Jan. 30, 2024
I am compelled to express my gravest concerns regarding the Securities and Exchange Commission's release number 34-99393, SR-OCC-2024-001, entitled "Proposed Rule Change by The Options Clearing Corporation to Adjust Certain Parameters in Its Proprietary Margin Calculation System During High Volatility Periods," as detailed in the Federal Register. My position as a retail investor imbues me with a profound sense of duty to address what I perceive as critical flaws within the proposed rule that threaten the very fabric of our financial ecosystem. The proposal's glaring lack of transparency, evidenced by extensive redactions in critical documents such as Exhibit 5 and its supporting information (notably Exhibit 3), fundamentally obstructs any possibility of comprehensive public scrutiny. This opacity not only erodes the integrity of the proposal but also sets a dangerous precedent for the governance of financial systems that, by necessity, must prioritize transparency to ensure trust and stability. The failure to allow for a thorough public review is, in itself, a significant enough transgression to merit the outright rejection of this proposal. Moreover, the document's attribution of the absence of stringent procyclicality controls to a supposed oversight by U.S. regulators exposes a disconcerting abdication of responsibility by the OCC. As a self-regulatory organization and a critical node in the financial infrastructure deemed a Systemically Important Financial Market Utility (SIFMU), the OCC's attempt to shift blame rather than adopting proactive measures for risk mitigation reveals a troubling vulnerability in our financial defense mechanisms. This stance not only diminishes the OCC's accountability but also highlights a systemic risk that could potentially unravel the stability of the financial markets during periods of distress. The essence of the rule change, which appears to primarily serve the interests of Clearing Members by facilitating the reduction of margin requirements in their favor, inadvertently magnifies the risk profile of the OCC itself. Employing the STANS system to adjust margin calculations introduces a procyclical dynamic that could, in times of market stress, precipitate a liquidity crisis among Clearing Members. This, in turn, could trigger a domino effect, leading to a catastrophic cascade of failures within the system. The practice of enacting over 200 "idiosyncratic" adjustments to margin requirements within a mere four years starkly illustrates a systemic reliance on mechanisms that, far from being exceptional, have become a routine escape from necessary financial discipline. This not only skews the market against retail investors and other participants who bear the brunt of these long-tail risks but also undermines the market's integrity by institutionalizing a bias towards the interests of a select few. The proposed rule change embodies a profound conflict of interest within the OCC's Financial Risk Management framework, casting a long shadow over its capacity to manage market risks impartially. The role of the FRM Officer, ostensibly to protect the OCC's interests, is compromised by the inherent necessity to prevent Clearing Member failures, thereby diluting the efficacy of margin collateral as a bulwark against market volatility. In light of these considerations, the rule proposal before us not only demands a thorough reevaluation but calls into question the foundational principles upon which our financial markets are built. It is incumbent upon us to demand revisions that ensure increased and rigorously enforced margin requirements, integrate robust external auditing mechanisms, and reconfigure the OCC's loss allocation strategies to fortify the financial system against systemic risks. Only through such decisive actions can we aspire to a financial framework that is truly fair, transparent, and resilient—a bulwark against the caprices of market volatility and a safeguard for the financial wellbeing of all stakeholders. I implore a reconsideration of this rule proposal, not merely as a matter of regulatory compliance, but as a crucial step towards safeguarding the sanctity of our financial system against the encroaching shadows of opacity and systemic vulnerability. Thank you for the opportunity to comment as all investors benefit from a fair, transparent, and resilient market. [1] https://www.federalregister.gov/d/2024-01386/p-11 [2] https://www.federalregister.gov/d/2024-01386/p-8 [3] https://www.federalregister.gov/d/2024-01386/p-7 [4] https://www.federalregister.gov/d/2024-01386/p-50 [5] https://www.federalregister.gov/d/2024-01386/p-51 [6] https://en.wikipedia.org/wiki/Long_tail [7] https://www.federalregister.gov/d/2024-01386/p-45 [8] https://www.federalregister.gov/d/2024-01386/p-79 [9] https://www.theocc.com/getmedia/e8792e3c-8802-4f5d-bef2-ada408ed1d96/default-rules-and-procedures.pdf, which is publicly available and linked to from the OCC’s web page on Default Rules & Procedures at https://www.theocc.com/risk-management/default-rules-and-procedures [10] https://www.federalregister.gov/documents/2021/04/12/2021-07454/self-regulatory-organizations-the-options-clearing-corporation-notice-of-no-objection-to-advance [11] https://www.federalregister.gov/d/2024-01386/p-16 [12] https://www.bis.org/fsi/fsipapers11.pdf With the utmost gravity, Paul Sawyer A Concerned Retail Investor