May 17, 2024
The purpose of this communication is to relay significant concerns regarding 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.” These concerns are as follows: 1. Severe Lack of Transparency: The proposal contains significant redactions, and any proposal containing such a level of obfuscation should raise an alarm in the minds of market participants and the general public and should be refused. 2. Severe Conflict of Interest: The role of the Financial Risk Management Officer has an inherent conflict of interest to oversee both the well-being of Clearing Members as well as the agency itself. 3. Systemic Risk: The OCC's proposal to reduce margin requirements for Clearing Members poses increased risk to the stability of our financial system. If clearing members cannot meet their financial obligations, they must close their offending positions. This necessity is obvious, and it is foundational to the proper functioning of our markets. 4. Moral Hazard: The proposal shifts the costs of Clearing Member defaults to the non-bank liquidity facility, creating a moral hazard and perpetuating an unfair marketplace. 5. Inadequate Risk Management: The proposal fails to properly manage liquidity risk and increases systemic risk, as evidenced by the OCC's reliance on reducing margin requirements. In conclusion, I support the SEC in their rejection of this proposed rule change. This rejection ensures the accountability, protection, and the integrity of our financial markets and the participants therein. Respectfully, -Braxon Tawatao