May 17, 2024
Dear Securities and Exchange Commission, Thank you for the opportunity to comment on SR-OCC-2024-001, the proposed rule change by the Options Clearing Corporation (OCC) concerning margin requirements during high market volatility. As a long-term retail investor, I have several concerns about this proposal and do not support its approval. The proposal lacks transparency, with significant portions redacted, preventing meaningful public review and comment. Public review is crucial, especially since the OCC blames U.S. regulators for not requiring prescriptive procyclicality controls, which could increase risks during market stress. This lack of transparency diminishes trust in the financial system and hinders informed public discourse. The rule change appears designed to protect Clearing Members from the consequences of risky trades by reducing margin requirements, thereby increasing systemic risk. Clearing Members are often insufficiently capitalized and over-leveraged, so reducing margin requirements could lead to a cascade of failures among them, potentially causing a systemic financial crisis. This approach creates an unfair marketplace for other participants, including retail investors. The proposal also creates an inherent conflict of interest for the Financial Risk Management (FRM) Officer, who is tasked with protecting the OCC but may end up shielding Clearing Members from necessary margin calls. This undermines risk management and increases financial risks for the OCC and the broader market. To address these issues, I recommend the following modifications: Increase and enforce margin requirements based on the risks associated with Clearing Member positions, encouraging proper risk management and discouraging excessive leverage. Implement external auditing and supervision as a fourth line of defense, with enhanced public reporting to manage systemic risks before they become significant. Adjust the OCC's Loss Allocation waterfall to prioritize Clearing Fund deposits of non-defaulting firms over the OCC's pre-funded resources, encouraging better risk management among Clearing Members and protecting the OCC. Additionally, consider establishing an independent review mechanism to assess the impact of control settings on both the OCC and the broader market, enhancing transparency by providing non-confidential summaries of redacted materials, and strengthening oversight mechanisms with a more active regulatory role. Incorporating public input through consultations and hearings, establishing industry-wide standards, and making stress testing results publicly accessible will further enhance market integrity. These measures aim to fortify oversight, enhance transparency, and uphold accountability, ensuring the integrity and fairness of the financial markets. Thank you for considering these concerns to ensure a fair, transparent, and resilient market. Sincerely A Concerned Retail Investor