How to Regulate Bitcoin Futures

Bitcoin is a currency, technology, and, most recently, futures product.  Several clearinghouses have allowed bitcoin futures trading.  For example, CBOE launched trading in bitcoin futures on December 10, 2017, while CME Group did so a week later.[1]  NASDAQ and Cantor Fitzgerald’s exchange are also considering offering bitcoin futures.

Futures generally contribute to systemic risk,[2] but distinctive features of bitcoin futures heighten concerns.  Thus, the Futures Industry Association (FIA), a trade organization representing major banks and brokers, has protested the introduction of bitcoin futures to the market without more scrutiny, given their enormous potential to disrupt the economy.  This … Read more

A New Model for Bank Stress Tests

In recent years, policymakers have struggled with the question of how to prevent bank failures.  The Dodd-Frank Act offers one answer, calling for stress tests that examine through economic models how banks of a certain size would react to a bad turn of economic events, such as negative interest rates.  The 2016 stress tests, for example, required banks to consider their preparedness for negative U.S. short-term Treasury rates and major losses to their corporate and commercial real estate lending portfolios.[1]  A failed stress test raises red flags about whether a bank has enough capital to stay solvent in a … Read more

Catching Insider Trading

Despite losing several high-profile cases, the U.S. Securities and Exchange commission (SEC) has committed itself to prosecuting insider trading, outlawed by a patchwork of rule-making and court decisions. In recent years, the SEC has filed record-numbers of insider trading actions, totaling hundreds of cases.[1] To increase the success of these prosecutions, much attention has focused on shoring up the legal framework on insider trading, described by many as ambiguous. However, attention should also be paid to how to catch insider trading based on an empirical analysis of insider trading.

This is the subject of our new article, which provides … Read more