May 17, 2024
Dear Securities and Exchange Commission, Thank you for the opportunity to comment on the proposed rule change SR-OCC-2024-001, which seeks to adjust margin calculation parameters during periods of high market volatility. While I understand the motivations behind this proposal, I have significant reservations that need to be addressed. The STANS system, utilized by OCC to calculate margin requirements, inherently produces procyclical results (where margin requirements increase during market downturns and decrease during stable periods). This characteristic can intensify financial strain on clearing members in volatile markets, potentially leading to defaults. Such defaults could then affect the mutualized Clearing Fund, imposing unexpected costs on non-defaulting members and further stressing their liquidity. Concerns: 1. Lack of Transparency and Public Scrutiny: The significant redactions within the proposal documentation hinder comprehensive public review. This lack of transparency is problematic as it prevents stakeholders from understanding the full implications and mechanics of the proposed changes. Transparency is crucial for maintaining trust and ensuring that all potential impacts are adequately considered and addressed. 2. Increased Systemic Risk: Reducing margin requirements during periods of high volatility can significantly increase systemic risk. The procyclical nature of the STANS system means that in times of market stress, the lowered margins could leave clearing members inadequately prepared to meet their financial obligations. This could lead to a cascade of defaults, threatening the stability of the entire financial system. Maintaining robust margin requirements, especially during volatile periods, is essential to mitigate these risks and ensure market stability. 3. Moral Hazard and Market Stability: Reducing initial margin requirements might encourage clearing members to engage in riskier trading behaviors, knowing that the consequences of their risks are partially absorbed by the mutualized Clearing Fund. This moral hazard can undermine market stability as it creates an uneven playing field where financial risks are not carried by those managing risk. While the proposed rule change aims to increase operational flexibility, the potential risks and negative impacts suggest that these benefits do not justify the proposed adjustments. Necessary market corrections are crucial for a stable and healthy financial system. Avoiding necessary corrections will exacerbate the systemic risks. It is essential to prioritize stringent margin requirements and robust market safeguards to protect all market participants by maintaining the trust, stability, and integrity in our financial system. Thank you for considering my feedback on this critical issue. Sincerely, Cameron Dombro Household Investor