Feb. 7, 2024
I am writing to vehemently oppose the proposed rule change, SR-OCC-2024-001, titled "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." My primary concern lies in the lack of transparency surrounding this proposal, as evident from the extensive redaction of details, hindering meaningful public review and input. Transparency is crucial for a fair financial system, especially considering the potential impact on various market participants, notably retail investors. One glaring issue is the preferential treatment given to Clearing Members through repeated reductions in margin requirements, creating an unfair marketplace for retail investors. Retail investors, unlike Clearing Members, are forced to bear the full consequences of long-tail risks without the luxury of waived margin calls. The proposed rule change perpetuates an environment where Clearing Members, by repeatedly reducing their margin requirements, potentially become Too Big To Fail. This undermines the fundamental principles of capitalism by shielding these entities from the consequences of inadequate risk management. Furthermore, the proposed rule introduces a conflict of interest for the Financial Risk Management (FRM) Officer, whose role is ostensibly to protect OCC's interests. However, the proposal necessitates protecting Clearing Members to safeguard the OCC from financial risk, creating an inherent conflict that compromises the integrity of risk management. The rubber-stamping of margin requirement reductions for Clearing Members at risk of failure undermines the protection provided by margin collateral, exposing the OCC to financial risks. Rejecting this proposal is crucial to ensuring that the OCC enforces sufficient margin requirements, safeguarding its interests and minimizing the need for potential bailouts. In consideration of the outlined issues, I strongly recommend modifications to increase and enforce margin requirements in alignment with the risks associated with Clearing Member positions. Encouraging Clearing Members to account for stressed market conditions and long-tail risks is essential, preventing the incentivization of entities becoming Too Big To Fail. I urge you to carefully reconsider the potential consequences of this rule change and make amendments that address the concerns raised. A transparent and fair financial system is vital for the sustainability of our markets and the principles of capitalism. Sincerely, Michael J. Peterson