There are at least two different edit disputes on this page. Please try to put your comments in the appropriate section and please try to deal with only one of these disputes in each of your edits. Thanks. Eldentyrell (talk) 23:20, 26 August 2013 (GMT)
Whether ICBIT is an Exchange providing full Central Counterparty backing
Please stop deleting material from this page. For a very long time ICBIT's webpage clearly explained that it was not a central counterparty. Now it's been changed to something absurdly self-contradictory that essentially says "we call ourselves a central counterparty but we aren't one and we explicitly deny the responsibilities that define the role of a central counterparty". The whole point of having a futures exchange is that you're exposed to credit risk from only one party and you know who that party is (the exchange). ICBIT is not doing that. If they decide to do that and say so publicly, then feel free to change this page, but unless/until then please stop deleting important facts. Eldentyrell (talk) 16:04, 13 August 2013 (GMT)
First of all, finally thank you for taking this into Discussion page. The thing is that you seem to misunderstand how exchanges work. Indeed, ICBIT acts as a counterparty to all futures contracts trades happening, and all major fiat money futures exchanges out there do the same.
That means that if one trader buys 2 BTC/USD contracts, counterparty is ICBIT, and it is also counterparty to those traders who sold these 2 contracts!
Trader 1 Trader 4 Trader 2 <==> ICBIT <==> Trader 5 Trader 3 Trader 6
Now, the most important fact: Sum of all money paid by loosing users equals to sum of all money paid to profiting users!
And when any user from loosing side goes bankrupt, central counterparty (aka exchange) has to pay its own money. We do that, but we can't do that all the time, and we can't guarantee it happens all the time, so that's why we say that we guarantee to pay as much, as loosing traders are able to pay.
Again, that's absolutely same to how fiat-money "real-world" exchanges work. They have reserve funds, and they often go bankrupt (lookup recent Hong Kong's derivatives market bankrupcy, for example).
No, Fireball, you misunderstand how exchanges work, and you do not appear to understand what Counterparty Risk is. Being a central counterparty is much more then simply being a central intermediary. Your diagram shows a central intermediary, not a central counterparty.
Here, since you like pictures:
Trader 1 Trader 4 Trader 2 <==> Intermediary <==> Trader 5 Trader 3 Trader 6
You write "and when any user from loosing side goes bankrupt, central counterparty (aka exchange) has to pay its own money. We do that, but we can't do that all the time, and we can't guarantee it happens all the time" -- then you are not a central counterparty all the time. It's just that simple. When you're ready to do that all the time like COMEX and Nasdaq do, all the time with a pledge of the assets and equity of the exchange itself to fulfill any default like COMEX and Nasdaq do, then announce it publicly and you'll be an exchange (at least in that essential respect). Until then stop posting factually incorrect information on the wiki.
Here's the problem:
Trader 1 defaults ======> ICBIT unable to collect ======> Trader 4 is told "you lose"
This means that Trader 1 was the counterparty, not ICBIT.
If I buy a call option from on Nasdaq and it is cleared against an uncovered sell order by Bob Jones of Louisiana, I am not exposed to Bob Jones' bankruptcy even though selling uncovered calls has unlimited risk. Nasdaq will make good on the option all the time, and if it doesn't Nasdaq itself is in default. This is the one and only reason why I don't care (and in fact don't know) who the hell Bob Jones is.
If I buy a COMEX contract for December delivery of gold and it is cleared against a sell order by Karl Marx of Zimbabwe, I am not exposed to Karl Marx's bankruptcy. COMEX will make delivery of the gold all the time, and if it doesn't COMEX itself is in default. This is the one and only reason why I don't care (and in fact don't know) who the hell Karl Marx is.
Note that this is in stark contrast, to, say, credit default swaps which are not centrally cleared. And, in fact, note that there is no credit default swap exchange since CDS don't have a central counterparty. A CDS is always a direct transaction between two parties; the identity of the other party is always known and in fact who the counterparty is has a massive effect on the value of the CDS.
Stop vandalizing the page with your marketing propaganda.
Your last three paragraphs are absolutely correct, and it happens same way on ICBIT! That is what I am trying to explain you for weeks. We do NOT bind futures contracts directly - e.g. you bought 1 contract from Friedrich Engels of South Africa, he went bankrupt and you did not get the money, and everyone else got their profit because they were lucky to make a deal with Karl Marx instead, who is more credible.
