Mar. 3, 2024
COMMENT ON RULE SR-OCC-2024-001. Dear Securities and Exchange Commission, I appreciate the opportunity to provide comments on Rule SR-OCC-2024-001 and commend the Securities and Exchange Commission (SEC) for fostering an open dialogue on regulatory matters. It's noteworthy, however, that external input was not sought by the Options Clearing Corporation (OCC), raising concerns about the inclusivity of the decision-making process. Transparency lies at the core of effective governance, and my comments will delve into concerns regarding the proposed rule. Specifically, the conspicuous absence of detailed information on how parameters in the OCC's proprietary system for the calculation of margin thresholds during high market volatility are determined and the unchecked authority issued to the OCC's Financial Risk Management (FRM) Officer during market stress, potentially leading to consequential decisions made without adequate checks and balances. In the subsequent sections, I will expound upon these concerns and present solutions aimed at addressing the identified pitfalls. It is my sincere hope that the SEC carefully considers not only the proposed changes but also the broader systemic issues at hand. Your thoughtful evaluation is crucial to ensuring the resilience and integrity of our financial markets. TRANSPARENCY CONCERNS. Transparency emerges as a critical component requiring attention within SR-OCC-2024-001 to ensure the robustness of the rule. Withholding information hampers a thorough assessment of the effectiveness of the proposed changes, impeding stakeholders from making well-informed decisions and providing input. This segment focuses on transparency concerns and aims to elucidate why these issues pose a significant challenge to the effectiveness and legitimacy of SR-OCC-2024-001. The initial concern revolves around the extensive redaction of supporting information, notably the 205 pages detailing how margin threshold calculations will be made. This lack of full disclosure impedes public scrutiny and prevents investors from comprehensively assessing the potential impact of SR-OCC-2024-001. The absence of transparent information impedes the public's ability to provide meaningful support or constructive feedback, given the rule's substantial influence on market stability and the OCC's role as a SIFMU. The absence of this specific information prevents a comprehensive assessment of the proposed changes by investors, including household investors and market participants. The rationale behind withholding such details remains unclear, and the lack of a transparent justification challenges the principles of an open and equitable financial market. In a system where collective market participants operate, equal access to unobstructed information is essential for informed decision-making. The redaction may be interpreted as obstructing the public's right to scrutinise crucial elements of the proposal, undermining the fundamental values of transparency and trust in financial markets. Addressing this issue is vital for upholding the integrity of financial markets and ensuring that regulatory actions align with the principles of openness and fairness. To address this, it is recommended that the SEC advocates for complete disclosure of supporting information, eliminating extensive redactions. Notably, the SEC should emphasise the importance of public review and comment, particularly given the OCC's substantial role as a SIFMU and recommend the implementation of clear, comprehensive, and well-defined guidelines to govern the use of idiosyncratic control settings, particularly including the calculation of margin thresholds during periods of high volatility. Emphasis should be placed on the importance of transparency in safeguarding against the abuse of control settings and maintaining market integrity. Regulatory scrutiny is also recommended to prevent frequent practices that may undermine effective risk management and contribute to a broader financial crisis. Criticism is also directed at the statement within SR-OCC-2024-001, asserting that written comments were not intended to be solicited. This declaration raises serious questions about the accountability and openness of the OCC in its rule-making procedures. Such a statement diverges from the foundational principles that advocate for a fair and transparent regulatory environment. The lack of solicitation of comments, a crucial aspect of the rule-making process, not only neglects transparency but also hinders stakeholders from actively participating and providing valuable insights. This approach contradicts the collaborative spirit necessary for effective rule-making and fosters an environment that appears less receptive to external input. By negating or out casting the input of market participants – such as household investors, the OCC implies their insights are deemed without valuable, raising concerns about the basis and justification for such a stance. This challenges the inclusive nature of the rule-making process and the principles of equal participation in regulatory affairs. Furthermore, this non-solicitation stance could be perceived as limiting the diversity of perspectives considered in the decision-making process. Engaging members and participants actively in the rule-making dialogue is essential for ensuring that a broad spectrum of insights, experiences, and concerns are taken into account. This, in turn, enhances the quality of the regulatory framework and