OKEx $9 Million Clawback Hurts Traders, to Apply Scaling Margin Ratio Rules in Future
OKEx Introduces $9 Million Clawback After A Bitcoin Future Trade Fails
After a forced liquidation on July 31st threatened to destabilize its operations, OKEx has moved to protect its futures market with an injection of 2500 BTC into the exchange’s insurance fund from its own capital.
On Friday, the exchange revealed that it added Bitcoin worth $18.5 million to its insurance fund so that it can be used in such situations. However, the shortfall wouldn’t be covered with that alone. So, the exchange implemented societal clawback which happens when the insurance fund of the platform cannot cover investors' total margin call losses. In such cases, the counterpart investors will have to make up for the shortfall.
In futures markets, the shorts pay the profits of longs and vice versa, depending on bitcoin price movements. If a bankrupt trader is forced out of position in a low liquidity profit, then their counter party is essentially earning money from this loss. This means that there aren’t sufficient losses on one side to pay for profits on the other side, which means traders who took a profitable position will lose money.
Steps Taken By OkEx
OKEx has announced that they will put down some $20 million worth of BTC to cover the largest liquidation in history that closed a half a billion dollars position on August 1st.
In a statement today, OKEx said:
“Our risk management team immediately contacted the client, requesting the client several times to partially close the positions to reduce the overall market risks.However, the client refused to cooperate, which lead to our decision of freezing the client’s account to prevent further positions increasing.”
To reduce the market risks induced by this incident, the following actions will be executed:
- Injecting 2500 BTC from OKEx’s own capital pool into the insurance fund.
- During the settlement at 4pm August 3, 2018 (HKT), if any attempts of malicious manipulation of the settlement price are found, we will delay the settlement process for 10 minutes and manually adjust the price back into a reasonable level before delivery or settlement. The account which made the malicious attempt will be suspended immediately.”
OKEx said the above will “largely reduce the socialized clawback ratio of this week,” but it appears like at least another 1,000 to 1,500 btc, worth some $7 million, will have to be covered by traders’ profits. That means everyone who had a long or short position across OKEx’s three futures contracts and made a profit, will see some of that profit reduced by a currently unknown percentage.
A societal clawback happens when the platform's insurance fund is not able to cover investors' total margin call losses. In that case, counterpart investors – i.e. those who have short positions – will have to make up the shortfall.
When asked for the reasons for the clawback, the company explained:
“When the insurance fund cannot cover the total margin call losses, a full account clawback occurs. In such case, only users who have a net profit across all three contracts for the week will be subject to the clawback.”