Jan. 31, 2024
Dear Securities and Exchange Commission, I am writing to express my deep concerns regarding the proposed rule change by the Options Clearing Corporation (OCC) to adjust parameters for calculating margin requirements during periods of heightened market volatility. As a long-term investor committed to the stability and fairness of our financial markets, I find it imperative to share my apprehensions and urge for a thorough reconsideration of this proposal. The proposed rule, in its current form, seems to inadvertently undermine the essential risk management mechanism of margin calls in volatile market conditions. Margin calls traditionally act as a safeguard, requiring investors to provide additional funds or securities to cover potential losses. By limiting or preventing these calls during market turbulence, the rule may inadvertently enable investors holding risky positions to bypass necessary adjustments, potentially leading to unchecked growth in such positions and contributing to larger losses in the long run. This approach not only contradicts the fundamental principles of prudent risk management but also poses significant threats to the long-term stability of the market. Another area of concern is the role and responsibilities assigned to the Financial Risk Management (FRM) Officer under the proposed rule. Given that the FRM Officer's primary duty is to protect the interests of the OCC, there exists an inherent conflict of interest. This conflict may lead to decisions that prioritize OCC's interests over the broader well-being of the market. The proposal itself notes scenarios where risk factor coverage under idiosyncratic control settings diverges significantly from regular settings, thereby highlighting the need for increased scrutiny and transparency. The lack of transparency in the redacted materials accompanying the proposal is also troubling. Transparency is key to fostering trust and confidence among investors and the general public. The obscured nature of these materials hinders a comprehensive understanding and assessment of the proposal's impact, undermining the opportunity for informed public discourse and engagement. In light of these concerns, I strongly advocate for a re-evaluation of the OCC's loss allocation framework, particularly regarding the positioning of Clearing Fund deposits of non-defaulting firms. Ensuring these deposits are prioritized over the OCC's pre-funded resources could promote a fairer, more resilient financial system. To address these issues, I propose the following: Implementing an independent review mechanism to assess the impact of control settings on both OCC's interests and the broader market. Enhancing transparency by providing accessible summaries of redacted materials. Prioritizing transparent reporting and decision-making in risk management practices. Strengthening regulatory oversight and involving public input through consultations and hearings. Facilitating public access to stress testing results and establishing an external oversight committee of industry experts. These measures are critical to ensure transparency, accountability, and robust risk management practices in our financial markets. I trust that the SEC will give due consideration to these concerns during the rulemaking process and strive for a regulatory framework that upholds market integrity, mitigates risks effectively, and aligns with the broader interests of all market participants. Thank you for your attention to this matter. I look forward to seeing positive developments in this regard. Sincerely, Riccardo Ambrogi.