strengthens overall market governance. As a result, proactive measures are needed to address these concerns and reinforce a commitment to transparency and stakeholder engagement within the OCC's rule-making procedures, such as enforcing requirements for the OCC to actively seek and consider input from its members and participants, thereby enhancing transparency and stakeholder engagement. As we delve further into these concerns, underscoring the risks associated with SR-OCC-2024-001 in the absence of transparency, the essence of a robust regulatory framework lies not only in the rules it proposes but also in the openness with which it operates. IDIOSYNCRATIC CONTROL SETTINGS: The recurrent utilisation of idiosyncratic control settings by the OCC raises substantial concerns about potential risks and their impact on market fairness. With over 200 decisions made in less than four years, from December 2019 to August 2023, questions arise about the idiosyncratic nature of these choices and their potential implications for market coherence. The lack of transparency and clarity in the decision-making process for these settings further amplifies concerns, as it opens the door to selective application or insufficient justification, potentially compromising fairness and the overall integrity of the market. One key concern revolves around market instability resulting from frequent reductions in margin requirements for individual securities. Specifically, the OCC's rule proposal highlights an instance where aggregate margin requirements decreased by $2.6 billion after implementing idiosyncratic control settings for a particular risk factor on April 28, 2023. This example, involving a stock with significant multi-day price jumps, outlines an inherent risk within the system. The unchecked flexibility of applying idiosyncratic control settings at will can allow Clearing Members to take on higher risks without adequate safeguards. This situation could create scenarios where market participants exploit these idiosyncratic choices to gain short-term advantages, thereby undermining the stability and fairness of the market. Coupled with the frequency of these idiosyncratic decisions, again, surpassing 200 times in less than four years with durations up to 190 days, with additional concerns raised regarding the waiver of margin calls for Clearing Members occurring over 50 times a year, challenges the characterisation of these choices as purely idiosyncratic and prompts the re-evaluation of the idiosyncrasy of these practices. In light of these observations, a comprehensive review and justification process for both idiosyncratic and global control settings becomes imperative. This is necessary to ensure not only the fairness and stability of the market but also to address the risks associated with control settings that have become a frequent and impactful feature of the OCC's risk management approach. Review and transparency mechanisms are vital components of this transformation. Advocating for the disclosure of specific criteria, considerations, and reasoning behind each instance is paramount to enhancing public understanding and trust. It is crucial to urge the OCC to provide accessible information detailing the criteria and considerations guiding idiosyncratic control setting decisions. To take it one step further and bolster external oversight, regular and detailed reporting on the application of idiosyncratic and global controls should be conducted. This reporting should include information on frequency, 205 duration, and specific circumstances for each instance. The involvement of an external oversight committee, comprised of industry experts and academics, is proposed for a rigorous evaluation of these control decisions with the introduction of external audits to further ensure adherence to established guidelines and fairness in decision-making. Active engagement with Clearing Members during the application of these controls would equally contribute to a more inclusive and informed process. Lastly, public involvement and review are critical components of this transformation. Emphasising the importance of public consultations and hearings to gather diverse perspectives on the potential market impact of these controls is crucial because it ensures that decisions are well-informed, consider a variety of viewpoints, and are not solely dictated by a narrow set of interests. Stressing the need for clear guidelines and criteria governing the application of idiosyncratic and global control settings is also essential for establishing a transparent and accountable framework. Recommending a periodic review mechanism to assess the effectiveness and necessity of idiosyncratic and global controls by market participants, including household investors, is a proactive step in ensuring ongoing adaptability to the dynamic nature of financial markets. This comprehensive approach aims to address the inherent risks associated with idiosyncratic control settings and fortify the OCC's risk management approach for the benefit of all stakeholders. SYSTEMIC RISK AND FAIRNESS: Addressing the potential systemic risks stemming from undercapitalised Clearing Members is paramount to ensuring the overall stability and resilience of the financial system. An in-depth analysis is crucial to understanding the intricate interconnections and the cascading effects that could arise from the failure of a single Clearing Member. Inadequate capitalisation not only jeopardises the financial