Malta-based digital asset exchange OKEx has introduced an enhanced risk management system in response to the derivatives market risks triggered by extreme volatility in the past few months and achieved zero clawbacks since the launch, according to a press statement by OKEx. The enhanced risk management system is then applied to OKEx’s futures trading.
Therefore, the upgraded system showcases three main elements, which are the Mark Price, the Tiered Maintenance Margin Ratio (TMMR) — in order to avoid liquidation of large positions and its after-effect on market liquidity —, and the Forced Partial Liquidation Mode — introduced to eliminate the market impact caused by a large number of liquidated orders.
In addition, the new risk management system has brought balance to the risks and users’ interests. When at risk, positions will be liquidated closer to the bankruptcy price, allowing users more opportunity to remain solvent and recover from the risks.
OKEx reports an example to demonstrate the performance of the upgraded system, focusing on the bitcoin (BTC) flash crash incident that happened in May 2019. The incident was caused by a BTC5,000 dump at an oddly low price of US$6,200 on other exchange. The massive sell order caused the BTC price plunge from US$7,800 to US$6,100 in only ten minutes and created a short-time arbitrage opportunity, as the press release says.
However, thanks to the OKEx mark price of BTC, which is formed by the market prices from the other five major exchanges, GEMINI, Coinbase, Bitstamp, Kraken, and OKCoin, a price crash in one particular exchange would not cause devastating effects on OKEx markets, the company insists.
During the incident, the enhanced risk management system has demonstrated stabilized the quarterly contract price at around US$7,000 and no clawback took place at OKEx.