KT Fintech Blog

The KT Fintech Blog provides insights into how the emergence of fintech is fundamentally changing virtually every aspect of the financial services landscape and how traditional businesses navigate this rapidly evolving industry.

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Posted on Tuesday, December 19 2017 at 12:26 pm by -

Are Bitcoin Futures Foreshadowing Faster Mainstream Adoption?

Written by Michael J. Breslin

Bitcoin futures surged as much as 26 percent in their December 10 debut on Cboe Global Markets, creating traffic on Cboe’s website that was so heavy it caused temporary outages. About twenty trading firms actively participated, with the notional value of contracts traded in the first eight hours totaling around $40 million. Although that is a drop in the bucket compared to the global $1.1 billion of bitcoin traded against the U.S. dollar during the same eight hour period, it appears to be just the tip of the iceberg for futures trading in the world’s most popular cryptocurrency. Cboe’s biggest rival, CME Group, recently joined the movement by launching a competing product on December 18, and Nasdaq Inc. has plans for its own bitcoin futures contract in 2018 (although no hard date is set).

So what does this mean? At face value, it is a milestone in the acceptance of bitcoin by the mainstream investing world, spurred in part by bitcoin’s meteoric rise this year. And while skeptics still abound, the availability of futures contracts may now provide an opportunity to burst what they see as a bubble. According to Craig Pirrong, a business professor at the University of Houston, the availability of futures contracts makes it easier to short bitcoin, which “might keep the bitcoin price a little closer to reality.” But whichever way you want to bet on the cryptocurrency, it seems there is no shortage of interest in bitcoin futures among U.S. exchange companies. Earlier this month, Jeff Sprecher, CEO of Intercontinental Exchange Inc., said at an investor conference that “we may be stupid for not being first” to launch a bitcoin futures contract.

Currently, the bulk of bitcoin is traded on a network of unregulated exchanges, which present obstacles that have kept out big money managers like mutual funds. But the new futures contracts should thrust bitcoin more squarely into the realm of regulators, banks and institutional investors. Cboe and CME got permission to offer the contracts through the “self-certification” process, in which they pledged to the Commodity Futures Trading Commission (CFTC) that their bitcoin futures products do not run afoul of the law.

Despite the somewhat smooth rollout of those products, there is still a view that bitcoin derivatives are premature, given the cryptocurrency’s volatility and lack of transparency in the market. To that point, Thomas Peterffy, the Chairman of Interactive Brokers Group Inc., wrote a November open letter to CFTC Chairman J. Christopher Giancarlo, arguing that bitcoin’s large price swings mean its futures contracts shouldn’t be allowed on platforms that clear other derivatives. More broadly, SEC Chairman Jay Clayton recently reissued a cautionary message on cryptocurrencies and initial coin offerings (ICOs) to Main Street investors, which was quickly endorsed by Mr. Giancarlo.

In sum, the start of futures trading is an important step for bitcoin’s shift towards mainstream investing, but it could be some time before the cryptocurrency becomes a key part of investor portfolios. While the future of bitcoin futures is still hazy, it is clear that more and more big money institutions are warming to the idea, and it will be important to stay abreast of how the market reacts to these new products, as well as the reactions of regulators.

Posted on Wednesday, October 25 2017 at 9:00 am by -

Congress Votes To Overturn the Consumer Financial Protection Bureau’s Arbitration Agreement Final Rule

Written By Maureen Sheehy & Eamonn Moran

We previously reported on the issuance of the Consumer Financial Protection Bureau’s (CFPB or Bureau) final rule governing agreements that provide for the arbitration of any future disputes between consumers and providers of certain consumer financial products and services. At that time, we noted that the rule faced an uncertain political and legal future. The rule took effect on September 18, 2017 and applies to pre-dispute arbitration agreements entered into on or after March 19, 2018.

Congress directed the Bureau to study these pre-dispute arbitration agreements in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). In 2015, the Bureau published and delivered to Congress an arbitration study. In the Dodd-Frank Act, Congress also authorized the Bureau, after completing the study, to issue regulations restricting or prohibiting the use of arbitration agreements if the Bureau found that such rules would be in the public interest and for the protection of consumers. Congress also required that the findings in any such rule be consistent with the Bureau’s study.

On October 24, the United States Senate joined the United States House of Representatives in voting to overturn the CFPB’s arbitration rule. The Congressional Review Act (CRA) allows both houses of Congress to vote on resolutions of disapproval for regulations within 60 legislative days of their publication in the Federal Register. This development follows the recent issuance of separate reports by both the Office of the Comptroller of the Currency (OCC) and the United States Department of the Treasury, which challenged the rule and its underlying data and assumptions.

Since Congress has enacted a joint resolution of disapproval, and it is expected that President Trump will not veto such resolution, the rule will not take effect. The CFPB will also be prohibited from reissuing the regulation in “substantially the same form,” unless the reissued or new rule is specifically authorized by a law enacted by Congress after the date of the joint resolution of disapproval.

Posted on Tuesday, October 24 2017 at 9:00 am by -

3 Key Takeaways: Fintech & Banking 2017: Further Exploration of Bank Charters for Fintech Companies

Written By Eamonn Moran

During recent months, Kilpatrick Townsend Partner Christina Gattuso and Counsel Eamonn Moran have provided regular updates regarding the Office of the Comptroller of the Currency’s (OCC) decision to move forward with considering applications from fintech companies to become special purpose national banks. Please click here to learn about key developments that have taken place within the past few weeks.