health of the Clearing Member but can also trigger a ripple effect, impacting other market participants and potentially leading to a broader financial crisis. Moreover, expressing concerns about the fairness of discretionary reductions in margin requirements is essential for maintaining market integrity. The discretionary nature of these reductions raises questions about equitable treatment, potentially favouring certain Clearing Members over others. To uphold fairness and mitigate systemic risks, a comprehensive review and stringent measures are necessary, ensuring that margin requirements are applied consistently and transparently across all Clearing Members. LOSS ALLOCATION WATERFALL: Examining the Loss Allocation Waterfall unveils critical concerns surrounding the financial stability of the OCC. The allocation of losses to the OCC's pre-funded financial resources is a crucial line of defence against a sufficiently large Clearing Member default. For instance, if a Clearing Member faces financial distress, and the automatic allocation of losses depletes the OCC's skin-in-the-game. This can expose the OCC to heightened financial risk, potentially affecting its ability to absorb losses in the event of a broader market downturn. In such cases, the OCC might be incentivised to make decisions, such as amending margin calculation thresholds or utilising idiosyncratic control settings, to mitigate the risk that Clearing Members pose to its financial stability. However, this raises concerns about the objectivity of the OCC in acting to protect its own interests rather than upholding the integrity of the financial markets and ensuring accountability for the clearing members. In the event of a Clearing Member default, the resulting suspension and liquidation of their positions could impose losses chargeable to the mutualised Clearing Fund, potentially leading to unexpected costs for non-defaulting Clearing Members. This situation places a reliance on the funds deposited by non-defaulting firms in the Clearing Fund, which is deemed problematic and unfair because it may disproportionately burden non-defaulting firms with the financial consequences of a defaulting member, impacting their liquidity and ability to meet financial obligations in stressed market conditions. Moreover, the proposal underscores the OCC's hesitation to sell Clearing Member collateral, emphasising its concern over realising losses and relinquishing valuable securities. The significance of Clearing Members holding onto their collateral assets becomes crucial in this context, as this avoidance of selling indicates a strategic effort to manage losses and potentially capitalise on future bailouts, while posing the risk of transferring the losses to pension funds and insurance companies through the OCC's Non-Bank Liquidity Facility. This information underscores the intricate dynamics and potential ramifications associated with the Loss Allocation Waterfall and the strategies employed by the OCC and Clearing Members to navigate financial challenges and mitigate losses. Finally, the proposed changes' impact on the OCC's financial protections, specifically concerning the margin deposits of at-risk Clearing Members, raises substantial concerns about responsible risk management. If, for instance, margin requirements are reduced for an at-risk Clearing Member without adequate justification, it could expose the OCC to heightened risk. The reduction in margins may inadvertently create an environment that incentivises riskier behaviour among Clearing Members, as they might perceive a lower financial obligation. This, in turn, could lead to a situation where the OCC's primary safeguard against market risks is compromised. The potential outcome involves an increased likelihood of market participants engaging in speculative or precarious activities, amplifying systemic risks and potentially affecting the broader financial ecosystem. The proposed measures must be scrutinised to ensure they do not inadvertently introduce dynamics that compromise the overall stability of the broader financial system. The impact of the Loss Allocation Waterfall raises significant concerns about the OCC's financial resilience, risk management practices, and overall market stability. It is imperative to conduct a thorough evaluation of the process to ensure its alignment with principles of responsible risk mitigation and to prevent the inadvertent introduction of systemic risks into the financial ecosystem. Strengthening the Loss Allocation Waterfall emerges as a critical step in fortifying the resilience of the financial system and safeguarding the interests of investors, including household investors. The proposed measures outlined below aim to enhance transparency, communication, and the efficiency of the OCC's pre-funded financial resources, thereby mitigating potential risks associated with the SR-OCC-2024-001 proposal: 1). Increased transparency in the Loss Allocation Waterfall process will provide a clear understanding of how losses are distributed to ensure stakeholders can comprehend the mechanisms in place to safeguard their investments. Improved communication channels are vital to keep all stakeholders informed about changes and potential impacts on financial protections with this step fostering trust and allowing investors to make informed decisions. 