Bitcoin futures remain a ‘buyers beware market’ for Hong Kong investors
- Claims of market manipulation against a Hong Kong cryptocurrency exchange highlight confusion over regulation in the city
Investors in cryptocurrency futures contracts in Hong Kong are trading at their own peril, as highlighted by the recent controversy around Okex, the world’s second-largest cryptocurrency exchange.
The company, which is registered in the Seychelles and based in Hong Kong, delivered its bitcoin cash futures contracts on November 14, earlier than scheduled, leading to losses for some traders. The incident comes fresh on the heels of a new conceptual framework introduced by Hong Kong’s Securities and Futures Commission, and some of the aggrieved traders approached the watchdog and filed a case.
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OKex wrong-footed some of its users by settling and delivering three of its bitcoin cash futures contracts earlier than expected. Its decision affected contracts worth more than US$400 million, according to Hong Kong-based trading company Amber AI. The incident borders on fraud, according to a post by the latter in the online publication Medium. OKex’s move was indicative of market manipulation, according to Amber AI, as the platform’s internal trading desk was trading against its clients’ positions. OKex has denied these claims.
The SFC, which on November 1 introduced a regulatory sandbox for exchanges that wish to apply for a licence in Hong Kong, however, does not accept platform operators trading virtual assets that are futures contracts or derivatives. Under this framework, which has not yet been implemented, it is therefore unlikely to regulate these operators.
Given this, it seems the traders who have filed a case with the SFC have misinterpreted the regulator’s stance, wherein it has left cryptocurrency futures and derivatives unregulated – a “buyers beware market”. Hence, they cannot expect any form of redress.
Our principle is always use multiple exchanges and avoid concentrated positions
This is not the first time OKex has been in the news for causing losses for its investors. In July this year, it took a portion of the gains in equal percentage from all traders making a profit under a clawback mechanism, and used it to plug a client’s margin call loss. It made the decision after the client’s long position exceeded its risk limit, which led to OKex forcibly liquidated trades in that account.
