May 7, 2024
I am reaching out to express my strong opposition to the Proposed Rule Change outlined in 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." The potential implications of this proposal raise significant concerns and pose a threat to the fairness, transparency, and stability of our financial markets. Transparency Concerns: The extensive redactions found in Exhibit 5 and accompanying information hinder meaningful public review and comment, which are crucial elements of fair regulation and market integrity. Lack of Accountability: The OCC's attempt to shift responsibility onto U.S. regulators for not implementing stricter controls demonstrates a troubling lack of accountability and transparency within the regulatory framework. Systemic Risk: By focusing on reducing margin requirements for Clearing Members, the proposal overlooks the systemic risk associated with potential failures, prioritizing short-term gains over long-term market stability. Conflicts of Interest: The proposal institutionalizes conflicts of interest for the Financial Risk Management Officer, undermining the fundamental purpose of risk management and regulatory oversight. Insufficient Protection: Failure to enforce margin requirements proportional to risks exposes the OCC and other market participants to increased financial risk, while also shifting the burden of Clearing Member defaults onto non-bank liquidity facilities, thereby creating moral hazards. Clarity in Governance: The governance arrangements outlined lack transparency and fail to establish clear lines of responsibility, further diminishing trust in the regulatory process. Exploitation of Authority: The OCC's exploitation of its status as a single point of failure and attempts to coerce approval of the proposal set a dangerous precedent of self-serving actions at the expense of market integrity. Need for Stronger Safeguards: Instead of reducing margin requirements, the proposal should prioritize implementing stronger safeguards, external auditing, and transparent governance to prevent systemic risks and protect investors. Urgency of Action: Swift suspension and liquidation of Clearing Members when projected losses exceed certain thresholds are essential to prevent escalating issues and maintain market stability. Mitigating Systemic Risks: Encouraging redundancy and resilience in financial markets is essential to minimizing systemic failures and avoiding bailouts that undermine market integrity. In conclusion, I urge you to oppose the Proposed Rule Change under SR-OCC-2024-001. Upholding fair markets, protecting investors, and ensuring the stability of our financial system demand immediate action and comprehensive measures to address these critical concerns. Thank you for your attention to this matter.