2). Compelling Clearing Members to provide an increased amount of collateral or financial security to protect their positions serves as an additional safeguard to both the OCC and non-defaulting clearing members. In the context of the proposed rule and challenging market conditions, this heightened demand for additional collateral acts as a crucial protective measure, ensuring that Clearing Members uphold a secure financial posture. Such stringent requirements are essential to prevent Clearing Members from undertaking unchecked and riskier manoeuvres, thereby safeguarding financial stability. Importantly, this approach mitigates the impact on other non-defaulting clearing members, as those facing default are held accountable for their own losses, preventing the transfer of losses to pension funds and insurance companies through the OCC's Non-Bank Liquidity Facility. 3). Scenario-based stress testing of the Loss Allocation Waterfall adds an additional layer of risk assessment. By assessing its resilience under various market conditions, the OCC can identify potential vulnerabilities and address them proactively. Proposing periodic reviews and adjustments based on stress test outcomes enhances the robustness of the entire process, ensuring that it evolves dynamically to meet the challenges of a changing financial landscape. 4). Educational programs for Clearing Members contributes to a proactive risk management culture. When Clearing Members understand the rationale behind margin adjustments and loss allocation procedures, they can make informed decisions that align with broader market stability goals. Encouraging the OCC to provide clear guidelines and explanations further mitigates concerns, fostering transparency and proactive risk management. These proposed measures collectively contribute to fortifying the Loss Allocation Waterfall, aligning it with principles of transparency, resilience, and proactive risk management. This approach not only safeguards the financial system but also instils confidence within market participants, ensuring their investments are protected within a robust and well-regulated framework. RISK MANAGEMENT AND PROCYCLICALITY: As we navigate through the intricacies of Rule SR-OCC-2024-001, our attention turns to the critical domain of risk management and procyclicality. Addressing procyclicality is a key consideration in risk management and regulatory frameworks to promote financial stability as this phenomenon becomes especially pertinent when examining the credit risks associated with potential Clearing Member failures, underscoring the imperative need for robust risk management measures. This section aims to delve into the challenges posed by procyclicality within the context of the proposal, highlighting the imperative need for effective risk management strategies to navigate these complexities. The proposal triggers a call for a more in-depth examination of how liquidity challenges may manifest for non-defaulting Clearing Members in the event of a defaulting member failing to meet its obligations, with acknowledgment that this default also poses a credit risk to the Options Clearing Corporation (OCC) — an issue of significant consequence that demands careful consideration. We have already recognised the cascading repercussions of a member default, potentially impacting the entire clearing system and leading to losses chargeable to the Clearing Fund, underscoring the need for robust accountability measures. In the absence of stringent enforcement, the financial stability of the clearing system may be compromised, posing systemic risks that can undermine market integrity. Thus, stringent enforcement of accountability principles becomes paramount to prevent adverse outcomes and maintain the overall stability and resilience of the market. It is crucial to stress, however, that accountability should be a cornerstone for Clearing Members, even in challenging market conditions. Procyclicality should not serve as an excuse for Clearing Members to evade their financial responsibilities. Accountability ensures that Clearing Members proactively manage their portfolios to withstand market fluctuations, preventing disruptions that may arise from defaults or financial troubles of participants in the clearing system – and as we analyse the risks and implications associated with SR-OCC-2024-001, the need for comprehensive risk management practices becomes increasingly evident. The introduction of regular and high volatility control settings by the OCC raises concerns about potential risks associated with procyclicality. These settings, designed to adjust margin requirements based on market conditions, carry the inherent risk of prioritising the stability of Clearing Members over broader market stability. While the intention is to curb excessive risk-taking behaviour during economic upswings and provide a cushion during downturns, the ability to change these settings at any time poses a significant risk. The adaptability inherent in these control settings opens the door to potential exploitation by Clearing Members seeking self-benefit, even if it comes at the expense of overall market stability. This risk is particularly pronounced in the face of imminent default threats. It is imperative that clearing members refrain from leaning on the OCC as a safety net to evade defaults, as such reliance may foster a dangerous pattern of escalating reckless behaviour. Relaxing margin requirements, intended to prevent defaults, introduces the added danger of a contagion effect. Other market participants may interpret this relaxation as a signal to embrace higher