Crises & the Rules They Wrote

Most of the rules in this volume are scar tissue. The disclosure regime exists because of 1929, SIPC because brokers lost customers' securities in their own back offices in 1970, circuit breakers because of a single day in 1987, the surprise custody exam because of Madoff, futures segregation rules because of MF Global, the consolidated audit trail because regulators couldn't reconstruct twenty minutes in 2010, T+1 because of a margin call in January 2021, and the stablecoin reserve list because a bank failed under a stablecoin's reserve in March 2023. Crypto spent its first decade outside most of this and then rebuilt much of it, one collapse at a time.

Reading the rules as answers to specific failures is the fastest way to understand what each one protects and what a system must keep to satisfy it. This chapter is a dated timeline: for each crisis, what happened in figures from the primary record, the rule it produced with its citation, and the chapter where the rule is covered. It adds no tables; the depth lives in the linked chapters.

The Timeline#

When	Crisis	The rule it produced	Covered in
1929 to 1932	The crash and an 89% fall in the Dow	Securities Act of 1933; Securities Exchange Act of 1934 and the SEC	1929 to 1934
1968 to 1970	The paperwork crunch and broker failures	Securities Investor Protection Act of 1970 and SIPC; Rule 15c3-3 (1972)	Customer Protection, Net Capital & SIPC
1975	Congress finds the markets must be linked	The national market system mandate, Exchange Act §11A	US Equity Market Structure
October 19, 1987	The Dow's 22.6% one-day fall	Market-wide circuit breakers	Pre-Trade Risk, Halts & Volatility
December 2008	Madoff's fraud	Custody rule amendments: surprise exams and custodian statements (2010)	Qualified Custody; RIA Custodians & Advisor Platforms
2008	Lehman Brothers and the financial crisis	Dodd-Frank (2010)	Customer Protection, Net Capital & SIPC
May 6, 2010	The Flash Crash	Single-stock circuit breakers, Limit Up-Limit Down, the Consolidated Audit Trail	Pre-Trade Risk, Halts & Volatility; Books, Records & the Audit Trail
October 31, 2011	MF Global's missing customer funds	CFTC customer protection rules (2013)	Futures & FCMs
February 2014	Mt. Gox	Japan's exchange registration (2017); the New York BitLicense (2015)	Licensing a Crypto Business
January 2021	Meme stocks and clearing margin calls	T+1 settlement (2024)	Clearing & Settlement
2022	Terra, Celsius, Voyager, FTX	Custody segregation guidance; SAB 121 and its rescission	FTX, Celsius & the 2022 Collapse
March 10, 2023	SVB fails with stablecoin reserves inside	The GENIUS Act's reserve list and redemption rules (2025)	Stablecoin Law; Depegs, Runs & Synthetic Dollars
2025 and 2026	Bybit, the October 10 liquidations, the Coinbase insider theft, the Binance theft	The GENIUS Act and its rules; the CFTC's perpetuals policy statement	2025 and 2026

1929 to 1934: The Securities Acts#

The Dow Jones Industrial Average fell nearly 13% on Black Monday, October 28, 1929, and nearly 12% more the next day. From its peak of 381.17 on September 3, 1929 it fell to 41.22 on July 8, 1932, 89% below the peak, and didn't regain the 1929 high until November 23, 1954. Congress answered with two statutes: the Securities Act of 1933 (enacted May 27, 1933), which requires registration and disclosure for securities offered to the public, and the Securities Exchange Act of 1934 (June 6, 1934), which regulates exchanges, brokers and trading and created the Securities and Exchange Commission.

Everything in this volume that says "registered" traces here: the broker-dealer registration in Regulators & Licenses, the disclosure duties behind every confirm and statement, and the question of whether a token is a security, which is a question about the 1933 Act (Securities, Commodities & Crypto Market Structure).

1968 to 1972: The Paperwork Crisis and SIPC#

In the late 1960s, trading volume outran the industry's paper-based back offices. SIPC's own history describes "the paperwork crunch, brought on by unexpectedly high trading volume," followed by a market decline in which hundreds of firms merged or closed and some "were unable to meet their obligations to customers and went bankrupt." The Securities Investor Protection Act of 1970 (Pub. L. 91-598, December 30, 1970) created SIPC to oversee the liquidation of failed brokers, initially protecting each customer up to $50,000 with a $20,000 ceiling for cash; today the limits are $500,000 and $250,000. SIPC reports advancing $3.6 billion to enable the recovery of $143.8 billion for about 773,000 investors. The SEC's customer protection rule, Rule 15c3-3, followed in 1972 (37 FR 25226, November 29, 1972): a broker must keep customers' fully paid securities in its possession or control and keep a reserve against what it owes them in cash.

The lesson for a system is the one the crisis taught: the records were the failure. A broker that can't say which securities it holds for whom, and where, can't protect them, and Customer Protection, Net Capital & SIPC covers the possession-or-control and reserve computations that are now daily for the largest firms.

1975: The National Market System#

The Securities Acts Amendments of 1975 (Pub. L. 94-29, June 4, 1975) added §11A to the Exchange Act, finding the securities markets "an important national asset which must be preserved and strengthened" and directing the SEC to facilitate a national market system linking them. Regulation NMS, the consolidated quote and the order protection and access rules that US Equity Market Structure covers are the system that mandate built.

