A market maker is reportedly suing Asian bitcoin exchange QUOINE for over 3,084 BTC over a reversed trade. The lawsuit raises questions over how exchanges should act in the event of technical or human errors that dramatically shift prices.
QUOINE has offices in Singapore and Tokyo, though the majority of its trading activity comes from Japan.
At issue is an order in April 2017 placed by market maker B2C2, to sell ETH for BTC at a price of 10 BTC per ETH. (For the record, the market price at that time was around 0.04 BTC per ETH.)
According to a report in Singapore’s Straits Times, the order executed on 19th April, netting B2C2 3,092.517116 BTC — at a cost of 309.2518 ETH. It received the BTC to its account.
However QUOINE later reversed the trades, claiming a technical glitch had caused the BTC price to drop so dramatically. At that time, the exchange claimed it was reconfiguring passwords for critical systems and fending off persistent hacking attempts.
It claimed the price at which B2C2’s trades executed were obviously not real market prices, and were not reflected on other exchanges or price indexes.
Dispute Over Trade Reversal
B2C2 is now attempting to sue QUOINE in the Singapore High Court, saying the exchange’s orders are “irreversible” once filled. It is apparently suing for return of 3084.78582325 BTC with no fiat value specified. That amount at today’s prices is about $9.38 million USD.
QUOINE’s Terms and Conditions document (section 15.3) states:
“If the Company has presented an abnormal rate (“Bug Rate”) due to a system failure, etc., then prices that the Company judges are due to a Bug Rate will all be treated as invalid. The Company shall cancel, or correct the contract price to the market price for, orders formed at a Bug Rate.”
Other sections also detail that the company reserves the right to cancel trades in the event of technical problems.
QUOINE has now published a response to the lawsuit, saying: “We believe B2C2’s claims against QUOINE are completely without merit. We take all complaints seriously, including court cases, and will vigorously defend ourselves in the court proceedings.”
How Should an Exchange Handle Glitches and ‘Flash Crashes’?
Anyone who’s watched cryptocurrency markets has probably seen a freak spike or drop at some stage. Order books often record actual trades happening at these prices. These can happen as a result of technical problems or trader error, and exchanges usually set clear policies in case a dispute arises.
In June 2017, U.S. exchange GDAX suffered a “flash crash” that saw its ETH price drop from $320 to $0.10. Some acquired ETH around that price and several margin traders lost money when their positions were automatically closed on the way down. GDAX, which is owned by Coinbase, said trades would be honored and did not reverse them — but also later agreed to reimburse the margin traders.
Another U.S. exchange, Gemini, was criticized in November 2015 after it appeared to reverse trades following an erroneous order. The company said in a statement: “The customer who placed this order made a trade that was empirically disruptive to an orderly market … representing a false and misleading view of the market.”
Mistakes Happen in the Bigger Leagues Too
Exchange glitches and human error have also caused chaos on traditional stock exchanges in the past.
In one notorious 2005 incident, a Mizuho Securities employee accidentally sold 610,000 shares of Japanese firm J-Com for ¥1 each ($249.4 million USD) on the Tokyo Stock Exchange (TSE). The employee had intended to sell one share for ¥610,000 ($5,510 USD).
The stock exchange did not reverse the trade, costing Mizuho three months’ of net profits. However it also helped cost TSE president Takuo Tsurushima his job, after accusations his exchange should have blocked an obviously abnormal trade.
What should happen in the event of glitches, errors and flash crashes? Let’s hear your thoughts.
Images via QUOINE, Pixabay