May 8, 2024
Dear SEC, The SEC is correct to have identified reasonable grounds for disapproval. The proposed rule by the Options Clearing Corporation (OCC) to adjust margin requirements during periods of high market volatility raises several serious concerns. The rule's heavy redactions make it difficult for the public to review and understand its implications. This lack of transparency undermines public trust and allows for potentially dangerous outcomes, including moral hazards that encourage excessive risk-taking by large financial institutions. The proposed rule essentially codifies a system where profits are privatized and risks are socialized, shifting the costs of failure to other entities like pension funds and insurance companies. This setup contradicts the principles of a fair and orderly market and must be rejected. Reasons for Disapproval Inadequate Safeguards: The proposed rule reduces margin requirements for at-risk clearing members, exposing the OCC and others to increased financial risk. Conflict of Interest: The Financial Risk Management (FRM) Officer's role as a "rubber stamp" for margin reductions prioritizes the safety of clearing members over the safety of the OCC. Moral Hazard: The rule encourages the notion that certain financial institutions are "Too Big to Fail," shifting the burden of risk to the public and creating an unfair advantage for clearing members. Transparency Issues: The heavy redactions in the rule proposal make it difficult for the public to assess its impact, undermining accountability. Potential Systemic Risks: Reducing margin requirements during times of high volatility could increase systemic risk and threaten the stability of the financial system. Recommendations for Improvement Increase Margin Requirements: The OCC should enforce margin requirements that reflect the risks associated with clearing member positions, discouraging excessive risk-taking. External Auditing: A "fourth line of defense" with external audits could ensure that risks are properly managed and reported. Reorder Loss Allocation: Swapping the order of loss allocation to encourage clearing members to police each other and promote greater accountability. Immediate Suspension for Risky Members: Clear rules for immediate suspension and liquidation of at-risk clearing members could help prevent cascading failures. Reduce Single Points of Failure: Encourage competition among clearing agencies to avoid reliance on a single entity, which can lead to "Too Big to Fail" situations. Given these concerns and recommendations, the SEC should disapprove the proposed rule to maintain a fair and stable financial market. Sincerely, -A Retail Investor and American Citizen