Feb. 20, 2024
Thank you for allowing me to comment on Rule SR-OCC-2024-001 34-99393. I will explain my thoughts as well as I can with the information I have. I am upset we are asked what we think of a rule when there are 205 pages of redacted data that could shape my views and reaction. The lack of transparency in our financial system is inexcusable as evidenced by this rule proposal. This is only one of MANY examples! Without the opportunity for a full public review, this proposal should be rejected on this basis alone. But, there are also other reasons that support a Rejection of this proposal. Let me give you an example: Did you know if you are developing a new housing subdivision, you need to create a system that will hold enough water/drain-off to meet a set number of gallons of water based on a 100 year flood table? This increases the expense of the infrastructure of developing that subdivision, but it protects those who buy homes in that subdivision. So, it also should be with our money! There are margin requirements in place for that ‘100 year flood.’ The calculation of Margin Requirements should INCLUDE (not preclude) high market volatility. And, what if the ‘100 year flood’ is man-made and not nature-made? What if that 100 year flood could have been avoided with better management and less risk? What if the high-volatility stems from naked short selling, swaps, derivatives, tokens, etc…? How can you as Regulators create a safety net that covers the risky bets? Strict Margin Requirements, Strong Enforcement, and DOJ and RICO involvement for those who don’t conform. Please don’t weaken their margin requirements or give them yet another tool so they can further manipulate the markets. It’s time they are forced to behave. This may be simplifying a difficult situation, but if our market weren’t structured the way it is, full transparency was real, enforcement was like an iron fist, and claw-backs and jail time were an example for all, would we be in this situation? Let’s not just put a band-aid on this, let’s FIX IT!!! This proposal does not fix anything in our markets. It only gives yet another layer of protection to banks, hedge funds, and the mess we will collectively call ‘Wall Street.’ And while I have your attention: For 205 redacted pages, I think it is realistic to assume if the details provided by the OCC didn’t negatively affect them and/or our market, they/you would have published their whole report. I can only conclude their report includes data to support THEIR dire need for this rule and twists the facts about the antics of banks and Wall Street past and present. I’m sure it includes rhetoric that spins their abuse of our markets into the need for relaxing the thresholds to protect ‘us.’ I expect those redacted pages have facts that would terrify the majority of us to the point of withdrawing our money at a record pace. I am praying YOU review all 205 pages of redacted material while constantly questioning “how they got in the position they are in to begin with.” At some point, we MUST have reckoning and accountability. If you think for one moment you can grant them their wish ‘to save the markets’ and expect them to do things differently next time, you are only giving them yet another get-out-of-jail-free card. The insanity MUST STOP! This rule needs to be rejected, claw-back rules need to be put in place and ENFORCEMENT of all rules needs to happen to fix what is broken in our markets. Market Makers need to go. They are an unnecessary middle man that sucks equity out of the markets because the way they ‘create liquidity’ and ‘decide where stocks should be priced’ totally annihilates any true price discovery. Using ‘dark pools’ for 90% of all buy transactions should be outlawed. Dark pools shouldn’t even be legal to begin with, in my opinion. Let the whales buy in small batches. I could go on and on with examples of what’s broken, but I am hopeful you are working on fixing it. I digress….let me tell you why this proposal should be a hard NO! The OCC's proposed rule change (SR-OCC-2024-001), aimed at codifying the calculation methodology for margin thresholds, shouldn’t be allowed because it encourages shielding risky financial positions during periods of high market volatility. By allowing them to adjust margin requirements based on market conditions, you restrict or reduce the normal risk management mechanism of margin calls, allowing investors with risky bets to avoid necessary adjustments. This lack of an effective risk management mechanism, coupled with the OCC's history of implementing frequent "idiosyncratic" and "global" control settings, encourages risky positions, contributing to larger losses and posing risks to long-term market stability. One red flag is the role of the Financial Risk Management (FRM) Officer. The proposal places significant responsibility on this individual, whose primary duty is to safeguard OCC's interests. This creates an inherent conflict of interest, as protecting OCC’s interests may not always align with the broader market’s well-being. The proposal itself acknowledges a scenario where risk factor coverage differs significantly under idiosyncratic control settings compared to regular control settings, emphasizing the need for scrutiny. 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. As outlined in the proposal, the current structure places Clearing Fund deposits of non-defaulting firms as the fourth layer of defense in the event of market stress, following the OCC's own pre-funded financial resources. This arrangement implies that the OCC anticipates losses to exhaust the first three layers, including its pre-funded resources, before reaching non-defaulting Clearing Members' contributions. To address this potential disparity and promote fairness, I propose that Clearing Fund deposits of non-defaulting firms be prioritized over the OCC's pre-funded resources. This adjustment ensures that Clearing Members' contributions play a more immediate and prominent role in covering losses, aligning with principles of equity and transparency in the OCC's risk management structure. Such a modification would provide additional protection to non-defaulting Clearing Members and contribute to a more balanced and resilient financial ecosystem. I propose additional safeguards and modifications to the rule. One example includes, considering an independent review mechanism to assess the impact of control settings on both OCC's interests and the broader market. This measure is essential to reinforce transparency and accountability within the regulatory framework, ensuring an unbiased evaluation of risk management practices. By involving external experts, this safeguard not only mitigates potential conflicts of interest but also fosters public trust and confidence in the regulatory process. It aligns with the broader goal of upholding market integrity, providing a robust mechanism for continuous improvement and adaptability in response to evolving market dynamics. Additionally, enhancing transparency by providing non-confidential summaries of redacted materials would enable a more informed public discourse and promote a more inclusive decision-making process. As the OCC is classified as a self-regulatory organization, the OCC blaming U.S. regulators for not requiring the SRO adopt regulations to protect itself makes it apparent that the public cannot fully rely upon the SRO and/or the U.S. regulators to safeguard our financial markets. I recommend the following to solve the issues of the OCC: Prioritizing enhanced transparency requirements. Enforcing increased transparency in reporting and decision-making processes related to risk management measures. Transparent disclosure fosters trust among market participants and allows for a more comprehensive evaluation of margin calculations and adjustments, particularly during volatile periods. Strengthening oversight mechanisms, with a more active role for regulatory bodies. This contributes to accountability in risk management practices. Incorporation of public input through consultations and hearings. This will foster inclusivity and democratic decision-making in the rulemaking process. Establish industry-wide standards and best practices in collaboration with stakeholders. This will increase market stability and transperancy. Public accessibility of stress testing results to showcase the effectiveness of risk management measures. Transparency keeps everyone more honest. Establishment of an external oversight committee comprised of industry experts (not Members of the OCC) to ensure impartial evaluation and scrutiny of risk management practices. Reconsideration of the OCC’s loss allocation framework to satisfy their concerns about reducing margin requirements. Increase and ENFORCE margin requirements commensurate with risks associated with Clearing Member positions instead of reducing margin requirements. Members should be encouraged to position their portfolios to account for stressed market conditions. Cathy Gasper 269-355-1555 Sent from Mail for Windows