Eligible Parties and Asset Classes
What parties are eligible to use Margin Calculation Services?
Entities that constitute “US Persons” (as defined under US securities or commodities laws, as applicable) are eligible for Margin Calculation Services. Entities located in the EU are not eligible for Margin Calculation Services at the current time. Entities located in other jurisdictions may be eligible for Margin Calculation Services but may be requested to provide confirmation to X-Margin that their usage of Margin Calculation Services complies with local law.
Where a single entity has offices in multiple jurisdictions from which it wishes to use Margin Calculation Services, the entity should discuss availability of Margin Calculation Services and ensure it complies with X-Margin’s procedures.
Where one party to a trade is in a jurisdiction where it is eligible to use Margin Calculation Services, but the other party is not, can that trade utilize Margin Calculation Services?
No, both parties to the trade must be in an eligible jurisdiction.
If a party to a trade assigns the trade to a party in an ineligible jurisdiction (whether by transfer, assignment, novation or otherwise), the trade will no longer be eligible to use Margin Calculation Services and the parties to the transaction will be responsible for determining a margin calculation and exchange mechanism.
What are eligible product classes for Margin Calculation Services?
Currently X-Margin provides Margin Calculation Services for cryptocurrency derivatives.
What are “Margin Methodologies”?
“Margin Methodologies” collectively refers to (1) margin methodology agreements, (2) settlement terms, (3) instrument specifications and (4) liquidation methodologies
How and when are Margin Methodologies agreed?
All Margin Methodologies are agreed between each party to the trade (or class of trades). Margin Methodologies are agreed at the time the bilateral relationship is made and set up in X-Margin. This can be amended from time to time, provided both sides agree to the changes.
Can I use Margin Calculation Services for trades where each party to the trade has not agreed on the Margin Methodologies for that trade (or class of trades)?
What needs to be agreed as part of the Margin Methodologies?
Both parties need to agree to the type of trades that would be included (venue of execution, instrument, asset class), and for each of those, would need to agree on a margin calculation formula they agree on, a settlement methodology, a liquidation methodology, and a source and methodology to determine the market value to all the instruments (mark-to-market methodology)
Can I use more than one Market Methodology for a particular trade?
It is possible to have multiple margin methodologies for multiple counterparties for the same basket of trades – X-Margin will run all the methodologies and return the most conservative overall margin calculation.
What happens if there is an error in entry of the Margin Methodologies? How long does a party have to correct that error?
The parties can inform X-Margin support, and X-Margin will attempt to ensure that the correct methodology is applied as soon as possible. X-Margin cannot take responsibility for erroneous margin calculations due to an error in margin methodology selected.
Does X-Margin have template Margin Methodologies for me to select from?
It is the responsibility of each party to a trade (or class of trades) to agree upon the Margin Methodologies for that trade (or class of trades). Traders can set their own Margin Methodologies or use template Margin Methodologies listed here (“Template Margin Methodologies”). Template Margin Methodologies have been developed and tested by unrelated derivatives trading firms in the space and are in line with exchanges that use portfolio margin.
X-Margin does not endorse, and assumes no liability or responsibility for the use of any particular set of Margin Methodologies (whether set by the parties to a trade on their own or using a Template Margin Methodology).
How can parties to a trade (or class of trades) change their margin methodologies?
If you would like to change the margin methodologies, you must negotiate with your counterparties and contact X-Margin support at email@example.com.
How can I ask X-Margin to add new margin methodologies?
If you would like X-Margin to add new margin methodologies, please email firstname.lastname@example.org.
If I don’t agree with the margin methodology I am using within X-Margin, what can I do?
It is the responsibility of each party to a trade (or class of trades) to agree upon the margin methodologies for that trade (or class of trades). Traders can set their own margin methodologies or use template margin methodologies listed here (“Template Margin Methodologies”). Template Margin Methodologies have been tested by unrelated derivatives trading firms in the space and are in line with exchanges that use portfolio margin. X-Margin does not endorse, and assumes no liability or responsibility for the use of any particular margin methodology (whether set by the parties to a trade on their own or using a Template Margin Methodology).
