Feb. 7, 2024
February 6, 2024 Dear Sir or Madam, I write to you with profound concerns regarding SR-OCC-2024-001 34-99393, a matter of utmost significance that addresses the "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" (PDF, Federal Register). As a retail investor deeply vested in the integrity and stability of our financial system, I find myself compelled to express apprehension regarding the proposed rule change put forth by the Options Clearing Corporation (OCC). This proposed alteration, aimed at adjusting certain parameters within the OCC's margin requirements calculation system during periods of heightened market volatility, warrants careful scrutiny and consideration due to its potential ramifications on market fairness, transparency, and systemic risk. Foremost among my concerns is the glaring lack of transparency permeating this rule proposal and similar regulatory initiatives. Upon review, it becomes evident that critical sections of the proposal, notably Exhibit 5 and supporting documentation such as Exhibit 3, are marred by extensive redactions. These redactions severely impede public comprehension and evaluation of the proposal's intricacies, depriving stakeholders, including retail investors like myself, of the ability to make informed assessments and offer substantive feedback. Moreover, the proposed rule attributes the need for adjustments in margin requirements during volatile market conditions to the absence of prescriptive procyclicality controls mandated by U.S. regulators. While acknowledging the potential risks posed by procyclicality induced margin increases, it is disconcerting that the OCC's solution seemingly places the onus on mitigating these risks squarely on the shoulders of clearing members. This approach, while ostensibly aimed at protecting clearing members from undue financial strain, raises red flags regarding the OCC's broader risk management strategies and its commitment to upholding market stability. Given the OCC's designation as a Systemically Important Financial Market Utility (SIFMU), any measures undertaken by the organization must be underpinned by a steadfast commitment to transparency, accountability, and risk mitigation. Failure to adhere to these principles not only undermines market integrity but also poses systemic risks that could reverberate throughout the U.S. financial landscape, potentially precipitating widespread instability and disruption. Furthermore, the proposed rule's apparent emphasis on reducing margin requirements for clearing members, under the guise of shielding them from costly trades, introduces a troubling dynamic fraught with potential consequences. In a climate where clearing members may already be operating on thin margins and leveraging their positions, the indiscriminate reduction of margin requirements poses a significant systemic risk. The potential fallout from a single clearing member's failure, exacerbated by inadequate risk management practices during periods of heightened volatility, could catalyze a domino effect leading to a systemic financial crisis of unprecedented proportions. Of equal concern is the conflict of interest inherent in the proposed rule's treatment of the Financial Risk Management (FRM) Officer's role. While ostensibly tasked with safeguarding the OCC's interests, the FRM Officer's involvement in protecting clearing members from financial risks that could imperil the OCC's stability introduces a troubling conundrum. This conflict undermines the fundamental purpose of margin collateralization, which is intended to mitigate market risks associated with clearing member positions, not shield them from the consequences of their actions at the expense of broader market stability. In light of these profound concerns, I implore you to consider the following recommendations for modifications to the proposed rule: 1. **Enhanced Transparency:** Institute measures to enhance transparency within the regulatory process, including the removal of redactions from critical sections of the proposal and the provision of comprehensive documentation for public review and scrutiny. 2. **Strengthened Risk Management:** Implement robust risk management protocols that prioritize the identification, assessment, and mitigation of systemic risks posed by procyclicality induced margin adjustments, thereby safeguarding market stability and integrity. 3. **Mitigation of Conflicts of Interest:** Address potential conflicts of interest inherent in the proposed rule's treatment of the FRM Officer's role by delineating clear boundaries between the protection of clearing members' interests and the preservation of the OCC's stability and integrity. In conclusion, the integrity and resilience of our financial markets hinge upon the implementation of regulatory measures that uphold transparency, fairness, and systemic stability. As a concerned retail investor deeply vested in the well-being of our financial ecosystem, I urge you to heed these concerns and recommendations in your deliberations regarding SR-OCC-2024-001 34-99393. Sincerely, A Concerned Retail Investor Weary of Market Manipulation