risk to the financial system. Conflict of interest: The Financial Risk Management Officer's prioritization of Clearing Members' safety over the OCC's interests creates a conflict of interest, potentially compromising risk management. Shifting costs and moral hazards: The proposed rule change could shift costs of Clearing Member defaults to non-bank liquidity facilities, creating moral hazards and failing to protect investors' interests. Leveraging position as a single point of failure: The OCC's attempts to leverage its position as a single point of failure in the financial system to gain additional liquidity raise concerns about market stability and fairness. Proposed actions: Increasing and enforcing margin requirements: Clearing Members should face stricter margin requirements commensurate with the risks associated with their positions. Implementing external auditing and supervision: Enhancing external auditing and supervision for risk management would improve accountability and transparency. Revising the loss allocation waterfall: Prioritizing non-defaulting Clearing Members in the loss allocation waterfall would better protect their interests and promote market stability. Prompt suspension and liquidation: Clearing Members should be suspended and liquidated promptly when projected losses exceed margin deposits, preventing problems from escalating and threatening financial stability. Reducing single points of failure: Enhancing market resiliency and redundancy would reduce reliance on single points of failure, promoting a more robust and stable financial system. These measures are essential to safeguarding market integrity and investor interests, as well as the longevity of our American way of life for future generations to come. Thank you for carefully considering these concerns. Sincerely, Peyten G. Frakes Sent with Proton Mail secure email.