However, trades, margin methodology agreements, settlement terms, instrument specifications, and liquidation methodologies are all set bilaterally. X-Margin is applying those parameters and running as a zero knowledge calculation agent between users. If you would like to change the bilateral terms and parameters, you must negotiate with your counterparties. If you would like X-Margin to add new margin methodologies, please email email@example.com.
Margin and PnL Outputs
What happens if my Margin Methodologies go wrong or produce unexpected results?
X-Margin’s clients are sophisticated traders and trading firms and it is ultimately up to each client to understand potential results of various Margin Methodologies. Different Margin Methodologies may produce different results under different circumstances, trading strategies and market conditions.
It is each client’s responsibility to test Margin Methodologies under a range of conditions – including extreme trading conditions and rapid market movements to ensure that each client understands the results of the Margin Methodologies that it uses. After all, what may be a “wrong” methodology or “unexpected result” for one client may be a “right” or “right and expected result” for another client.
X-Margin merely applies Margin Methodologies agreed by the parties to a trade (or class of trades) and runs those Margin Methodologies as a zero knowledge calculation agent between users. X-Margin is not considering whether Margin Methodologies may be appropriate for any client or its trading strategy, amount of assets or otherwise. Accordingly, once the parties to a trade (or class of trades) agree upon a margin methodology and input it into their X-Margin Dashboard, such margin methodology can only be changed by mutual agreement of both parties to the trade (or class of trades). .
What if I dispute the margin calculation outputs with X-Margin?
If you believe X-Margin calculations are not as prescribed in the bilateral agreement, X-Margin will assess the audit trail provided by clients and work with parties to remedy the situation. X-Margin cannot guarantee the data sources chosen by both parties are always available, and cannot be held responsible for ensuring the availability or accuracy of data sources. X-Margin doesn’t warrant or guarantee the output from the calculator, Clients should maintain oversight of the output from X-Margin to ensure they are in line with expectations, and contact X-Margin Support if they feel it isn’t the case.
What if X-Margin’s system is down?
X-Margin will attempt to maintain consistent, reliable uptime, where feasible. Moreover, wherever it is possible, X-Margin will have multiple data sources, failover servers, and store calculations in the users’ databases whenever possible. However, in the unlikely event there is still a failure, and X-Margin is unable to do calculations, please contact X-Margin support. X-Margin cannot guarantee 100% uptime, nor can it control the data sources chosen by both parties are always available, and cannot be held responsible for ensuring the availability or accuracy of data sources. Clients should maintain oversight of the output from X-Margin to ensure they are in line with expectations, and contact X-Margin Support if they feel it isn’t the case.
What data is used to calculate margin? What if the data feed is down or has been manipulated?
X-Margin uses data sources as agreed upon by bilateral counterparties to calculate margin and PnL. If there is a problem with the data source (including but not limited to; API feed being down, venue from which data is being sourced is down, methodology changed, data feed is being manipulated by malicious actors, miscalculation at the venue itself), this is the responsibility of users and their counterparties to resolve.
X-Margin relies on instructions and rules specified in bilateral relationships, and thus will not be liable if there is an issue with the data source. X-Margin cannot guarantee the data sources chosen by both parties are always available, and cannot be held responsible for ensuring the availability or accuracy of data sources. As with any dispute that is bilateral, for any misallocation of PnL or margin calculation error due to a data source, the resolution must be achieved bilaterally. X-Margin allows users to audit their private database, and use the details to find a resolution with a counterparty.
What if I don’t trust my counterparty’s fund source?
Within X-Margin, custodians or wallets that are integrated are receiving instructions via API. When using a custodian, the custodian is legally bound by joint agreements (letter of Instruction from User to Custodian) to adhere to instructions sent by the user’s database within X-Margin. As a result, it is imperative the user trusts their counterparty’s custodian, and the counterparty trusts the user’s custodian.
