Cryptocurrency traders have reportedly suffered huge losses after digital asset exchange, OKEx, quickly settled bitcoin cash (BCH) futures contracts - allegedly without properly informing users before the BCH hard fork on November 14th.
Qiao Changhe, the founder of Beijing-based Consensus Technologies, has alleged that he lost $700,000 because OKEx’s management closed the BCH futures contracts at a point that did not accurately reflect cryptocurrency prices (at that particular time).
Changhe added that “OKEx is losing its credibility” and that he would be reducing his trading activity on the exchange. According to Bloomberg, Changhe manages a $5 million cryptocurrency fund, and he incurred substantial losses along with many other traders on Hong Kong-based OKEx - as it abruptly closed $135 million in derivatives contracts (on November 14th).
OKEx's Futures Contracts "Became Something Nonsense"
Changhe, who has earned his Phd in Mathematics from Penn State University, complained that OKEx’s BCH “futures contract became something nonsense, not something we could use to hedge.”
Four other crypto traders that use OKEx (who chose not to identify themselves) also said they would reduce their activity on the exchange, and might even completely stop using the platform that reports $1 billion in daily trading volume.
One of the four traders said that he has filed a complaint regarding the matter with Hong Kong’s financial regulator, the Securities and Futures Commission (SFC).
"Not Enough Market Depth To Compose Index For Delivery"
As explained, the traders have alleged that OKEx did not give enough time to react to its announcement regarding BCH futures. On November 14th, which was just one day before the Bitcoin Cash (BCH) hard fork, OKEx released a blog post stating that all BCH futures would be closed “at 9:05am and be delivered at 10:00am Nov 14, 2018 CET (UTC +1) due to the upcoming hard fork. We will provide a detailed explanation shortly.”
Later during the day (on Nov 14th), OKEx’s management said it would be using the last traded prices on the exchange as the delivery prices (for the contracts) - as there was no trading pair with BCH with “enough market depth and trading volume to compose an index for delivery.”
OKEx Denies Claims: "Maintaining The Fairness And Stability Of The Market"
In an email statement sent today to media after the allegations, OKEx offered an explanation for their decision to close BCH futures, claiming it was an“extremely special case…[and that it came] to [their] concern that an early announcement may make room for market manipulation and cause loss to [their] users. Therefore, [they] decided to give a short notice in order to maintain the fairness and stability of the market.”
OKEx also claimed they were forced to pick a delivery time (for BCH futures) that was one hour after they closed trading on their exchange. According to OKEx, if the exchange had kept both buy and sell orders open at the same time, then that “could have crushed the BCH spot market and caused huge volatility.”
Earlier in August, OKEx reportedly froze an “enormous” long position of 4,168,515 BTC futures, after the user allegedly refused to lower their position when requested by the exchange’s support team.
Update & Clarification Statement From OKEx
In response to user "Amber AI", whose Medium blog post alleges that OKEx engaged in market manipulation - leading to $400 million in "futures contracts being forced into liquidation", OKEx specifically addressed the claims in their statement:
OKEx's official statement reads in part:
We do not have an institutional client profile named Amber AI, while Amber AI claim themselves as a Hong Kong-based company. We do NOT serve any customer in Hong Kong, in respect of the local laws and regulations. The OKEx account Amber AI claimed managing is an individual account, which is not a Hong Kong resident or entity on the report of the KYC information.
OKEx further clarified: "The early settlement of BCH Futures Contracts was implemented based on the consideration of market integrity and customer interests. The early settlement was implemented in accordance with clause 2.5 of OKEx Futures Trading User Agreement, 'If market anomalies occur before or after settlement and delivery, which results in wide fluctuation of futures index or abnormal clawback rate, we may postpone or early settlement and delivery as the case may be. We shall post an announcement regarding detailed rules.'"