May 15, 2024
Dear SEC, Re: File Number SR-OCC-2024-001 - Proposed Rule Change by Options Clearing Corporation (OCC) Concerning Margin Requirements I am writing to express my concerns regarding the proposed rule change by the Options Clearing Corporation (OCC) to modify its Margin Policy and procedures for calculating margin requirements during periods of high market volatility. While I understand the need for measures to mitigate procyclicality and maintain financial stability, the proposed changes raise several red flags that could potentially undermine the very purpose they intend to serve. Protecting Bad Bets: The proposal appears to be designed to shield certain market participants from the consequences of their own risky bets. By preventing margin calls from occurring and allowing these positions to grow unchecked, the OCC risks creating an even larger systemic risk down the line, one that may become unmanageable when "putting the thumb on the scale" is no longer sufficient. Conflict of Interest: The proposed policy grants significant discretionary power to the Financial Risk Management (FRM) Officer, who has the authority to maintain regular control settings in exceptional circumstances or adjust the duration of idiosyncratic control settings based on unforeseen situations. This concentration of power raises concerns about potential conflicts of interest, as the FRM Officer's incentives may be aligned with protecting the OCC's interests rather than mitigating broader market risks. Lack of Transparency: The fact that all pertinent materials related to this proposal are redacted raises serious transparency issues. Without access to these crucial details, it becomes impossible for stakeholders and the public to comprehensively evaluate the effectiveness and potential consequences of the proposed rule change. Acknowledging Shortcomings: The OCC's own statement acknowledges that "Only one risk factor had 2-day expected shortfall short coverage under 99% while on idiosyncratic control settings that would have been above 99% on regular control settings, driven by one additional 2-day expected shortfall short exceedance." This admission highlights the potential risks associated with the proposed approach, as it may fail to adequately capture and manage market risks. While the OCC's intention to address procyclicality is understandable, the proposed rule change appears to prioritize the protection of specific market participants over the broader stability of the financial system. By introducing opaque procedures and granting excessive discretionary powers, the OCC risks creating moral hazard and undermining the integrity of the margin system. I urge the SEC to carefully consider these concerns and ensure that any changes to the OCC's Margin Policy prioritize transparency, accountability, and the overall health of the markets. Protecting individual actors at the expense of systemic stability could have far-reaching consequences for investors and the broader economy. Thank you for your consideration of these important matters. Sincerely, Anthony Langford