May 16, 2024
Dear Members of the Securities and Exchange Commission, I am writing to express my concerns regarding Rule SR-OCC-2024-001, which proposes adjustments to margin thresholds, specifically during periods of high volatility. This proposed adjustment is concerning because it shifts the goalposts when clearing members are unable to meet their financial obligations. The necessity for margin calls in the first place is to prevent clearing members from overextending themselves on their bets, ensuring that they have adequate collateral to cover potential losses. By adjusting margin thresholds during periods of high volatility, there is a risk that clearing members may not be required to maintain sufficient collateral, increasing the likelihood of default and destabilizing the financial system. This proposed adjustment raises critical questions about the integrity of the options market and the role of the Options Clearing Corporation (OCC) in managing risk. The OCC, as the central counterparty for options and futures contracts traded on U.S. exchanges, plays a crucial role in ensuring the integrity of the options market. Its primary responsibility is to guarantee the fulfillment of contracts and manage the risk associated with trading these financial instruments. Margin calls serve a crucial purpose in the financial system by acting as a safeguard against excessive risk-taking. They ensure that clearing members have adequate collateral to cover potential losses, thereby preventing them from overextending themselves on their bets. However, by allowing for adjustments to margin thresholds during periods of high volatility, there is a risk of undermining this fundamental principle. In the context of financial jargon, this proposal effectively allows clearing members to "kick the can down the road" when it comes to meeting their financial obligations. It's akin to "moving the goalposts" in a high-stakes game, where the rules are changed to accommodate those struggling to keep up. The use of "idiosyncratic volatility control settings" to adjust these margin thresholds during high volatility introduces a risk because it lacks transparency in the calculation and implementation process. Without clear guidelines on how these settings are determined, there is a potential for arbitrary or ad-hoc adjustments, allowing the Options Clearing Corporation (OCC) to alter the criteria whenever Clearing Members require assistance. This flexibility raises concerns about fairness, as it may create an environment where the rules can be changed based on individual circumstances, potentially favoring certain market participants or introducing an element of unpredictability. The proposal's supporting evidence, particularly regarding said calculation of margin thresholds, is troublingly redacted. This lack of disclosure undermines the principles of transparency and accountability that are crucial in regulatory frameworks. As stakeholders, we require detailed information on how these adjustments will be made to ensure fair and equitable treatment of all market participants. Moreover, the proposal grants unchecked authority to the Financial Risk Management (FRM) Officer to make unilateral decisions during periods of high market stress. This authority, while ostensibly intended to protect the interests of the OCC, raises questions about potential conflicts of interest. The FRM Officer is entrusted with safeguarding both the OCC's interests and those of at-risk Clearing Members, creating a potential conflict that needs addressing and changing. In light of these concerns, I urge the Securities and Exchange Commission to carefully reconsider this proposal and prioritize the protection of investors and the stability of the financial markets by rejecting Proposed Rule SR-OCC-2024-001. Clear guidelines, transparency in calculations, and checks and balances on discretionary authority are essential for maintaining the integrity and stability of the financial markets. Thank you for your attention to this matter. txguy24@protonmail.com Sent with Proton Mail secure email.