Jan. 30, 2024
Dear Securities and Exchange Commission (SEC), I am grateful for the chance to express my concerns regarding the SR-OCC-2024-001 34-99393 rule proposal titled "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 When the Products It Clears and the Markets It Serves Experience High Volatility." As a retail investor, my primary focus is on the lack of transparency evident in the proposal, particularly in the redacted details in Exhibit 5 and supporting information (referenced in Exhibit 3). This lack of transparency obstructs public review and undermines meaningful feedback on the proposal, leading me to believe that the proposal should be rejected based on this deficiency alone. The importance of public review becomes evident when considering the OCC's attribution of its proposed rule's shortcomings to the failure of U.S. regulators to adopt prescriptive procyclicality controls. Given the potential for procyclicality to increase margin requirements during stressed market conditions, the proposed rule could expose the OCC to financial risks if a Clearing Member fails to meet obligations. As the OCC is designated as a Systemically Important Financial Market Utility (SIFMU), ensuring transparency is crucial for those dependent on the U.S. financial system. The proposed rule appears crafted to shield Clearing Members by rubber-stamping reductions in margin requirements, potentially escalating risks for the OCC. This approach raises concerns about systemic risk due to insufficient capitalization and over-leverage among Clearing Members, making a single failure a catalyst for a cascade effect. This places retail investors, among others, at a disadvantage in an unjust marketplace. The rule proposal's reliance on "idiosyncratic" and "global" control settings to mitigate risks, with over 200 instances in less than four years, raises questions about the effectiveness and fairness of such practices. By repeatedly reducing margin requirements, the proposal creates an uneven playing field for market participants, favoring Clearing Members while exposing others to the consequences of long-tail risks. To address these concerns, I propose the following modifications: Increase and enforce margin requirements commensurate with the risks associated with Clearing Member positions. Implement external auditing and supervision as a fourth line of defense, enhancing public reporting for greater transparency. Swap the order of loss allocation in the OCC's Loss Allocation waterfall to prioritize Clearing fund deposits of non-defaulting firms before OCC's own pre-funded financial resources. These modifications aim to establish a fair, transparent, and resilient market that benefits all investors. I appreciate your consideration of these comments and the opportunity to contribute to the review process. Sincerely, Tae-yong Kim A Concerned Retail Investor