The system of forced liquidation refers to that when the trading margin of a member or customer is insufficient and not replenished within the specified time, or when the number of positions of a member or customer exceeds the specified limit, the exchange or futures [1] brokerage company forcibly liquidates the corresponding positions of a member or customer in order to prevent the risk from further expanding.

In case of any of the following circumstances for members or customers, the Exchange will forcibly close the positions:

1. The member's trading margin is insufficient and cannot be replenished within the specified time;

4. The position exceeds the specified position limit standard;

3. Being punished by the exchange for compulsory liquidation due to violation of regulations; 2. Forced liquidation according to the emergency measures of the Exchange; 5. Other positions that need to be closed by force.

Treatment method of forced liquidation

When the balance of the settlement reserve fund of a member is less than zero, there are three kinds of compulsory liquidation that are not replenished within the specified time:

First, when only the proprietary account defaults, the proprietary account shall be closed in the order of the total contract positions. If the settlement reserve is still less than zero after the forced liquidation, the investors in their agency accounts will be moved;

Second, when only the brokerage account defaults, it will be compensated by the balance of settlement reserve and the liquidation amount of the self-operated account, and then the position in the brokerage account will be leveled according to certain principles;

Third, when both the proprietary account and the brokerage account default, the order of forced liquidation is proprietary account first, then brokerage account. If the settlement reserve is greater than zero after forcibly closing the brokerage account position, investors will be passive.

Forced liquidation when the position exceeds the position limit: when this happens to only one member, close the position in the self-operated account first, and then close the position in the brokerage account. The positions held in the brokerage account shall be determined according to the ratio of the number of members who exceed the positions to the positions held by members. When there are multiple members in this situation, members with a large number of backlogs are preferred as the object of forced liquidation. Investors overstock, forcibly liquidate their positions; If an investor holds positions in multiple members, the member shall be selected for compulsory liquidation according to the order of the number of positions from large to small. If both members and investors exceed positions at the same time, the investors who exceed positions shall be closed first, and then the positions shall be closed according to the method of members exceeding positions.

Enforcement rules of compulsory liquidation

The Administrative Measures for Risk Control of China Financial Futures Exchange stipulates that compulsory liquidation will occur in the following five situations:

(1) The balance of member settlement reserve fund is less than zero, and it has not been replenished within the prescribed time limit;

(2) The position exceeds the position limit standard and fails to close the position within the prescribed time limit;

(3) Being punished by CICC for compulsory liquidation due to violation of regulations;

(4) According to the emergency measures of CICC, the liquidation should be forced;

(5) Other positions should be closed by force.