levels of risk, setting off a chain reaction where numerous entities increase their exposure. This amplification of risk-taking behaviour has the potential to exacerbate the consequences of market downturns, creating a cascading effect. Therefore, this introduces a layer of uncertainty and instability into the market dynamics. The malleability of control settings, susceptible to alterations to prevent margin calls for specific Clearing Members, poses a risk to the overall integrity of the market. It is crucial to strike a balance that ensures individual Clearing Members remain accountable for their risk-taking decisions without compromising the stability and reliability of the broader financial market. Addressing the apprehensions raised, the following measures are suggested to navigate the risks and challenges associated with the OCC's proposed rule and current systems: The OCC should prioritise the establishment and regular review of stable and well-defined control parameters, emphasising the necessity for precision. By defining and revisiting these parameters, the OCC can align risk management practices with the dynamic nature of financial markets. External auditing serves as a testament to the OCC's transparency and commitment to robust risk management practices. External audits provide an additional layer of scrutiny, ensuring that the proposed measures are not only effective but also resilient to potential challenges. This external validation offers assurance that risk management practices are held to the highest standards. Holding Clearing Members accountable for meeting margin obligations, especially during challenging market conditions, is paramount. To achieve this, the OCC, dedicated to preventing market participants from exploiting economic cycles for short-term gains at the expense of long-term stability, could be impose the following safeguards: • Implement routine assessments of Clearing Members' compliance with margin requirements. • Conduct regular reviews, especially during challenging market conditions, to ensure adherence. • Utilise sophisticated risk management tools and technologies to monitor Clearing Members' portfolios. • Employ predictive analytics to identify potential deviations from margin obligations in advance. • Provide Clearing Members with clear and detailed guidelines on margin obligations. • Enhance transparency by communicating expectations and requirements effectively. • Conduct periodic audits to verify Clearing Members' compliance with margin rules. • Ensure that audits cover various market conditions to assess adaptability. • Establish an external oversight committee comprising industry experts for impartial evaluation. o The committee can provide insights into best practices and contribute to overall risk management. • Implement a system of penalties for Clearing Members found in non-compliance with margin obligations. o With graduated penalties based on the severity and frequency of deviations. • Offer ongoing education and training programs to Clearing Members to enhance their understanding of margin obligations. • Promote a culture of proactive risk management and responsibility. • Maintain open communication channels to address any queries or concerns Clearing Members may have regarding margin obligations. • Foster a collaborative environment for constructive feedback and improvement. Stricter enforcement of these obligations promotes a fair and transparent market, prevents shifts in responsibilities during economic downfalls, discourages risky behaviour by Clearing Members, and contributes to overall market stability. This also serves to demonstrate the OCC’s commitment to ethical behaviour and financial responsibility through the implementation of robust mechanisms. The proposed measures to mitigate procyclicality are not just regulatory steps; they represent a commitment to the core principles of accountability, transparency, and risk management. These measures are instrumental in fostering a financial environment where risks are managed responsibly, and market integrity is upheld—a level playing field where all market participants adhere to their financial obligations consistently with accountability. The focus on adapting to economic cycles, ensuring the stability of the clearing system, and holding market participants accountable reflects a commitment to a resilient and trustworthy financial market. FINANCIAL RISK MANAGEMENT OFFICER'S ROLE: The proposed SR-OCC-2024-001 rule introduces apprehensions regarding the extensive discretionary powers assigned to the Financial Risk Management (FRM) Officer. The proposal grants the FRM Officer the authority to adjust idiosyncratic control settings, enabling them to alleviate margin calls under specific circumstances. However, the implementation of these settings introduces a risk. Even if a security narrowly misses an element of the Idiosyncratic Thresholds but meets other criteria, the FRM Officer may apply these settings. If the FRM Officer selectively applies these settings without proper justification, it poses a threat to market integrity. Furthermore, concentrating significant decision-making authority in a single individual inherently risks conflicts of interest or potential abuse of power. For example, providing the authority to approve idiosyncratic control settings based on additional considerations creates room for subjective decision-making. Abuse could occur if the FRM Officer favours certain market participants or securities