Closeout Agent

Any on-chain actor with an associated margin account can initiate the Final Settlement Process for a Product, once the product is in the FINAL_SETTLEMENT state. Such an on-chain actor is termed a “Closeout Agent”.

A Closeout Agent initiates the Final Settlement Process by calling the

Clearing System’s initiateFinalSettlement(..) method with _Closeout

Data_. Closeout Data consists of an array of addresses denoting a set of MAs that (1) each have a non-zero position in the product and (2) collectively offset each other (i.e., the sum of their position sizes is 0).

When a Closeout Agent calls initiateFinalSettlement(..), the Clearing System performs the Final Settlement Process Checks:

1. For each account in Closeout Data, fetch the account’s position quantity Q:

• if Q == 0, the checks fail and the processes is aborted.
• if Q =! 0, then increment checksum = checksum + Q.

2. If checksum == 0, proceed to the Final Settlement Closeout; if it does not, the checks fail and the process is aborted.

Final Settlement Closeout executes as follows:

• If the FSP does not exist, call finalizeFsp and execute the Final Settlement Price Resolution per the process above. If that process fails, abort Final Settlement Closeout. If that process succeeds, continue.

• For each account a in Closeout Data:

• Construct a trade done at the FSP with a on the buy (sell) side and Treasury Account on the sell (buy) side if a’s position is short (long);

• Apply trade settlement to a:

• RPnL = FSP * Q * POINT_VALUE - B

• C[t] = C[t-1] + RPnL

• Q[t] = Q[t-1] + -Q (i.e., Q[t] = 0)

• Apply trade settlement to Treasury Account:

• Update Cost Basis B per conditional definition assuming a trade quantity of Q at price FSP.

• Calculate RPnL per conditional definition

• C[t] = C[t-1] + RPnL

• Q[t] = Q[t-1] + Q

• Apply the Closeout Fee:

• C[t] = C[t-1] - CLOSEOUT_FEE_RATE * POINT_VALUE * FSP * abs(Q) on account a

• C[t] = C[t-1] + CLOSEOUT_FEE_RATE * POINT_VALUE * FSP * abs(Q) on Treasury Account

• Apply the Closeout Agent Reward:

• C[t] = C[t-1] - CLOSEOUT_REWARD_RATE * POINT_VALUE * FSP * abs(Q) on Treasury Account

• C[t] = C[t-1] + CLOSEOUT_REWARD_RATE * POINT_VALUE * FSP * abs(Q) on Closeout Agent’s account

The product will transition from FINAL_SETTLEMENT state to EXPIRED state if the open interest in the product is zero; otherwise, the product remains in FINAL_SETTLEMENT state.

initiateFinalSettlement(..) can be called multiple times whilst the open interest is non-zero.

Notes:

• CLOSEOUT_FEE_RATE >= CLOSEOUT_REWARD_RATE

• CLOSEOUT_REWARD_RATE will be set at a level that’s a multiple of anticipated venue trading fees (perhaps 30bps) to incentivize users to close their positions before the conclusion of the Tradeout Interval.

• Because checksum == 0, Treasury Account’s position in the product (typically 0) will be the same after the Final Settlement Process as it was right before the process commenced. But Treasury Account’s Capital will increase by:

(CLOSEOUT_FEE_RATE - CLOSEOUT_REWARD_RATE) * POINT_VALUE * FSP * OPEN_INTEREST * 2