May 8, 2024
SEC, As a retail investor, I value the opportunity to share my views on the proposed rule SR-OCC-2024-001 as outlined in Release No 34-100009 and related documents. I am writing to express my support for the SEC’s contemplation of disapproval. My concerns focus on the notable lack of transparency in this proposal, as evident from extensive redactions in Exhibit 5 and related exhibits, which impede public scrutiny and informed commentary. Such opacity alone warrants rejection of the proposal. The OCC’s proposal lacks necessary transparency, particularly as it attributes the absence of stringent procyclicality controls to a lack of regulatory mandate from U.S. authorities. This points to a concerning reliance on U.S. regulators by an organization that should independently safeguard market integrity. The potential procyclicality of the OCC’s margin model, which may increase margin requirements in volatile conditions, could paradoxically increase systemic risk by straining liquidity among clearing members. This situation underlines the need for more rigid, transparent controls given the OCC’s role as a SIFMU, integral to financial system stability. The proposed rule seems primarily designed to alleviate financial pressures on clearing members by allowing for discretionary reduction of margin requirements. Such adjustments could undermine financial stability by insufficiently addressing the risks posed by high-volatility conditions. The rule notes past instances where the OCC intervened to lower margin requirements, supposedly on an “idiosyncratic” basis, yet the frequency of these interventions suggests a systemic pattern rather than isolated occurrences. Given that a single clearing member's failure could trigger broader systemic disruptions, the proposal to routinely reduce margin requirements appears misguided. It potentially enables risky behavior by major financial entities, effectively making them too big to fail. The role of the Financial Risk Management (FRM) Officer as described seems to rubber-stamp these reductions, which could compromise the robustness of market safeguards. Moreover, the OCC's rulemaking narrative underscores a conflict of interest that could jeopardize the overarching goal of market stability. Their proposed adjustments could lead to scenarios where losses have to be absorbed not just by the OCC but also by non-defaulting members, which is contrary to the principle of equitable risk sharing. The establishment of the OCC's Minimum Corporate Contribution shortly after significant market events like the meme-stock volatility suggests a reactionary rather than precautionary approach to financial risk management. The rule change could set a precedent where the OCC’s liquidity needs are met at the expense of broader market stability, leveraging its unique position as the sole clearing agency for standardized equity options. Such a stance risks prioritizing institutional survival over market integrity and investor protection. Given these points, the SEC’s inclination towards disapproval seems well-founded, aligning with its mandate to uphold fair and transparent markets. The rule as proposed does not adequately protect against the risks it purports to manage and introduces significant potential for moral hazard, where the costs of poor risk management by clearing members could be transferred to the broader financial ecosystem, including retail investors. In conclusion, the proposed rule change by the OCC should be reconsidered with a focus on enhancing transparency, ensuring rigorous and fair risk management practices, and maintaining the integrity and stability of the financial system. Thank you for considering my viewpoints on this matter. Sincerely, Anthony Koury