SR-OCC-2024-001
COMMENT STRUCTURE TEMPLATE.

Introduction:
Express gratitude to the SEC for the commenting opportunity.
Highlight concerns about transparency, citing the lack of external input from OCC during the proposal development.

Transparency Concerns:
Emphasise the extensive redaction, making it challenging for the public to understand the proposal fully.
Provide an example of a specific redaction, such as the 205 pages detailing margin threshold calculation methods.
Stress the impact of limited transparency on market participants' ability to make informed decisions, using a recent market event as an illustration.

Recommendations to Improve Transparency:
Urge the SEC to advocate for complete disclosure without redactions.
Cite examples of other regulatory bodies actively seeking external input during rule-making processes.
Discuss how increased transparency can foster trust among market participants, using successful cases as benchmarks.

Risk Management and Procyclicality
Highlight the critical importance of robust risk management, particularly in times of market stress for effective risk management to mitigate credit risks and maintain clearing system stability.
Outline liquidity challenges for non-defaulting Clearing Members in case of a defaulting member's failure.
Highlight potential losses chargeable to the Clearing Fund in case of a default.

Accountability and Measures:
Stress accountability for Clearing Members to meet margin obligations, even in challenging market conditions.
Advocate against using procyclicality as an excuse to avoid financial responsibilities.
Call for stricter enforcement of obligations for a fair and transparent market.
Argue that accountability discourages risky behaviour, contributing to overall market stability.
Emphasise the importance of OCC's measures in reinforcing consistent adherence to margin obligations.

Idiosyncratic Control Settings:
Express concern over OCC's frequent idiosyncratic control settings.
Highlight over 200 idiosyncratic decisions in less than four years.
Warn of market instability due to frequent reductions in individual securities' margin requirements.
Point out a $2.6 billion decrease in aggregate margin requirements linked to idiosyncratic controls.
Emphasise concerns about waiving margin calls over 50 times yearly, challenging the concept of idiosyncrasy.

Enhancing Transparency and Oversight:
Propose a comprehensive framework for assessing idiosyncratic controls' impact on the market.
Advocate for scenario-based stress testing to evaluate idiosyncratic controls' resilience.
Call for a transparent review process and public disclosure of idiosyncratic control criteria & regular reporting on idiosyncratic controls with external oversight and audits.
Stress the importance of public consultations, clear guidelines, and periodic reviews.
Emphasize the need for adaptive risk management aligning with dynamic market conditions.

Systemic Risk and Fairness:
Analyse the potential systemic risks arising from insufficiently capitalised Clearing Members and the cascade effect of a single failure.
Express concerns about the fairness of discretionary reduction of margin requirements and its impact on market integrity.

Concerns Regarding Loss Allocation Waterfall:
Loss allocation to defaulting firms before OCC's resources poses significant financial risk.
Acknowledge OCC's concerns about the STANS model predicting increasing margin in stressed market conditions
Acknowledge OCC's fear of charging losses to the Clearing Fund and potential liquidity issues for non-defaulting Clearing Members.
Recognition of the domino effect, where insufficient liquidity might trigger defaults among non-defaulting members.
However, express concerns about the illogical nature of reducing margin requirements for at-risk Clearing Members.
Emphasis on the need for increased margin collateral for effective risk management.
Arguing for logical protection by increasing margin requirements based on OCC's own admissions.

Accountability and Measures:
Call for increased transparency in Loss Allocation Waterfall to clarify loss distribution.
Advocate for enhanced communication channels to keep stakeholders informed about changes.
Reinforce the importance of skin-in-the-game as a primary safeguard for the OCC.
Propose measures to enhance sufficiency and effectiveness of OCC's pre-funded resources for absorbing losses.
Advocate for scenario-based stress testing to bolster Loss Allocation Waterfall resilience.
Suggest educational initiatives for Clearing Members, fostering understanding of margin adjustments and loss allocation, with clear OCC guidelines.

Financial Risk Management Officer's Role:
Express concerns over the extensive monopolising authority granted to the FRM Officer.
Address the inherent conflict of interest in the FRM Officer's role, balancing OCC's and Clearing Members' interests.
Highlight the paradox where the FRM Officer may act as an administrative rubber stamp, compromising margin collateral's integrity.
Highlight increased uncertainty resulting from discretionary power and potential adverse effects on market participants.
Stress the importance of transparency and clear guidelines in decision-making for maintaining market confidence.
Emphasise challenges arising from the lack of a clear, predefined schedule for idiosyncratic control settings.

Proposed Enhancements:
Establish an external oversight framework to evaluate and regulate the FRM Officer's discretionary decisions.
Advocate for transparent and well-defined guidelines, outlining specific criteria for the FRM Officer's decision-making process.
Recommend external audits of the FRM Officer's discretionary actions to ensure adherence to established guidelines.
Call for improved communication channels to keep stakeholders informed about the FRM Officer's decisions and the rationale behind them.
Propose incorporating scenario-based stress testing specifically tailored to evaluate the impact of the FRM Officer's discretionary choices.

Conclusion and Recommendations & Closing:
Recap proposed solutions, using successful case studies from other regulatory environments.
Recommend public input through consultations, using examples of successful public engagement initiatives.
Stress the need for adaptive risk management measures, citing examples from dynamic financial markets.
Thank the SEC for the opportunity to comment.
Express hope for a thorough and thoughtful review of the concerns raised, citing instances where such reviews led to positive outcomes.