Tame Bitcoin's Price Swings? There's a Plan for That
November 07 2017 - 4:13PM
Dow Jones News
By Alexander Osipovich
CME Group Inc. is seeking to rein in the volatility of
bitcoin.
The Chicago-based exchange plans to impose limits on how much
prices of its proposed bitcoin futures can fluctuate within a day,
according to a company document seen by The Wall Street Journal.
CME announced last week that it aims to launch the new futures
market by the end of the year, subject to regulatory approval.
CME uses such limits in other markets, such as crude oil, gold
and stock-market futures, to temporarily halt trading when price
swings get out of control. They are a key way in which futures
exchanges can try to damp the gyrations of prices.
But CME -- the world's largest exchange operator -- has never
before dealt with something like bitcoin, which is notoriously
volatile. It is also unclear how much impact CME's limits will have
on bitcoin, since its futures market has yet to emerge and most
trading in the digital currency is on exchanges outside of CME's
control.
CME's trading limits would kick in when the price of its bitcoin
futures move 7%, 13% or 20% up or down from the previous day's
closing price, according to the document, in which the exchange
operator spelled out specifications for its new contract.
The first two thresholds -- for 7% and 13% moves -- are for
"soft" limits, which could potentially trigger a two-minute pause
in trading of bitcoin futures, according to a person familiar with
the matter. The 20% limit is a "hard" cap on how far CME's bitcoin
futures could swing on any day, the person added.
That is akin to the way CME controls volatility in its popular
E-mini S&P 500 futures contract, which tracks the S&P 500
stock index. The E-mini also has three successive price-fluctuation
limits at 7%, 13% and 20% during regular trading hours.
A similar nighttime limit kept S&P 500 futures from falling
more than 5% on Nov. 8, 2016, when news of Donald Trump's upset win
in the U.S. presidential election triggered wild volatility in
stock-market futures.
But bitcoin could prove far wilder than the S&P 500. So far
this year, there have been two days in which bitcoin's price swung
more than 20% in a single day, according to CoinDesk. There were 11
days in which it moved at least 13%, and 69 in which it moved at
least 7%.
Write to Alexander Osipovich at
alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
November 07, 2017 15:58 ET (20:58 GMT)
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