What Is a ‘Clawback’ Mechanism in the Context of Futures Trading?

A clawback mechanism is a system of last resort where an exchange retrospectively recovers funds from profitable traders after a major market event has caused a deficit that exceeds the capacity of the insurance fund and ADL. The exchange "claws back" a portion of the profits that were already realized by traders during a specific period to cover the shortfall.

This is highly controversial and generally avoided by modern exchanges.