Jan. 30, 2024
I appreciate the opportunity to provide feedback on the Securities and Exchange Commission's release number 34-99393, 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 of High Volatility" (available in PDF format on the Federal Register). As a retail investor, I am compelled to express my significant reservations regarding the approval of the OCC's rule proposal, grounded in concerns over transparency and the potential systemic risks it poses to our financial system. The proposal's lack of transparency, as demonstrated by substantial redactions in Exhibit 5 and related materials (refer to Exhibit 3 for example), obstructs thorough public scrutiny and, by extension, meaningful commentary. This opacity, particularly in a document that implicates financial system stability, undermines the proposal's validity and warrants its rejection on the grounds of insufficient public review alone. The proposal further attributes a lack of prescriptive procyclicality controls on U.S. regulatory bodies—a stance that highlights a critical disconnect in safeguarding the financial markets. The Options Clearing Corporation (OCC), as a self-regulatory organization (SRO) and a Systemically Important Financial Market Utility (SIFMU), bears a fundamental responsibility to ensure transparency and accountability. Blaming regulatory oversight failures only serves to underscore the SRO's inability to independently secure the financial system against the risks of procyclicality, which, if unaddressed, may amplify systemic vulnerabilities during volatile market conditions. This rule change, ostensibly designed to shield Clearing Members from the fallout of high-risk trades by facilitating reductions in margin requirements, inadvertently escalates the OCC's own risk exposure. By using a proprietary system (STANS) for margin calculation, the OCC risks inducing procyclicality—where increased volatility leads to heightened margin requirements, straining liquidity for Clearing Members and, in a worst-case scenario, precipitating a cascade of failures among them. This rule proposal's approach to managing idiosyncratic and global risk settings, while seemingly pragmatic, represents a systematic evasion of necessary margin calls, thereby institutionalizing a framework that could exacerbate systemic risk rather than mitigate it. The OCC's practice of selectively reducing margin requirements—evidenced by over 200 instances of "idiosyncratic" adjustments within a four-year period—reveals a pattern that contradicts the premise of these being outlier interventions. Such frequent recourse to margin requirement reductions, especially during critical periods like the COVID-19 pandemic and the "meme-stock" phenomenon, unfairly disadvantages other market participants, particularly retail investors who are left to navigate the repercussions of these long-tail risks without similar protective measures. The inherent conflict of interest within the OCC's Financial Risk Management (FRM) framework further erodes confidence in its ability to impartially manage market risks. The FRM Officer's role, ostensibly to safeguard the OCC's interests, paradoxically necessitates protecting Clearing Members from failure—a directive that dilutes the efficacy of margin collateral as a protective measure against market volatility. In conclusion, the OCC's proposed rule change, by facilitating lower margin requirements under the guise of managing idiosyncratic and global risks, fails to align with the principles of fairness, transparency, and resilience that should define our financial markets. I urge a reevaluation of the proposal, advocating for increased margin requirements reflective of actual market risks, enhanced external auditing, and a restructuring of the OCC's loss allocation waterfall to better protect against systemic risks. Only through such comprehensive amendments can we ensure a fair and stable financial system for all market participants. Sincerely, Alexandru Malanca A Concerned Retail Investor