May 12, 2024
Dear Regulatory Authority, As a retail investor, I am submitting my comments in response to the Securities and Exchange Commission's (SEC) request for public input regarding the proposed rule change by the Options Clearing Corporation (OCC) concerning adjustments to margin requirements during periods of high market volatility, as outlined in SR-OCC-2024-001, Release No. 34-100009. I express my opposition to the rule change and support the SEC’s considerations for disapproval. The proposed rule lacks transparency, as significant portions of the documentation, such as those seen in Exhibit 5, are heavily redacted. This lack of accessible information hampers the ability of the public to effectively engage in the comment process and fully understand the potential impacts of the proposed changes. A key concern arises from the apparent regulatory leniency, where U.S. regulators have not imposed stringent procyclicality controls similar to those adopted internationally. This approach, as detailed in the proposal, leads to a procyclicality that exacerbates financial risk during market stress, contradicting the purpose of margin requirements meant to secure liquidity and stabilize the financial system. The proposed rule, by facilitating reductions in margin requirements under "idiosyncratic" and "global" control settings, undermines the financial safeguards designed to protect the clearing system and its members from the risks of high volatility and stressed market conditions. This approach not only jeopardizes the financial stability of the clearing members but also increases systemic risk across the financial system. Furthermore, the rule empowers the Financial Risk Management (FRM) Officer to apply these control settings, potentially in a non-transparent and unchecked manner, which could lead to decisions that favor certain members over the health of the entire market. This could result in an inconsistent application of risk management principles and create a moral hazard where larger clearing members assume undue risks under the assumption of inevitable bailout due to their systemic importance. The Options Clearing Corporation’s status as a Systemically Important Financial Market Utility (SIFMU) imposes an enhanced responsibility to maintain robust and transparent risk management practices. However, the frequency of adjustments to margin settings as indicated in the proposal suggests a reactive rather than proactive approach to financial risk management. In summary, the proposed rule change presents significant concerns regarding transparency, equity, systemic risk, and regulatory adequacy. It appears to prioritize short-term liquidity provisions over long-term financial stability and does not adequately address the procyclical nature of margin adjustments in response to market volatility. Therefore, I urge the SEC to disapprove SR-OCC-2024-001 on the grounds that it fails to adequately protect the interests of all market participants, particularly retail investors, and poses undue risks to the broader financial system. I appreciate the opportunity to participate in this crucial aspect of financial regulation and look forward to the Commission’s careful consideration of these concerns to ensure a fair, orderly, and transparent market for all investors. Yours sincerely, John Simmons