May 14, 2024
Dear SEC, As a retail investor, I appreciate the opportunity to comment on SR-OCC-2024-001 34-99393, "Proposed Rule Change by The Options Clearing Corporation Concerning Its Process for Adjusting Certain Parameters in Its Proprietary System for Calculating Margin Requirements During Periods of High Volatility." I support the SEC’s grounds for disapproval of this proposal. Here’s why: The lack of transparency is a significant concern. The proposal details in Exhibit 5 are heavily redacted, making it impossible for the public to review and provide meaningful feedback. Without full transparency, this proposal should be rejected outright. The OCC’s rule blames U.S. regulators for not requiring prescriptive procyclicality controls. This is like blaming the referee for your team’s poor performance. The OCC admits that during market stress, increased margin requirements can strain Clearing Members' liquidity, potentially exposing the OCC to financial risks if a member defaults. As a systemically important financial market utility (SIFMU), the OCC should prioritize transparency and accountability. This proposal seems designed to protect Clearing Members at the expense of the broader market. It proposes reducing margin requirements during high volatility, which increases systemic risk. Imagine if we let drivers speed through school zones just because they’re late. It’s reckless and endangers everyone. Similarly, reducing margin requirements for at-risk Clearing Members is asking for trouble. The OCC has used "idiosyncratic" control settings over 200 times in less than four years, which doesn’t sound "idiosyncratic" at all. This frequent adjustment to avoid margin calls for Clearing Members undermines market stability and fairness. It’s like letting some students skip exams while others must take them – it’s unfair and creates an uneven playing field. Moreover, this proposal codifies a conflict of interest for the Financial Risk Management (FRM) Officer, whose role should be to protect the OCC’s interests. However, by reducing margin requirements for at-risk Clearing Members, the FRM Officer ends up protecting these members instead, which is counterproductive. It’s like hiring a lifeguard who prioritizes saving only their friends, leaving everyone else to fend for themselves. The OCC’s rule proposal attempts to mitigate systemic risk by reducing margin requirements using "idiosyncratic" and "global" control settings. This is akin to putting a band-aid on a gaping wound. A systemic risk exists because Clearing Members are insufficiently capitalized and/or over-leveraged. A single Clearing Member failure could cause a cascade of failures, triggering a systemic financial crisis. The OCC’s reluctance to liquidate Clearing Member positions during stressed market conditions is another reason to reject this proposal. Instead of delaying the inevitable, the OCC should increase margin requirements to enhance protection from market risks associated with Clearing Member positions. In light of these issues, the SEC is correct to have identified reasonable grounds for disapproval. This Proposed Rule Change is NOT consistent with the Exchange Act’s requirements for safeguarding securities, protecting investors, and maintaining market integrity. The proposal prioritizes the safety of Clearing Members over the clearing agency and public interest, increases systemic risk, and fails to provide clear and transparent governance. Thank you for considering my comments. All investors deserve a fair, transparent, and resilient market. Sincerely, Michael Robinson A Concerned Retail Investor Michael Robinson Cell: 781.267.0377