May 17, 2024
Dear SEC, I'm writing to share my concerns about SR-OCC-2024-001, titled "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 appreciate the chance to weigh in on this matter. I don’t support this proposal for several reasons: 1. **Lack of Transparency**: The proposal is heavily redacted, making it difficult for the public to review and comment effectively. 2. **Systemic Risk**: Reducing margin requirements for Clearing Members increases the risk to our financial system's stability. 3. **Conflict of Interest**: The Financial Risk Management Officer's role inherently conflicts with overseeing both the Clearing Members' and the agency's well-being. 4. **Moral Hazard**: Shifting the costs of Clearing Member defaults to the non-bank liquidity facility creates a moral hazard and an unfair marketplace. 5. **Inadequate Risk Management**: The proposal doesn't adequately manage liquidity risk and actually increases systemic risk by relying on reduced margin requirements. I also want to highlight the reasons the SEC previously rejected similar proposals: - It failed to promote prompt and accurate clearance and settlement of securities transactions. - It lacked clear and direct lines of responsibility in governance arrangements. - It had inadequate policies and procedures to cover credit exposures to participants and insufficient margin calculations to cover potential future exposure. In conclusion, I support the SEC's decision to reject this proposed rule change to protect all investors and maintain the integrity of our financial markets. Thank you for considering my concerns and for your continued efforts to protect our markets. Sincerely, Paul Sherman