Purpose and Scope
1.1 These Default Rules (the “Rules”) set out the framework governing the identification, management, and resolution of default events on the Platform operated by eXchange1 (“Exchange1”).
1.2 The Rules are intended to ensure fair, orderly, and transparent market operations, safeguard Users, and preserve the integrity, stability, and proper functioning of the Platform.
1.3These Rules shall be read in conjunction with the Platform Trading Rules and the Terms of Use, and shall form an integral and binding part thereof.
2. Definition of Default
2.1. A User shall be deemed to be in default where Exchange1 determines, acting reasonably and in good faith, that:
- the User has failed to maintain sufficient balances, collateral, or margin as required under the applicable Rules;
- the User is unable or unwilling to settle any Trade or financial obligation when due;
- the User has breached these Rules, the Terms of Use, or any Applicable Law; or
- the User is engaged in, or reasonably suspected of engaging in, fraudulent, unlawful, or otherwise prohibited activity.
2.2 Any determination of default by Exchange1 shall, save in the case of manifest error, be final, conclusive, and binding upon the User.
3. Default Management Actions
3.1. Upon the occurrence of a default, Exchange1 shall be entitled, without prejudice to any other rights or remedies available to it, to take such actions as it considers necessary or appropriate to mitigate risk, protect the Platform, and ensure orderly market conditions.
3.2 Such actions may include, without limitation:
- suspension or restriction of the User’s access to the Platform;
- cancellation of any open Orders;
- restriction or suspension of withdrawals;
- imposition of additional margin or funding requirements;
- closure, reduction, or transfer of open positions; and
- freezing, restriction, or control of account balances.
3.3 Exchange1 may exercise the foregoing rights without prior notice where it reasonably considers such action necessary.
3.4 All actions taken pursuant to this Clause shall be exercised in a commercially reasonable manner and in good faith.
4. Liquidation of Positions
4.1. Where a User fails to maintain required balances, collateral, or margin, Exchange1 shall be entitled to liquidate the User’s positions, in whole or in part, without prior notice.
4.2. Liquidation shall be effected in accordance with the Platform’s order execution framework, taking into account prevailing market conditions, available liquidity, and execution feasibility.
4.3. Exchange1 shall use reasonable endeavours to execute liquidation through market-based mechanisms.
4.4. Where such execution is not feasible or is insufficient to close the relevant positions, Exchange1 may close any remaining positions at prevailing market prices or at a system-determined fair value.
4.5. The User acknowledges and agrees that liquidation may occur rapidly and that execution prices may differ materially from expected prices due to market volatility, slippage, or liquidity constraints.
5. Default Waterfall Mechanism
5.1. Where losses arising from a default event exceed the defaulting User’s collateral, Exchange1 shall apply a structured loss-management hierarchy (the “Default Waterfall”) in strict sequential order.
5.2.Losses shall be applied in the following sequence:
- a. the defaulting User’s collateral, including Initial Margin, Maintenance Margin, and net unrealised profit and loss;
- b. any remaining balances held in the User’s account;
- c. the Insurance Fund maintained by Exchange1, funded by liquidation fee surpluses and Exchange contributions;
- d. Exchange1 will endeavour to obtain third party insurance policy for losses as and when such insurance policy is available , which will be subordinated to the Insurance Fund; and
- e. residual loss allocation mechanisms, including Auto-Deleveraging (ADL) or any other mechanisms as may be determined by Exchange1.
5.3. No tier of the Default Waterfall shall be applied unless and until all resources in the preceding tier have been fully exhausted.
5.4. The application of each tier shall be recorded and may be disclosed or reported in accordance with the Platform’s policies.
5.5. The Default Waterfall mechanism is intended to ensure the orderly, transparent, and predictable allocation of losses and to mitigate systemic risk within the Platform.
6. Auto-Deleveraging (ADL)
6.1 Exchange1 shall implement an Auto-Deleveraging (“ADL”) mechanism as the final stage of the default waterfall.
6.2 ADL may be triggered where losses arising from liquidation exceed the defaulting User’s balances and any available risk management resources or reserves.
6.3 In such circumstances, Exchange1 shall be entitled to reduce or close positions held by other Users with opposing exposures to absorb residual losses and maintain the stability and orderly functioning of the Platform.
6.4 The ADL mechanism shall operate in accordance with predefined parameters and methodologies established by Exchange1, including, without limitation, factors relating to leverage, profitability, and relative risk exposure.
6.5 The User acknowledges and agrees that the application of ADL may result in the partial or full reduction of otherwise profitable positions.
6.6 The application of ADL shall be binding on all affected Users and shall not give rise to any claim against Exchange1.
7. Negative Balances and Recovery
7.1 Exchange1 may take reasonable measures to prevent the occurrence of negative balances.
7.2 Notwithstanding Clause 7.1, each User shall remain fully liable for any deficit arising in its account.
7.3 Exchange1 shall be entitled to recover any such deficit through all lawful means available, including by way of set-off, legal proceedings, or other recovery mechanisms permitted under Applicable Law.
8. Set-Off and Use of Assets
8.1 Exchange1 shall have the right, at any time and without prior notice, to set off any amounts owed by the User against any balances held in the User’s accounts.
8.2 Exchange1 may convert Crypto-Assets or fiat balances into such form as may be reasonably required to effect such set-off or satisfy any obligations.
8.3 The User hereby grants to Exchange1 a continuing security interest and right of set-off over all assets held in its accounts, as security for the performance of its obligations under these Rules.
9. Settlement and Close-Out
9.1 Following the occurrence of a default and completion of any liquidation process, all positions shall be closed.
9.2 Exchange1 shall determine a final net balance, taking into account realised profit and loss, applicable fees, charges, and any costs incurred.
9.3 Any resulting amount shall be payable by or to the User, as the case may be, and shall be settled in accordance with these Rules.
10. Limitation of Liability
10.1 Without prejudice to any broader limitation of liability provisions, Exchange1 shall not be liable for any losses arising from liquidation, Auto-Deleveraging, market volatility, or actions taken in accordance with these Rules, except where such liability cannot be excluded under Applicable Law.
10.2 Nothing in these Rules shall exclude or limit liability for fraud, wilful misconduct, or gross negligence.
11. Communications
11.1 Exchange1 may provide notices or communications in connection with default events through the Platform, by electronic communication, or by any other means it deems appropriate.
11.2 Users shall be responsible for ensuring that they monitor and review such communications.
12. Application of Rules
12.1 These Rules shall apply to all Users of the Platform.
12.2 These Rules form part of the Platform’s overall risk management and operational framework and shall be binding on all Users.
13. Amendments
13.1 Exchange1 reserves the right to amend, modify, or supplement these Rules at any time.
13.2 Any such amendments shall take effect upon publication on the Platform or upon notification to Users.
13.3 Continued use of the Platform following such publication or notification shall constitute acceptance of the amended Rules.