So when you trade at ICBIT, you also do not care who the Karl Marx is. In ICBIT, your futures transaction 2nd party is always exchange (when you buy someone's order, there will be at least 2 transactions 1 buy and 1 sell, both of them will have same 2nd party - the exchange).
Now take the example with COMEX and gold. It will make delivery of gold (same way as ICBIT delivers profit for contracts, pledging its own assets) and non-paying Karl Marx will be sued by banks/brokers, government enforcement agency will sell his car and house to cover losses. ICBIT allows anonymous trades, so to prevent default we have to employ various risk reducing strategies, however theoretically (what I am trying to get you to understand again!) COMEX can easily go default, ICBIT can easily go default and Hong Kong's exchange already went default (even though it was/is an exchange, not some gambling house). In that case, as it's explained on our webpage, we just pay as much as possible, close as much traders position as it's necessary and then traders are free to reopen them. This is because traders are anonymous, though we do reserve the right to pursue debtors.
Is this finally clear, and could *you* please stop vandalizing the page? I see that you are not new to finances, however if you want to redefine what exchange is, what counterparty is - please go to Wikipedia instead. I'm not for marketing propoganda, I'm for facts.
> Your last three paragraphs are absolutely correct,
If that is true, point me to ICBIT's publicly-stated commitment that it pledges its own assets and equity to "make delivery of (the relevant asset) all the time, and if it doesn't ICBIT itself is in default" as I wrote in the second-to-last and third-to-last paragraphs. Until then the page stays the way it was. Don't revert it again. "We just pay as much as possible" is vague and useless; what matters is whether the exchange pledges its own assets and equity.
> The reference was and is there (https://bitcointalk.org/index.php?topic=50817.msg1402414#msg1402414), on the wiki page itself, which lets user read the original thread and make his opinion. So exchange does pledge the assets, and hence I restored the webpage.
> The reference was and is there (https://bitcointalk.org/index.php?topic=50817.msg1402414#msg1402414), on the wiki page itself, which lets user read the original thread and make his opinion. So exchange does pledge the assets,
What? You're not making any sense. That forum posting does not address the issue here.
> and hence I restored the webpage.
I have reported your repeated unconstructive edits to the wiki administrators.
If you are not able to understand what's written there, it's your problem, not a problem of users visiting this page. Your actions are harming the community. Look around, the only scam reports are from you and another guy who lost money trading and now blackmails me asking for 1/4 of "his" money to be back in exchange for not spamming this page and forums. Get out of your small world and look around, again. Do you want Bitcoin to succeed? Or you want to kill it, one by one? We really run an honest service for more than 2 years. We contribute to the Bitcoin economy. We work on it every day and every hour. Don't spoil the fun. Hopefully, it's my last message to you.
I haven't posted anything about scam reports; I just revert your unjustified deletions. You are seriously confused. Take your nonsense elsewhere. Here's an idea: if you don't like the part about scam reports, how about removing only that part instead of huge chunks of unrelated text? Yeah, I know, that would be way too easy...
If you can find time for reverts, you could find time for editing, not just reverting. Anyway, I reverted it to the good version, BUT added a text that YOU dispute that ICBIT is not the central counterparty for all trades. And referenced this page so that anyone interested could read through this page and get their own impression. Because it's YOUR impression, and it must not be forced to EVERYONE reading the page. Readers should get their own impression. And wikipage must state facts, not a biased opinion of some stranger. The version of text now is as precise as it is. Your description is not correct because you mislead customers into thinking that they trade futures with each other, when in fact they are trading with the exchange (it's a simple fact that I am one of those people who built this exchange from the ground up, and thus I know its internals much better than you do)
You work for ICBIT. I have no stake in its success or failure, nor am I in any way involved with any of its competitors or alternatives.
So why the hell did you revert proper version of the text, mentioning your dispute? I think you don't notice this line.
I see that you have made your policy even more self-contradictory than it was before.
Look, I've grown very tired of re-explaining what a counterparty is to you, but I'll mention one last thing. It seems like you're attempting in vain to come up with some policy that lets you force-close adequately-margined positions and still claim that you are the counterparty. This is totally impossible. If you're force-closing adequately-margined positions, the price used to force closure is not a market-determined price! You're shutting down the market (and perhaps letting it restart, but that's irrelevant) so whatever price you use to force-close is of your own choosing. You've robbed the asset holder of the ability to hold-to-maturity and take delivery. You might think the price you're offering them is fair compensation, but that's beside the point. Without the option to hold-to-maturity there is no way to determine the fair price.
