May 17, 2024
This message was sent securely using Zix® Good Morning Securities and Exchange Commission! I am writing to express my strong support for your decision to reject the Options Clearing Corporation's (OCC) proposed rule change to SR-OCC-2024-001, regarding adjustments to margin thresholds during periods of high volatility. Your disapproval upholds the principles of transparency, risk mitigation, and investor protection, which are paramount to maintaining fair, efficient, and resilient financial markets. Lack of Transparency The OCC's proposal lacked sufficient transparency regarding the calculation and implementation of "idiosyncratic volatility control settings" used to adjust margin thresholds. The redaction of supporting evidence undermines the principles of transparency and accountability that are crucial for market participants to evaluate risks effectively. This opacity raises significant concerns, as clear and consistent disclosure is essential for informed decision-making and maintaining public confidence in the regulatory framework. Systemic Risk Concerns The SEC rightly identified the potential systemic risks arising from allowing adjustments to lower margin requirements during periods of high volatility. Margin calls serve as a critical safeguard against excessive risk-taking, ensuring that clearing members maintain adequate collateral to cover potential losses. Permitting margin threshold adjustments could incentivize risky behavior and increase the likelihood of defaults, thereby destabilizing the financial system. Prudent risk management necessitates robust and consistently enforced margin requirements to mitigate systemic vulnerabilities. Conflicts of Interest Furthermore, the SEC's concerns regarding conflicts of interest in granting the Financial Risk Management (FRM) Officer unilateral authority to adjust margins during market stress are well-founded. Entrusting a single individual with substantial discretionary power over margin methodologies and risk management practices, without adequate oversight or accountability mechanisms, creates an inherent conflict of interest. This arrangement could compromise the OCC's ability to manage risks objectively and safeguard the interests of all market participants. The SEC's decision to reject the OCC's proposal upholds the principles enshrined in the Exchange Act, including the requirements for prompt and accurate clearance and settlement (17A(b)(3)(F)), robust governance arrangements (17Ad-22(e)(2)), and risk-based margin systems (17Ad-22(e)(6)). By addressing these critical issues, the SEC has taken a principled stance in safeguarding market integrity, promoting investor protection, and ensuring the stability of the financial system. We commend the SEC for its diligent review and thoughtful consideration of the OCC's proposal. The SEC's decision underscores the importance of robust regulatory oversight and the need for clear, transparent, and well-governed risk management practices within systemically important financial market utilities. Thank you for your unwavering commitment to protecting investors and ensuring the stability and fairness of our financial markets. We trust that the SEC will continue to prioritize these principles in its future decision-making processes. Gratefully, Kyle Anderson This e-mail message, including any attachments, is for the sole use of the intended recipient(s) and may contain private, confidential, and/or privileged information. Any unauthorized review, use, disclosure, or distribution is prohibited. If you are not the intended recipient, employee, or agent responsible for delivering this message, please contact the sender by reply e-mail and destroy all copies of the original e-mail message. This message was secured by Zix®.