We are writing to clarify our policies and procedures around market disruptions, and to address the large market buy order that was placed by a customer on the evening of Friday, November 13th, 2015. This single order drove up the price per bitcoin on Gemini to as high as $2,200.00 (i.e., ~$1,800.00 dollars above the then current market price), and after careful consideration, it was subsequently reversed. Upon making our determination, we immediately alerted all counterparties involved and have been working diligently to ensure the most equitable resolution possible. We have also been working on building and implementing a strategy to prevent and help mitigate similar situations in the future. It has been no small undertaking, and we greatly appreciate your patience, apologize for any inconvenience and for the delay in our response communication, and understand how some may disagree with our decision. With that said, in an effort to be as transparent as possible, we will outline why we decided to unwind this trade, what we are doing to prevent this from happening in the future, and what customers can expect in the event something like this happens again.
GUIDELINES FOR TRADE REVERSALS
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.
OUR USER AGREEMENT
Because issues such as this one can arise in any marketplace from time to time, our User Agreement states the following:
“We retain the right to enter pricing, order, and reconciliation adjustments as necessary and appropriate.”
(See Account Statements section)
“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.”
(See System Disruptions Or Malfunctions section)
Having the ability to adjust orders, handle clearly erroneous trades and the ability to halt or delay trades during a disruption to an orderly market are market safeguards that are neither exclusive nor unique to Gemini, but rather common practice among many well-established and regulated exchanges such as the NYSE and NASDAQ.
IMPLEMENTING PRE-TRADE CONTROLS
We will be implementing the following pre-trade controls in an effort to prevent similarly disruptive situations going forward. These include:
- 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
And while we believe these new pre-trade controls will greatly help prevent problematic trades in the future, it is impossible to predict all potential corner cases that could be disruptive to an orderly marketplace (the very reason why exchanges employ the safeguards mentioned above). As a result, we are planning to take the following steps:
- 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.
We understand and have considered both sides of the bitcoin, so to speak, with respect to this issue and recognize that not everyone will agree with the actions we have taken. Unfortunately, no solution is perfect here. But when taking into account the relevant facts, we felt that reversing this trade was more in line with the spirit of what we intended when we set out to build Gemini — namely, a safe and secure marketplace for all customers to buy and sell bitcoin.
Cameron + Tyler