I know you really really really want there to be some magical way you can be an exchange and still retain the ability to force-close the positions of people who have adequate margin because other people (their COUNTERPARTIES) no longer have adequate margin. There is no such magic. So make your choice -- either pledge the exchange's assets+equity to back positions taken (not just whatever part of the position you claim to be "as much to profiting traders as loosing traders lost (in total)") or stop calling yourself an exchange. Putting your business itself on the hook, financially, for the full extent of all positions taken is the only way you can be trusted to run a sufficiently careful margin system, since you are the one exposed for failure to police margins. Reserving the right to dump that risk on your customers whenever you screwed up… well, you can do whatever you want, but there's a damn good reason why no real exchange does this.
Here is a really great article explaining what central counterparty clearing is. It's being required for swaps markets in the USA starting in a few days, so seeing the sorts of changes that come with it give a good idea of what it entails. Most important part:
Guaranty of financial obligations. A DCO guaranties the financial integrity of all transactions that it has accepted. In the event that a clearing member’s customer defaults on its obligation to answer margin calls, it is the duty of that clearing member to satisfy its customer’s obligation, with a DCO satisfying any part of the default that exceeds the clearing member’s resources.
This is the essence of central counterparty clearing, and it's basically what the exchange gets paid to do. This stuff is 100% routine for all financial markets except swaps, and that's being changed as we speak.
Sorry Eldentyrell, you can't accept anything except your own vision. You can't even accept an unbiased, correct third-party explanation... I'm sorry about you. I guess you need to find some other place in the world which lives according to your vision. Fireball
Fireball, what you call an "unbiased correct third-party explanation" actually agrees with me, writing "ICBIT it is not acting as a clearing house, nor is it the counterparty to the futures trades it brokers. There is no clearing house guarantee, and counterparty risk remains largely unknown.". So what are you talking about? Apparently you emailed whoever writes that blog with a rebuttal; the blogger posted your rebuttal and then you quoted the blogger quoting your rebuttal. What planet are you from where quoting yourself is considered a third-party explanation? Eldentyrell (talk) 23:54, 28 September 2013 (GMT)
This seems to be at a stalemate. I've put what I believe to be a fair compromise (not knowing the situation) locked for 2 weeks (thanks nanotube!) to let things cool down and hopefully you guys can come to some kind of agreement. Might I suggest scheduling a day/time to discuss the matter on IRC? (feel free to ping me by saying "luke-jr" if you need/want my attention) --Luke-jr (talk) 17:49, 30 September 2013 (GMT)
I don't really IRC, but an email discussion would be great. I've sent an email to nanotube/luke-jr so they know how to reach me. I tried emailing the wiki admins six weeks ago to request intervention and nothing happened, which is why I had to resort to extreme measures. I'm very happy with Luke-jr's resolution of the page, except for the use of the word "exchange" in the first paragraph (where it is technically correct but very misleading since ICBIT's business is mainly futures) and the second paragraph (where it is definitely incorrect). Eldentyrell (talk) 22:58, 30 September 2013 (GMT)
Fireball, wanting money back that was taken through dishonest practices is not blackmail.
If you are comfortable with the practices you engage in on your website, why don't you address some of the accusations that have been made against you and your site?
1) Prices are blatantly manipulated through last clearing. The site encourages this, apparently because one or more site owners profit from it. A person expects prices to derive from movements in bitcoin, not overt manipulations. I have provided screenshots on the linked post below.
2) People running the site use their access to client financial information to conduct trades running positions against those clients.
For other observations refer to https://bitcointalk.org/index.php?topic=246845 which you have so far refused to even respond to.
If you want to defend your practices either here or on the forum Fireball, please do so.
No serious trader will stay on your site when they see the kinds of things you do. You are not running an honest financial exchange, you are running a scam built on keeping your clients in the dark about how you operate.
I have made and lost a lot of money on financial exchanges in the last 30+ years and I have never in my life made any sort of complaint against any exchange until yours.
The only solution
Fireball, any time you want to end this nonsense, all you have to do is man up and admit you have made serious mistakes in running your site and those mistakes need to be fixed.
Make things right then build a proper futures site or shut down.