Thread by @live2beingu

#AMC #GME #TSLA #KOSS #OCGN #MEMESTOCK #MOONING #L2BU Alright folks, so the moment you've all pretty much been waiting for the the SR - OCC - 2021 - 801 rule as it stands IF THEY HAVE "SKIN-IN-THE-GAME"

There is so much to unpack here and I'm going to solely cover one part of the rule. I will also post the video on this after this is posted. So here we go. Basic Structure we need to understand is that the SEC is at the Head of the two organizations sitting underneath it.

On one side you have the OCC and the other side you have the NSCC. We've talked about and discussed for months the NSCC rules and how they apply to securities. We've gone through the NSCC 801, 005, 004, and the 003 rules. Now we're getting to the point that the other branch of

SEC OCC wants to get involved in the action. So the OCC stands for the Options Clearing Corporation and the NSCC stands for the National Securities Clearing Corporation. So why is that important the Rule will have the SR-Organization- date- # associated. When you look at the

organization you should see if it's for the Options market or the regular securities market that we all know and love and trade on daily. So what...why does it matter. This rule was written to establish what is called a persistent minimum level of pretended resources aka "Skin in

the game" which would allow the OCC (Options Clearing Corporation) to cover DEFAULT losses or liquidity shortfalls IF IT'S MEMBERS DEFAULT. So just like the NSCC rule of Supplemental Liquidity deposits we have we have the OCC rule of what they call Skin in the Game persisted

level of income. Okay, but why do they post it now. Well they are changing 4 key elements of the rule. 1) Definition of the Default Management Policy 2) Clearing Fund Methodology Policy 3) Recovery and Orderly Wind down (RWD Plans) 4)Waterfall rules- this by far is the most

important as it will tell you how the losses will be covered. Here order matters. So just like we learned back in the day the old algebraic term PEMDAS there is a way in which the losses will be deducted against different accounts in order to bring it back to zero. Okay cool...

what's next? Part of what the OCC does is that it commits it's liquid net assets funded by equity (LNAFBE), which it says is greater than 110% of the target requirement prior to charging what's called the Clearing fund should a member default. They meaning the OCC tries to

maintain enough liquid assets to cover for it's own members. For those who don't understand how the LNAFBE is calculated you take the level of cash and cash equivalents no greater than the total equity less any liabilities you may have. the Term Equity here means shareholders

equity as reported on the balance sheet. So now that I've given you a broad overview, let me give you some of the history and background on this rule. So back in 2020 the OCC put in place the Capital Management Policy. The policy was to watch 3 different things - The amount of

equity needed to satisfy the market & public interest. 2) Monitor both equity and liquid net assets funded by equity i.e. do you have enough assets to meet general obligations. aka working capital. 3) Managing Equity Levels by either adjusting fee schedule or establishing a plan

should it fall short. This policy allows for OCC's current and retained earnings in excess of 110% of target capital requirement to be used to cover losses arising from a member default. So essentially the OCC capital management policy protects us/those who trade options by

having a framework in place to sound an alarm if necessary when stuff like we're going through right now w/ Short Interest & FTD's out there on the market. Their job is to protect us by making sure that if a member defaults they have a plan in place to fix it. Okay so what

happens when a clearing member defaults? The OCC would contribute it's excess capital to cover losses remaining. Do you remember when I said Order Matters: Well here is the original equation before the law change -
Losses +(Add back Margin Accounts + Clearing Fund Contribution

of the default member + Excess Capital from OCC (LNAFBE) + Clearing fund Contributions of Non-Default Members). If the Excess Capital from OCC is not enough then another resource used to the very end is the Executive Deferred Compensation Plan (EDCP) which is contribution equally

with the Clearing Fund Contributions. Why do I care? 2020 was the first time this was done in the history of the market. Why is 2020 so special oh well Covid, companies, taking large amounts debt, oh did I mention that's when the shorting of the stock market began lol. At the

time the Executive Deferred Compensation Plan was more in lined with the interest of management and the users/members. The whole reason for this actually being passed is that representatives on both the buy and sell side of the options market in march of 2020 wanted central party

counterparts to have a defined level of skin in the game ex ante that would always be readily available in case of default loss or liquidity failures....okay L2B what does it mean. Well it means that buyers and sellers wanted the OCC to increase their minimum contribution amount

Still didn't give me a good reason. Well try this in the European market infrastructure skin in the game is a minimum of 25% of the counterparts regulatory capital requirement. So to align OCC with their foreign counter party the rule is written to change and sure up our

accounts to absorb at least another 15% of losses or liquidity shortfalls. Okay I get so tell me about those rules. There are four rule changes. And ill go through them 1 by 1. 1. Defining the minimum corporate contribution
a) the change in definition was to include the

minimum level of OCC's own funds maintained exclusively to cover credit loss or liquidity shortfalls as predetermined by the perform.
b) it permanently set the total Skin In The Game to be 25% of the OCCs target Capital requirement. It would be the sum of the minimum

corporate contribution + executive deferred comp unvested balance.

2) Revising OCC's default waterfall rules. When I talk about rules quoting rules this is what I mean. So the change in the Waterfall rules are found in OCC Rule 1006. (Caveat you won't find it listed as a rule

but will be located in the rule guide and handbook). The second change amends the rule that discusses the purpose and use of the Clearing Fund I felt it really necessary to include the regular language here because I got excited...You need to know what the clearing fund is so

and why it is important. Okay Part 2 is on the way. @threadreaderapp unroll. #OPTIONS #Markets #STONKS #MEMESTONK #SQUEEZE