Jan. 29, 2024
Subject: Feedback on SR-OCC-2024-001 34-99393 Dear Sir/Madam, I am writing to express my views on the proposed rule change SR-OCC-2024-001 34-99393, titled “Proposed Rule Change by The Options Clearing Corporation Regarding Its Margin Requirement Calculation Process in High Volatility Scenarios” (referenced in the Federal Register). As an individual investor, I have significant reservations about this proposal and believe it should not be approved. My primary concern centers around the evident opacity within our financial framework, as demonstrated by this particular proposal. The critical elements of this proposal, especially noted in Exhibit 5 and supported by Exhibit 3, are largely obscured, hindering any meaningful public scrutiny and commentary. This lack of full disclosure alone is sufficient grounds for the proposal's dismissal. The importance of public scrutiny is underscored by the OCC’s own criticism of U.S. regulatory bodies for their failure to enforce stringent controls on procyclicality. The potential for margin increases during market stress raises concerns about liquidity pressures on Clearing Members and subsequent financial risks to the OCC, which in turn could destabilize the broader market. This rule change seems tailored to mitigate financial risks for Clearing Members involved in high-risk trades by facilitating margin requirement reductions. This approach increases the OCC’s own risk exposure. The OCC employs a complex system, STANS, to calculate individual margin requirements, which can yield results tied to market volatility. Reducing margin requirements under these conditions could lead to significant liquidity challenges and potential defaults among Clearing Members. I also observe an inherent market inequity in this proposal. It recurrently pardons margin calls for Clearing Members, which contrasts sharply with the risks that other market participants, like retail investors, must navigate. Moreover, this proposal inadvertently positions inadequately risk-managed Clearing Members as entities too significant to fail. The natural market mechanism of failure is vital to discourage excessive risk-taking and inadequate capitalization. This proposal's stance undermines this principle. The role of the Financial Risk Management Officer is also problematic within this framework. Their responsibility to protect the OCC seems compromised, given the necessity to shield failing Clearing Members to safeguard the OCC itself. Furthermore, the logic underpinning the proposal is flawed. It proposes reducing margin requirements for at-risk Clearing Members, which paradoxically weakens the OCC’s defense against market risks. To remedy these issues, I propose the following alterations to the rule: Stricter and enforced margin requirements reflecting the risks associated with Clearing Member positions. Introduction of external audits and supervision as an additional oversight mechanism. Revision of the loss allocation sequence in the OCC’s structure to prioritize the losses of non-defaulting firms' clearing fund deposits over the OCC’s own resources. In conclusion, I urge a reconsideration of this proposal in light of the outlined concerns. A fair, transparent, and resilient financial market is in the best interest of all investors. Thank you for considering my viewpoint on this matter. Sincerely, A concerned household investor