May 18, 2024
Hello SEC members, I am writing to express my strong support for the rejection of the proposed rule change SR-OCC-2024-001. This proposal, submitted by the Options Clearing Corporation (OCC), concerns the process for adjusting certain parameters in its proprietary system for calculating margin requirements during periods of high market volatility. I believe that this proposal poses significant risks to the stability, transparency, and integrity of our financial markets. Firstly, the proposal includes extensive redactions and a lack of detailed disclosures, which severely restricts meaningful public review and comment. Transparency is a fundamental pillar of fair regulation, and the inability to scrutinize the proposal adequately undermines trust in the regulatory process. Secondly, the proposed adjustments to margin requirements during high volatility periods could reduce the financial safeguards in place to protect the clearing system and its participants. This reduction in margin requirements could exacerbate systemic risks, particularly given the OCC's critical role as a Systemically Important Financial Market Utility (SIFMU). By prioritizing short-term gains over long-term stability, the proposal increases the risk of significant market disruptions. Additionally, the proposal may create a conflict of interest and reduce accountability within the OCC’s governance framework. The proposed changes could allow clearing members to avoid recognizing the full extent of risks associated with highly volatile markets, potentially leading to greater financial instability. The OCC's current practices, which include using "idiosyncratic" and "global" control settings, have previously led to significant reductions in aggregate margin requirements during high volatility periods. This practice undermines the robust financial safeguards meant to protect the clearing corporation and its members and shifts potential losses onto less protected entities, including retail investors. In conclusion, I urge the SEC to reject the proposed rule change SR-OCC-2024-001. Upholding fair markets, protecting investors, and ensuring the stability of our financial system requires comprehensive measures that enhance transparency, accountability, and risk management. On that note, please consider the following suggested improvements: Strengthen and enforce margin requirements to align with Clearing Member risks, discouraging a "Too Big To Fail" strategy that could pressure the OCC, privatize profits, and socialize losses. Introduce external auditing and supervision as a "fourth line of defense" for enhanced transparency and proactive risk management with public reporting. Incorporate public input through consultations and hearings in the rule-making process for inclusive and representative regulatory actions. Advocate for public accessibility of stress testing results to showcase risk management effectiveness and build trust among market participants. Consider establishing an external oversight committee of industry experts, academics, and investor advocacy representatives for impartial evaluation of risk management practices. Reorder the Loss Allocation waterfall, prioritizing Clearing fund deposits of non-defaulting firms over OCC's pre-funded financial resources and the EDCP Unvested Balance to foster self-regulation among Clearing Members. Enhance transparency requirements, ensuring clear and accessible disclosure in reporting and decision-making processes related to risk management measures. Strengthen oversight mechanisms, involving regulatory bodies more actively to maintain accountability and address emerging risks during periods of heightened market volatility. Provide clear guidelines for the application of idiosyncratic controls, preventing misuse, and proposing a structured evaluation framework for consistency and full disclosure for public review. Consider establishing an external oversight committee comprised of industry experts, academics, and investor advocacy representatives for impartial evaluation and scrutiny of risk management practices. Thank you for your consideration. Sincerely, A Concerned American Investor