May 7, 2024
Dear board members, This proposed rule change by the Options Clearing Corporation (OCC) is an utterly egregious afront to fair and orderly markets that must be vehemently rejected. Allowing the OCC to unilaterally reduce margin requirements for clearing members at risk of default is tantamount amount to institutionalizing fraud and is a moral hazard on a systemic scale. The lack of transparency alone, with vast swaths of critical information redacted, is already sufficient grounds for dismissing the proposal outright. Without full public disclosure there can be no meaningful review or accountability. This opaque, scheming behind closed doors, is precisely what fuels public distrust in the rigged financial system. However, the substantive details that have been revealed are even more damning. The OCC is blatantly blaming regulators for not allowing it to erode its own risk controls enough. Amazingly, pleading for permission to expose itself and the entire system to increased failures. This is the antithesis of a self-regulatory organization, meant to safeguard market integrity. The proposed ability to arbitrarily waive margin calls for under capitalized clearing members is a brazen attempt to privatize profits while socializing losses. Willfully disregarding risk models that calculate higher requirements is financial malpractice. Clearing members placing reckless bets that endanger their solvency should be forced to accept the consequences, not have risk conveniently swept away over 200 times in under 4 years as the OCC proposes. Fundamentally, this rule codifies a farcical "rules for thee, but not for me" ethos diametrically opposed to the SEC's mission. Shielding members from margin calls forces other investors to unfairly bear the brunt of long-tail risks the privileged can simply wish away with some back room procedural contortions. Even more abhorrent is the explicit admission that a single clearing member's default could initiate a systemic cascade impairing the entire OCC. This underscores that these firms are dangerously over leveraged and under capitalized. Rather than address that core vulnerability, the OCC instead proposes giving itself even more leeway to bend risk parameters for its dysfunctional members. This toxically perpetuates the "too big to fail" doctrine that crippled public trust after 2008. The rationale that reducing margins could prevent a default ignores that properly managing exposure is a clearing member's sole responsibility. Codifying moral hazard so egregiously conflicts with the OCC's very mandate as a SYSTEMICALLY IMPORTANT FINANCIAL MARKET UTILITY expected to uphold market stability. This proposal directly undermines financial resilience by design. Similarly disingenuous is the new "skin in the game" capital contribution the OCC foisted on itself immediately after the GameStop frenzy proved its models were inadequate. Now this entity, knowingly courting insolvency risk demands even looser safeguards in a cynical ploy to force liquidity backstops from pensions and insurers. This perverse rulemaking traipses into criminal territory, threatening the savings of millions of people, in a desperate bid to privatize profits while socializing losses. There are no reasonable grounds for the SEC to approve such a brazen license to amplify systemic peril. It eviscerates all prudent responsibilities demanded of an SIMFU, fails to protect investors, disregards public interests and flouts loss-bearing requirements. This proposal symbolizes everything rotten and broken about modern finance's addiction to moral hazard and socialized risk-taking. Rather than enable this shameful dereliction regulators must unequivocally: * Mandate higher margin requirements truly commensurate with the risks clearing members incur. * Subject the OCC to binding external audits and oversight as a true fourth line of defense. * Shift the OCC's loss-bearing responsibilities below clearing member's "skin in the game" requirements. * Institute a credible process for swiftly shuttering insolvent clearing members before toxicity spreads. * Disperse systemic vulnerability across a decentralized market structure without single points of failure. In an ethical system, risky bets must be backed by commensurate capital, not coddled by backroom waivers that fleece the public. This proposal is a criminal abandonment of regulatory responsibility that deserves only unequivocal repudiation. The SEC must have uphold its principles by rejecting it outright and charting a course toward truly fair and accountable markets. Thank you. Sincerely, A concerned private investor. Sent from the all new AOL app for Android