without clear and objective criteria, leading to potential unfair advantages or disadvantages. The decision-making process of the FRM Officer might be influenced by personal biases or conflicts of interest. For instance, their relationships with specific Clearing Members or holdings in certain securities could inappropriately impact their decisions on applying these settings. The proposed reduction of margin requirements resulting from the implication of these settings directly undermines the primary function of margin collateral as a safeguard against market risks. By potentially allowing Clearing Members to operate with reduced collateral, the OCC risks creating an environment where market risks are not adequately mitigated. This introduces the peril of larger bailouts, as the financial burden may shift from individual Clearing Members to the OCC and, ultimately, to the broader market. Such a scenario poses a severe threat to the stability and integrity of the financial system, impacting not only institutional participants but also individual investors. With note – that the policy also allows the FRM Officer discretionary power to adjust the duration of idiosyncratic control settings based on unforeseen situations introduces an element of uncertainty into the risk management framework. This discretion implies that the duration of idiosyncratic control settings may not follow a rigid or predefined schedule, creating ambiguity about how long such settings could remain in effect. The uncertainty regarding the duration introduces challenges for market participants and stakeholders who may struggle to anticipate and adapt to the changing risk management landscape, potentially impacting their decision-making and risk mitigation strategies. The inherent conflict of interest within the FRM Officer's role adds another layer of complexity. Balancing the interests of the Options Clearing Corporation (OCC) and Clearing Members requires meticulous oversight to ensure that decisions are unbiased and aligned with the overall stability of the financial system. Without robust checks and balances, there is a looming risk that this discretionary authority may be prone to exploitation, potentially devolving into a mechanism for rubber-stamping administrative decisions. For example, there is a potential risk that the FRM Officer could be influenced to lower margin requirements for Clearing Members grappling with financial challenges. This inclination arises from the recognition that a defaulting Clearing Member not only poses financial harm to the individual member but also impacts the Options Clearing Corporation (OCC) as a whole. Consequently, this conflict of interest jeopardises the integrity of margin collateral, leading to a delicate scenario where the FRM Officer's decisions may unintentionally exacerbate market risks. Furthermore, the potential risk arises when the OCC, equipped with knowledge of an impending Clearing Member default, can strategically activate Master Repurchase Agreements (MRA). This manoeuvre involves compelling a Non-Bank Liquidity Participant (such as a pension fund or insurance company) to purchase collateral just before its value declines. Subsequently, the OCC can trigger another MRA to force the resale of the acquired collateral back to the OCC at a lower cost. The key concern lies in the OCC's FRM Officer, who holds the authority to determine when a Clearing Member defaults. This control enables the OCC to meticulously time the process, selling high-value assets to pension funds and insurance companies while maintaining influence over which Clearing Member undergoes default. This scenario introduces a potential risk of manipulation, emphasising the need for accountability and transparency in the OCC's decision-making processes. To address these critical concerns, a comprehensive set of enhancements is imperative. Establishing an external oversight framework becomes a cornerstone in evaluating and regulating the FRM Officer's discretionary decisions. Transparency must be prioritised, ensuring that the FRM Officer's discretionary powers and actions are clearly defined and accessible to stakeholders. Well-defined guidelines, outlining specific criteria for decision-making, become crucial in navigating the complex landscape of risk management. 1. External audits of the FRM Officer's discretionary actions serve as a robust mechanism to ensure adherence to established guidelines, providing an independent evaluation of the decision-making process. 2. Equally an independent oversight committee could be responsible for reviewing and validating the decisions made by the FRM Officer. a. This committee could consist of external experts, industry professionals, and regulatory representatives to ensure a diverse and unbiased evaluation. 3. Implement more robust reporting requirements for the FRM Officer, ensuring detailed documentation and justification for each decision made. 4. Mandate regular reports to relevant regulatory bodies, providing an additional layer of external scrutiny. 5. Proposing the incorporation of scenario-based stress testing, specifically tailored to assess the impact of the FRM Officer's discretionary choices, becomes instrumental in understanding the potential ramifications and vulnerabilities introduced by such decisions. 6. Improved communication channels, both internal and external, are vital to keep stakeholders well-informed about the FRM Officer's decisions, fostering trust and accountability. 