For non-custodial wallets connected to X-Margin (e.g. Fireblocks, Curv), before connecting to X-Margin, the user must set policies that means that the wallet:
- Queries X-Margin (and in turn the user’s private database) before any withdrawal. The wallet gets an automatically generated approve or reject message. The database is preprogrammed to instantaneously assess margin usage and PnL relative to the available balance, and approves or rejects withdrawals according to the bilaterally agreed margin requirements (users cannot withdraw funds if being used for margin).
- Approves X-Margin to initiate periodic settlement across Network Parties as agreed in the bilateral agreement.
Thus the trust here lies in the wallet’s security and ability to correctly adhere to the rules bilaterally chosen, and applied in the wallet policy. Therefore, you must approve your counterparty’s custodian or wallet before you are enabled to trade with the counterparty, and have, as a result, accepted risk towards that custodian or wallet
X-Margin does not take responsibility for the custodian failing to adhere to instructions, nor does it take responsibility for the robustness of the technology behind the wallet chosen
What if my custodian or the counterparty’s custodian doesn’t do as per X-Margin’s calculations?
Any violation by the custodian with respect to adhering to instructions streamed from the user’s database, would mean a breach of contract. This is resolved through pursuing the custodian with legal action.
As stated in the Letter of Instruction and User agreement, X-Margin is not party to the trade, and will not be liable for a failure by the custodian to adhere to X-Margin’s rules; all custodians are approved bilaterally, and counterparties inherently accept the custody risk of the user’s custodian, and vice versa.
For non-custodial wallets connected to X-Margin (e.g. Fireblocks, Curv), before connecting to X-Margin, the user must set the appropriate policies to ensure it is compatible with the X-margin use case. Thus the trust here lies in the wallet’s security and ability to correctly adhere to the rules bilaterally chosen, and applied in the wallet policy
What if there is a spike in margin usage due to market volatility?
X-Margin is a calculation agent for users, performing margin calculations and PnL calculations during both volatile and quiet markets. In any market condition, X-Margin’s high-speed calculator will depend on stable data sources and trade data from trading venues. In volatile markets, data sources may not be available or accurate, but as these data sources must be agreed bilaterally, X-Margin cannot guarantee their accuracy or availability.
X-Margin suggests using conservative liquidation thresholds (liquidation thresholds are defined as the maximum margin usage, above which the user’s trades will be liquidated/cash setted, as per the bilateral agreement).
What if there aren’t enough funds in my counterparty’s fund source to settle the trades?
Any violation by the custodian or the counterparty with respect to adhering to instructions, or an inability to pay for liabilities, would mean a breach of contract. This is resolved through pursuing the custodian or counterparty with legal action.
As stated in the Letter of Instruction and User agreement, X-Margin is not party to the trade, and will not be liable for a failure by either the custodian or the counterparty.
Where is the data for my trades and margin calculations stored?
X-Margin receives encrypted trade data from the trading venue, and the encrypted form is stored in your own private high-speed Kx database. The database can only be accessed with your key (that X-Margin does not have access to). X-Margin’s zero knowledge calculator will calculate margin numbers and profit and loss numbers as per user defined methods, and store those in the user’s private database.
Does X-Margin see my private trade data or margin calculations?
X-Margin will not see private data (e.g. trade details, margin calculations, P&L calculations, settlement amounts and other client reports). This data will only be accessible to clients in their Zero Knowledge environment through a password that they only have. The password is not managed by the X-Margin, it is managed by an external third party key management system. We strive to ensure, as much as is feasible, that we have no access to client’s private trade data or outputs.
During a dispute, if X-Margin receives a request to assess an audit trail for a user, and we get explicit permission from the user to view the audit trail, X-Margin will attempt to assist with guidance and analysis where it can. However, liability and financial responsibility is still bilateral, and X-Margin will not be responsible for settling or resolving the financial dispute.