May 10, 2024
As a retail investor I am writing to you in order to voice my opposition to the proposed rule change by the OCC: SR-OCC-2024-001 34-100009. The proposed rule change put forth by the Options Clearing Corporation (OCC) represents a flagrant disregard for the principles of fair and orderly markets. Granting the OCC the power to reduce margin requirements for clearing members facing default risks is akin to institutionalizing fraud and moral hazard on a massive scale. The lack of transparency, evident in the extensive redaction of critical information, alone justifies outright rejection of this proposal. Without full disclosure, meaningful review and accountability are impossible. Such clandestine maneuvering behind closed doors only deepens public distrust in the financial system. Moreover, the disclosed details of the proposal are deeply troubling. The OCC is essentially blaming regulators for impeding its efforts to weaken risk controls, while seeking permission to increase systemic vulnerabilities. This runs counter to the purpose of a self-regulatory organization tasked with safeguarding market integrity. Allowing clearing members to waive margin calls when undercapitalized is a brazen attempt to privatize profits while shifting losses onto the public. Ignoring risk models and stretching risk management practices to the breaking point constitutes financial malpractice. Clearing members who take reckless risks should be subject to the consequences of their practices, rather than expecting bailouts as the OCC proposes. This rule effectively institutionalizes a double standard, where certain entities are shielded from risk while others bear the burden. Shielding clearing members from margin calls unfairly transfers risk to other investors. The admission that a single clearing member default could trigger a systemic crisis underscores the overleveraged and undercapitalized nature of these firms. Instead of addressing this vulnerability, the OCC seeks to loosen risk parameters further, perpetuating the "too big to fail" mentality that eroded public trust after the 2008 financial crisis. Reducing margins does not mitigate default risks; it merely shifts them elsewhere. The OCC's proposal contradicts its mandate as a Systemically Important Financial Market Utility tasked with maintaining stability. The imposition of a "skin in the game" capital contribution after the GameStop incident demonstrates the inadequacy of current risk models. Yet, rather than rectifying this, the OCC seeks to further relax safeguards, placing additional strain on pensions and insurers. This proposal represents a dangerous departure from regulatory responsibility, endangering the savings of millions in a bid to privatize profits while socializing losses. There is no justification for the SEC to approve such a reckless proposal. It undermines prudential responsibilities, investor protection, public interests, transparent governance, and loss-bearing requirements. It epitomizes the flaws of modern finance, which prioritizes moral hazard and socialized risk-taking over accountability. Regulators must mandate higher margin requirements, subject the OCC to external audits and oversight, shift loss-bearing responsibilities to clearing members, establish a process for swiftly addressing insolvent members, and promote decentralized market structures. Risky bets must be backed by appropriate capital, not shielded by backroom waivers at the expense of the public. The SEC must unequivocally reject this proposal and pursue a path toward accountable markets. As the only safeguard against public interests and investments, I trust that the SEC will make a decision to stand behind investors in the face of what I view as an ostentatious and unfair proposal made by the OCC. Thank you, Luke A Knox