The compulsory liquidation right of the exchange means that when the spread loss between the open contract held by the customer and the current transaction settlement price exceeds a certain proportion, and the customer fails to pay the additional margin within the prescribed time limit, the futures brokerage company has the right to compulsory liquidation of the customer's hand contract, so as to reduce the margin level and risk and ensure that the customer is free from greater economic losses, and the consequences of compulsory liquidation shall be borne by the customer.

There are two kinds of forced liquidation in futures: the forced liquidation of futures companies (or self-operated members) by exchanges and the forced liquidation of customers by futures companies. The forced liquidation of customers by futures companies refers to the forced liquidation of customers due to insufficient funds and backlog. 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.

The content of this article comes from People's Republic of China (PRC) Financial Code: Application Edition by China Law Publishing House.