New York-based licensed bitcoin exchange Gemini’s owners, Cameron and Tyler Winklevoss, in a blog post, have clarified their decision to reverse the large market buy order that was placed by a customer on last Friday evening and that drove up bitcoin’s price on the exchange to $2,200.
Gemini was announced back in January by Cameron and Tyler Winklevoss, the twins who became famous when they were reported to have sued Facebook founder Mark Zuckerberg, claiming he stole their idea of an online social network. Gemini’s launch was announced on October 5 immediately after the exchange announced it had been granted a license to operate as a chartered limited liability trust company by the New York State Department of Financial Services. The trading officially began on October 8.
To clarify the decision, the twins wrote in the blog post:
“There are a number of situations which can cause markets to do unusual things — these can include, but are not limited to, a fat-finger order, an algorithm run amok or a software bug. It’s difficult to give hard and fast rules for each of these scenarios, many of which can be grey areas; however, this particular case is fairly clear. The customer who placed this order made a trade that was empirically disruptive to an orderly market — in this case achieving a price of ~$2,200.00 or ~700% above the then current market price per bitcoin — representing a false and misleading view of the market. We did not base our decision on the reason this order was placed (though we have no evidence to believe it was intentionally malicious), only whether or not it was disruptive. Our decision was also not based on customer type, although, since it has been asked, we will share that the customer was not an institution, not a special customer, but rather an regular individual customer just like many others on our platform.”
“While it is impossible to create guidelines for every potential situation, it is possible to make an affirmative statement with respect to this specific class of erroneous trade. Small orders can be mistakes too, but most will not disrupt an orderly market. What exactly constitutes disruptive is not always entirely clear, but what happened Friday was clearly one of these examples.”
Along with clarifying the decision, the brothers outlined what they are doing to prevent this from happening in the future, and what customers can expect if something like this occurs again.
The Winklevoss twins pointed to two different sections of Gemini’s User Agreement, namely Account Statements section and System Disruptions or Malfunctions section. A clause in the exchange’s Account Statements section says, “We retain the right to enter pricing, order, and reconciliation adjustments as necessary and appropriate,” while a clause in the System Disruptions or Malfunctions section says, “We reserve the right to reverse and/or cancel one or more Orders in the event of (i) any disruption or malfunction in the operation of any electronic communications, trading facilities, storage facilities, recording mechanisms or other components of or integral to Gemini or of Digital Assets, or (ii) any other severe business disruption to Gemini, its systems or Digital Assets, where the nullification of transactions may be necessary for the maintenance of a fair and orderly market or the protection of you and the public interest.”
Cameron and Tyler did not forget to mention here that having the ability to adjust orders, handle clearly wrong trades, and stop or postpone trades during a disruption to an orderly market are market safeguards that are common practice among numerous well-established and regulated exchanges such as the NYSE and NASDAQ.
To prevent similarly disruptive situations in the future the twins announced they are implementing two “pre-trade controls” going forward:
- “Automatic cancellation of the remaining portion of any order that immediately moves the market price by more than 20% in either direction; and
- The addition of a confirmation dialogue box that warns customers before placing any order that could potentially move the market price by more than 20% in either direction.”
About what customers can expect if something like this occurs again even in the presence of the two User Agreement clauses and the two pre-trade controls, the brothers wrote:
- “For this event, we will be removing the record of these reversed trades from our market data API and the historical trade data on our website.
- If you were a party to this trade, we’ve already been in touch with you — you will still see a record of your portion of this trade and its reversal in your account history.
- Version 2.0 of our API is already in development and we will look to incorporate more specific detailed accounting for any future reversed trades.”
The Winklevoss twins said that when taking into account the relevant facts, they felt that reversing the trade, which was empirically disruptive to an orderly market, was closer to the spirit of what they intended when they began work on Gemini —a safe and secure marketplace for all customers to buy and sell bitcoin.
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