Jan. 24, 2024
* This rule seems designed to protect bad bets. * By not allowing margin calls to occur, it allows these bad bets to grow larger and larger creating potentially even bigger concerns for when putting the thumb on the scale just won't work. * The FRM Officer seems to have an inherent conflict of interest--they want to protect OCC and its interest over the wider risk to the overall market these bad bets represent. * There own proposal calls out "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." * All the pertinent materials to further evaluate this rule are REDACTED--how can anyone truly judge if this proposal is effective or not? In an exampl >Aggregate margin requirements calculated using the global control settings were $84.2 billion, compared to $103.2 billion had OCC used regular control settings. How this is proposed to change: >To monitor for volatility experienced by individual risk factors that may merit implementing idiosyncratic control settings, the Margin Policy would require FRM to monitor securities against thresholds for idiosyncratic price moves that would be established in its procedures (“Idiosyncratic Thresholds”). The Idiosyncratic Thresholds may employ a tiered structure that takes into account the type and magnitude of OCC’s risk exposure to the security (e.g., whether it is an optionable security with open interest, accepted as collateral, and/or an Eligible Security under OCC’s Stock Loan Programs), the value of the security, the magnitude of the price move, and the coverage rates. With an 'FRM Officer' empowered to decide as they see fit: >With respect to breaches of the Idiosyncratic Thresholds, the Margin Policy would provide that FRM maintains authority to implement idiosyncratic control settings for an individual risk factor. Implementation of such idiosyncratic high volatility control settings would require approval of an FRM Officer. > >However, the FRM Officer would retain authority under the Margin Policy to maintain regular control settings in the case of exceptional circumstances, including, for example, due to implementation of global control settings, operational issues such as production processing problems, or edge cases for which the FRM Officer determines that further refinement of the Idiosyncratic Thresholds is warranted. > >The Margin Policy would also provide for an FRM Officer’s authority to approve idiosyncratic control settings based on additional considerations such as market moves, expected shortfall risk contribution, and changes in Clearing Member positions. > >For example, an FRM Officer may use this authority to implement hypothetical scenarios for securities in cases where the securities fell just short of one element in the Idiosyncratic Thresholds’ tiered structure, but where breaches of other elements weighed in favor of applying idiosyncratic control settings in the FRM Officer’s judgment. Thx you for you time sincerely apostol cervanaku