Feb. 6, 2024
To the regulators at SEC. This proposed rule change by The Options Clearing Corporation (OCC) regarding its margin calculation system in volatile markets raises several critical concerns: Shielding risky positions: The focus on reducing margin requirements during volatility might protect clearing members from losses, but could incentivize riskier trades, potentially destabilizing the market. FRM Officer conflict: The rule grants significant discretion to the FRM Officer, raising concerns about potential conflicts of interest between protecting clearing members and safeguarding the market. Lack of transparency: Redacted materials hinder public understanding and informed comment on the proposal, creating an opaque and potentially unfair process. Evaluation of Risk Management Mechanism: Margin calls play a crucial role in maintaining market stability by mitigating excessive risk-taking. This proposal risks weakening this mechanism, potentially leading to: Unchecked risk exposure: Lower margin requirements could embolden risky behavior, amplifying potential losses and jeopardizing market stability. Imbalance of interests: Balancing risk management with clearing member interests is crucial, but the proposal seems to prioritize the latter at the expense of broader market stability. Specific Recommendations: Prioritize Clearing Fund: Reassess the loss allocation framework to prioritize contributions from clearing members over the OCC's pre-funded resources, promoting accountability and fairness. Independent review: Implement an independent review mechanism to ensure objective evaluation of control settings and mitigate potential conflicts within the OCC. Additional Safeguards and Modifications: Transparency: Provide non-confidential summaries of redacted materials and enhance public access to information to foster trust and informed participation. Oversight and public input: Strengthen oversight mechanisms and actively incorporate public input throughout the rulemaking process to ensure diverse perspectives are considered. Industry standards: Collaborate with stakeholders to establish industry-wide standards and best practices for margin requirements and risk management. Public stress testing: Make stress testing results publicly accessible to demonstrate the effectiveness of risk management measures and build confidence in the system. Conclusion: Fostering a financial environment built on fairness and transparency is paramount. My hope and belief is that the SEC will carefully consider these concerns and work towards a rule change that prioritizes market stability, protects investors, and upholds the highest ethical standards. Br Mikael Eriksson, a concerned investor