Backstop Liquidity Provider Program (“BLP Program”)

Introduction

In the event that an adverse market movement causes an account on the platform to be liquidated, FUTX Futures will first attempt to deleverage the account by reducing the account’s position on the contract’s relevant order book. If the market continues to move against the account’s position or there is insufficient liquidity for the market to absorb risk efficiently, FUTX Futures will take over the distressed positions held by the account(s) and transfer them to institutions that have opted into the Backstop Liquidity Provider Program (“BLPs”). 

BLPs agree to absorb a certain amount of this risk on a per-minute and per-hour basis in exchange for priority access to the favorably priced order flow (i.e., long positions at a discount to market, short positions at a premium to market) as well as FUTX Futures’ most attractive trading fees & rebates.

The goal of the BLP program is to minimize instances of clawbacks associated with inefficient liquidations by transferring the distressed positions of near-bankrupt accounts to opt-in institutions. BLPs may choose to internalize the distressed order flow or offload it to a different venue to hedge their exposure.

Benefits of the Backstop Liquidity Provider Program:

Institutions that opt in to the BLP program benefit in the following ways: 

1. Priority access to distressed positions at a favorable price; thus, providing the opportunity to flip these positions for profit on FUTX Futures or other venues.

2. Access to the platform’s most favorable fee & rebate structures.

Risks associated with the Backstop Liquidity Provider Program:

Institutions that opt in to the BLP program may be exposed to the following risks:

1. Obligation to take on “toxic” distressed order flow (i.e., long positions at a premium to market, short positions at a discount to market).

     A. Pricing for “toxic” distressed order flow has a collar of 1% off market to mitigate risks for BLPs

     B. Receipt of distressed order flow is capped by per-minute and per-hour absorption rates to minimize a BLPs potential risk exposure

2. Based on minimum absorption requirements, a BLP’s account may become overleveraged following receipt of distressed order flow and therefore enter the auto-liquidation process.

3. Risk-averse BLPs will never receive additional distressed order flow that would otherwise exceed their Max Position Notional Threshold.