Feb. 3, 2024
Dear Securities and Exchange Commission, I am concerned about the proposed rule change SR-OCC-2024-001, as outlined in File No. 34-99393 from the Options Clearing Corporation (OCC) to adjust parameters for calculating margin requirements during periods of high market volatility. I believe that this rule change, rather than supporting market transparency for retail investors, could have adverse effects and potentially hinder their ability to make informed investment decisions. Market transparency is of utmost importance for retail investors to make well-informed choices. However, upon reviewing the details of the proposed rule change, I am concerned that it may have unintended consequences that could undermine this transparency. It is essential that any modifications to existing rules or the introduction of new ones take into account the impact on retail investors, who form a significant portion of market participants. The proposed rule, in its current form, appears to inadvertently shield risky financial positions from the normal risk management mechanism of margin calls during periods of high market volatility. Typically, margin calls serve as a protective measure, requiring investors to add funds or securities to cover potential losses when the value of their positions falls below a certain threshold. By restricting or preventing margin calls during turbulent market conditions, the proposal may allow investors with imprudent risks to avoid necessary adjustments. This lack of a risk management mechanism could lead to unchecked growth in risky positions, potentially contributing to larger losses and posing concerns for long-term market stability. While acknowledging OCC's intent to mitigate risks during high volatility periods, it is imperative to ensure that risk management measures do not inadvertently shelter bad bets. I urge the SEC to carefully consider the potential ramifications of SR-OCC-2024-001 on retail investors and the overall market transparency. It is crucial to ensure that any changes made to the regulatory framework prioritize the interests of individual investors and foster an environment where they can confidently participate in the market. Fundamentally, these rules create an unfair marketplace for other market participants, including retail investors, who are forced to face the consequences of long-tail risks while the OCC repeatedly waives margin calls for Clearing Members by repeatedly reducing their margin requirements. For this reason, this rule proposal should be rejected and Clearing Members should be subject to strictly defined margin requirements as other investors are. Furthermore, I recommend that the SEC engage in a more extensive and inclusive public consultation process to gather input from various stakeholders, including retail investors, industry professionals, and advocacy groups. This will provide a more comprehensive understanding of the potential consequences of the proposed rule change and help in refining the regulations to better serve the interests of all market participants. In light of the issues outlined above, please consider the following modifications: Increase and enforce margin requirements commensurate with risks associated with Clearing Member positions instead of reducing margin requirements. Clearing Members should be encouraged to position their portfolios to account for stressed market conditions and long-tail risks. This rule proposal currently encourages Clearing Members to become Too Big To Fail in order to pressure the OCC with excessive risk and leverage into implementing idiosyncratic controls more often to privatize profits and socialize losses. External auditing and supervision as a “fourth line of defense” similar to that described in The “four lines of defence model” for financial institutions [1] with enhanced public reporting to ensure that risks are identified and managed before they become systemically significant. Swap “3. OCC’s own pre-funded financial resources” and “4. Clearing fund deposits of non-defaulting firms” for the OCC’s Loss Allocation waterfall so that Clearing fund deposits of non-defaulting firms are allocated losses before OCC’s own pre-funded financial resources and the EDCP Unvested Balance. Changing the order of loss allocation would encourage Clearing Members to police each other with each Clearing Member ensuring other Clearing Members take appropriate risk management measures as their Clearing Fund deposits are at risk after the deposits of a suspended firm are exhausted. This would also increase protection to the OCC, a SIFMU, by allocating losses to the clearing corporation after Clearing Member deposits are exhausted. By extension, the public would benefit from lessening the risk of needing to bail out a systemically important clearing agency. Thank you for the opportunity to comment as all investors benefit from a fair, transparent, and resilient market. Thank you for your attention to this matter. I trust that the SEC will carefully consider the concerns raised by various stakeholders and make decisions that promote market transparency and protect the interests of retail investors. [1] https://www.bis.org/fsi/fsipapers11.pdf A Concerned Investor, Jeremy Singler Sent with Proton Mail secure email.