7. Require the OCC to publicly disclose the criteria and considerations used by the FRM Officer in approving idiosyncratic control settings. a. This transparency measure would enable market participants and stakeholders to assess the fairness and objectivity of the decision-making process. 8. Establish consultation panels consisting of diverse stakeholders, including Clearing Members, market participants, and investor representatives. a. These panels would provide input and feedback on the FRM Officer's decisions, ensuring a broader perspective and preventing undue influence. b. Consider establishing a board in which multiple individuals collectively perform the role of the FRM, rather than placing the responsibility on a single person. 9. Enact legislation defining clear and objective criteria for approving idiosyncratic control settings, minimising the scope for subjective decision-making and potential abuse. 10. Implement regular training programs and certification requirements for the FRM Officer, ensuring they stay updated on industry best practices and ethical standards. 11. Introduce a policy for the periodic rotation of the FRM Officer position to prevent the concentration of power and mitigate the risk of long-term biases or conflicts of interest. In conclusion, the proposed enhancements are not merely procedural; they are a fundamental requirement to safeguard the financial system from undue risks. By addressing the challenges associated with the FRM Officer's discretionary powers through transparency, clear guidelines, external oversight, and stakeholder involvement, the OCC can fortify its risk management processes, mitigating the severity of potential adverse impacts and upholding the stability and integrity of the financial system. RECOMMENDATIONS. In response to the challenges and concerns outlined in the proposed rule SR-OCC-2024-001, a comprehensive set of recommendations is proposed to fortify the risk management framework and uphold the stability and integrity of the financial system. Firstly, there is a crucial need to strengthen and enforce margin requirements, aligning them with Clearing Member risks to discourage a "Too Big To Fail" strategy that could exert pressure on the Options Clearing Corporation (OCC), leading to the privatisation of profits and socialisation of losses. To enhance transparency and proactive risk management, the introduction of external auditing and supervision, functioning as a "fourth line of defence," is paramount, with a commitment to public reporting. Incorporating public input through consultations and hearings in the rule-making process also ensures inclusive and representative regulatory actions, fostering trust among market participants. Advocacy for public accessibility of stress testing results emerges as a key component to showcase risk management effectiveness and build further trust within the market. Additionally, establishing an external oversight committee, consisting of industry experts, academics, and investor advocacy representatives, provides an impartial avenue for the evaluation of risk management practices. Reordering the Loss Allocation waterfall to prioritise Clearing fund deposits of non-defaulting firms over OCC's pre-funded financial resources and the EDCP Unvested Balance fosters self-regulation among Clearing Members. Enhancing transparency requirements, ensuring clear and accessible disclosure in reporting and decision-making processes related to risk management measures, adds another layer of accountability. Strengthening oversight mechanisms by involving regulatory bodies more actively becomes imperative to address emerging risks during periods of heightened market volatility. Providing clear guidelines for the application of idiosyncratic controls, preventing misuse, and proposing a structured evaluation framework for consistency and full disclosure for public review also contribute to a more robust risk management framework. In summary, these recommendations collectively constitute a strategic and proactive approach to address the intricacies of the proposed rule, emphasising transparency, accountability, and the active involvement of stakeholders. The multifaceted nature of these solutions seeks to reinforce the OCC's risk management practices, ensuring they align with market realities, withstand scrutiny, and engender trust among participants in the financial ecosystem. CLOSER & CALL TO ACTION. In conclusion, the issues raised in the proposed rule SR-OCC-2024-001 demand careful consideration and revision to safeguard the integrity and stability of our financial markets. It is imperative to enforce sufficient and strictly defined margin requirements for Clearing Members. In upholding the integrity of the market, if Clearing Members are unable to meet margin call, the parameters must remain unchanged. This ensures consistency and prevents adjustments that could compromise systemic stability. Transparency, external auditing, and a fair playing field for all market participants are paramount to maintaining trust and confidence in the financial system. We express our gratitude to the SEC for providing the opportunity to comment and urge for a thorough review of the concerns raised. Your attention to these matters is crucial for upholding the principles of transparency, accountability, and fairness in our financial regulatory framework. Thank you for your dedication to ensuring the soundness and resilience of our financial markets. Sincerely, Billy Filik