I agree that the margin call as such is neither good nor bad. It is, however, an indication of a bad (read: dangerous) situation, i. e. short positions without sufficient collateral, which increases the likelyhood of a black swan.
The health of the system depends on shorters providing sufficient collateral. In bitCNY, shorters don't do that. They prefer being margin called. They even deliberately try to keep the collateral as low as possible, perhaps because only the least collateralized positions can profit from the 5% settlement offset.
IMO this is an indication of a very unhealthy situation. The settlement offset is an incentive for shorters to keep their collateral as low as possible, and the current MSSR isn't sufficient incentive for providing enough collateral. Your suggestion increases the likelyhood of a black swan, as you correctly pointed out above.
the "just 1.75" debt position is not relevant to 5% force settlement, as the latter seldom happen and are always in very little quantity.
they have their own logic, the logic is that "to be margin called as early as possible", this is one kind of policy of "stop loss", this logic does not always works well, some time they lose because of this.
anyway, they do not do harm to the system, actually they provide more liquidity. so just let them play like this if they like. in bitUSD market there is no such players, do you think bitUSD market more healthy than bitCNY market?
it's hard or impossible to tell what collateral is enough, when the market price is 1.05CNY do you think it enough to set the margin call price = 0.67?
maybe it's safe enough to set call price=0.2, but what sense does this make?
increasing MSSR really increase the likelihood of black swan, however at the same time it lower the shorting incentive, we need a balance here. for bitCNY thanks to the help of target CR and good market depth, I feel bitCNY has very very little chance to reach black swan even with MSSR = 1.05. I hope we can try this after sufficient discussion.