May 13, 2024
Dear Ms. Countryman, Ms. Haywood, as a retail investor, I really appreciate the opportunity extended by SR-OCC-2024-001 Release No 34-100009 to comment on SR-OCC-2024-001 entitled “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”. I strongly SUPPORT the SEC's reasonable grounds for disapproval as this Proposed Rule Change is NOT consistent with at least Section 17A(b)(3)(F), Rule 17Ad-22(e)(2), and Rule 17Ad-22(e)(6) of the Exchange Act (15 U.S.C. 78s(b)(2)). Regarding Rule 17A(b)(3)(F): The rule doesn't adequately protect securities and funds under the clearing agency's control. By lowering margin requirements for Clearing Members at risk of default, it increases financial risk for the OCC and others. It fails to safeguard investors and the public interest by shifting the costs of Clearing Member default(s) to non-bank liquidity facilities, expanding the scope of Too Big To Fail. Regarding Rule 17Ad-22(e)(2): The rule lacks clear governance, as the role of the Financial Risk Management Officer prioritizes Clearing Members' safety over the clearing agency's. It doesn't prioritize the clearing agency's safety and instead focuses on rubber-stamping margin requirement reductions for Clearing Members. It doesn't support public interest requirements by shifting default costs to non-bank liquidity facilities. It lacks clear lines of responsibility, as the FRM Officer's role becomes merely administrative. It disregards the interests of customers and securities holders by increasing systemic risk and perpetuating a biased financial system. Regarding Rule 17Ad-22(e)(6): The rule doesn't calculate margin levels properly, as reducing margin for Clearing Members at risk of default is illogical. It doesn't ensure sufficient margin to cover potential future exposure, which could create liquidity issues for non-defaulting Clearing Members. It lacks a valid model for the margin system and ignores existing predictions of increased margin requirements. Consider these suggestions: Instead of reducing margin requirements, make sure they match the risks involved for Clearing Members. Encourage them to prepare for tough market conditions and long-term risks. The current proposal could push Clearing Members to become too big to fail, pressuring the OCC with excessive risk and leverage, which privatizes profits and socializes losses. Implement external auditing and supervision as an additional layer of defense, similar to the "four lines of defense model" for financial institutions. Enhance public reporting to ensure risks are identified and managed before they become a big problem. Change the order of loss allocation in the OCC's Loss Allocation waterfall. Allocate losses to Clearing fund deposits of non-defaulting firms before using OCC's own pre-funded financial resources and the EDCP Unvested Balance. This would encourage Clearing Members to monitor each other's risk management and increase protection for the OCC and the public. Suspend and liquidate a Clearing Member as soon as their losses are projected to exceed their margin deposits. This prevents problems from getting worse and threatening the stability of the financial system. Increase redundancy and resilience in our financial system by having multiple Clearing Agencies in competition. Too big to fail situations should be avoided, and the option of failure should always be on the table. Thank you for your continued work to facilitate free and fair markets! Sincerely, Tim Weckheuer