The Bullish settlement system determines all profits or losses, both realized and unrealized, plus all funding amounts, to be debited from or credited to the position holders’ accounts (specifically to their balance of the settlement asset) at regular intervals and makes such account adjustments, to the extent possible.
What happens during settlement?
All positions are marked to market. The system calculates the profit or loss due to the change in the Mark Price since the most recent of the last settlement or the position open.
All funding amounts are calculated
Each position’s (1) mark-to-market profits or losses and (2) funding amount, are both added to that position’s current unsettled profit or loss, such as from partially or fully closing positions during the hour.
Each position therefore has an unsettled (net) profit that needs to be credited to or an unsettled (net) loss that needs to be debited from the trading account’s settlement asset spot balance before the next settlement cycle begins.
First, the Bullish system applies all the losing positions’ effects as follows:
a. When a position has an unsettled loss the system first attempts to debit the trading account’s available spot balance (if any) and then attempts to borrow the residual amount from available loan offers on the Exchange on a first-come first-served basis using the Margin service.
b. If there is still a residual unsettled loss, that is increased by the delayed settlement fee described below, and kept until the next settlement cycle.
c. The sum of all such unsettled losses before their delayed settlement fees were applied, across all trading accounts, if any, is the “unpaid settlement balance” – the amount that would ideally have been settled but could not be. The sum of unsettled losses including the additional delayed settlement fees is called the “unpaid settlement balance plus fees”.
- Second, the Bullish system applies all the winning positions’ effects as follows:
a. Each position’s profit is reduced from P to Y; and
b. The trading account’s Available Balance is credited by (P - X);
i. X is that winning position’s prorated share of the “unpaid settlement balance” (if any)
ii. Y is that winning position’s prorated share of “unpaid settlement balance plus fees”. Y is kept as an unsettled profit until the next settlement cycle and will be displayed in the trading account as such.
Delayed settlement fee
The delayed settlement fee is the equivalent of the interest that would have been charged if the unsettled loss could have been borrowed through the Margin service. In order to reduce the amount of residual unsettled loss and to incentivise the losing positions to settle in full, Bullish charges a higher interest rate than the standard Margin facility: twice the current Margin borrowing rate, where there is an active lending market, or 50% APR where there is not. This is subject to change with notice. Even though the rate is expressed as an APR the amount charged is per hour, using the compounding formula. Thus:
delayed settlement fee = unsettled loss * (power(1 + (APR / 100), 1 / (365 * 24)) - 1)
For example the delayed settlement fee on $1,000 worth of unsettled loss for a settlement asset with no active lenders (charged at 50% APR) would be 1000 * ((1 + 0.5) ^ (1 / 8760) - 1) = $0.0463.