1987: The Crash and Circuit Breakers#

On October 19, 1987, the Dow fell 508 points, 22.6%, the largest one-day percentage decline in its history. Market-wide circuit breakers followed, halting trading across markets after large index declines. On June 1, 2012, after the Flash Crash, the SEC approved revised market-wide circuit breakers measured on the S&P 500 at 7%, 13% and 20% declines (replacing 10%, 20% and 30% thresholds), recalculated daily, with 15-minute halts that don't close the market. Pre-Trade Risk, Halts & Volatility covers how a broker's systems behave when one trips.

2008: Madoff, Lehman and Dodd-Frank#

Madoff. The SEC charged Bernard L. Madoff and his firm on December 11, 2008, citing Madoff's own estimate that the fraud was "at least" $50 billion; the firm had reported more than $17 billion of assets under management early in 2008. The custody rule amendments that followed (Release IA-2968, 75 FR 1456, effective March 12, 2010) require advisers with custody to undergo an annual surprise examination by an independent accountant and to have a reasonable basis to believe the qualified custodian sends account statements directly to clients, with an internal control report when the adviser or an affiliate is the custodian. The point of both: the client gets a statement from someone other than the person who might be lying. The SIPA trustee reported $15.509 billion recovered and $14.799 billion distributed to customers as of October 23, 2026. Qualified Custody and RIA Custodians & Advisor Platforms cover the rule.

Lehman and Dodd-Frank. Lehman Brothers Inc.'s SIPA liquidation returned 100% to its customers, $105.7 billion to more than 111,000 of them, because customer property had been kept apart from the firm's. The crisis's broader answer, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203), was signed on July 21, 2010.

2010: The Flash Crash#

On May 6, 2010, US markets fell more than 5% in a matter of minutes. The SEC and CFTC staff needed until September 30, 2010 to publish their joint findings on what had happened. The rules came in steps: single-stock circuit breakers approved June 10, 2010 (a five-minute pause in an S&P 500 stock after a 10% move in five minutes), expanded in September 2010 to Russell 1000 stocks and some ETFs, with clearer rules for breaking erroneous trades (on May 6, only trades more than 60% from the reference price were broken); then the Limit Up-Limit Down plan, approved with the new market-wide circuit breakers on June 1, 2012 and implemented by February 4, 2013; and Rule 613 (Release 34-67457, 77 FR 45722, adopted July 11, 2012), requiring the exchanges and FINRA to create a consolidated audit trail of every order, so the next reconstruction wouldn't take months.

Pre-Trade Risk, Halts & Volatility covers LULD bands and what an order system does in a pause; Books, Records & the Audit Trail covers CAT reporting.

2011: MF Global#

MF Global declared bankruptcy on October 31, 2011 with deficiencies in its customer segregated accounts; the trustee later reported up to $1.6 billion of customer funds missing. The CFTC's complaint in 2013 alleged that nearly a billion dollars of customer funds had been used for the firm's own purposes. Customers were eventually repaid in full: SIPC reported in February 2016 that $8.1 billion had been returned to customers and creditors, $6.9 billion of it to customers, 100% of allowed claims. The CFTC's customer protection rule (78 FR 68506, November 14, 2013, effective January 13, 2014) strengthened FCMs' customer protections, risk management, internal controls, capital and liquidity, customer disclosures and audit and examination programs, followed by a rule on the residual interest deadline (80 FR 15507, March 24, 2015). The design lesson: segregation is a computation the firm must be able to run at any moment, not a statement that the money is somewhere. Futures & FCMs covers it.

2014: Mt. Gox#

Mt. Gox, a bitcoin exchange in Tokyo, applied for civil rehabilitation on February 28, 2014; the application was dismissed and bankruptcy proceedings began on April 24, 2014. The repayment of creditors is still running: on October 16, 2026 the trustee moved the deadline for base, early lump-sum and intermediate repayments from October 31, 2026 to October 31, 2027, after earlier extensions in 2023, 2024 and 2025. Two licensing regimes followed. Japan's Payment Services Act, amended in 2016, brought virtual currency exchange businesses under regulation from April 1, 2017. New York's BitLicense regulation, 23 NYCRR Part 200, took effect on June 24, 2015. Licensing a Crypto Business covers both; Exchange Security & Hacks covers the hack record that started here.

2021: Meme Stocks and T+1#

In late January 2021, retail buying in GameStop and other stocks sent prices and volatility up, and the clearing system's margin calls followed. On January 27, 2021, NSCC made intraday margin calls on 36 clearing members totaling $6.9 billion, bringing total required margin across members to $25.5 billion. The SEC staff's report on the episode (October 2021) described how "volatility combined with settlement risks led some firms to temporarily restrict trading," and noted that "one method to mitigate the systemic risk" posed by thinly capitalized broker-dealers "is to shorten the settlement cycle."

The SEC adopted T+1 on February 15, 2023 (Release 34-96930, 88 FR 13872), with a compliance date of May 28, 2024: one business day of settlement risk instead of two, and same-day allocation, confirmation and affirmation of institutional trades. Clearing & Settlement covers the cycle and the clearing fund; Pre-Trade Risk, Halts & Volatility covers the buying restrictions.

2022: Terra, Celsius, Voyager and FTX#

Terra. The TerraUSD algorithmic stablecoin and its sister token collapsed in 2022. Its founder, Do Kwon, was sentenced on December 11, 2025 to 15 years' imprisonment. Depegs, Runs & Synthetic Dollars covers why a stablecoin backed by its own sister token can run.

Celsius and Voyager. Celsius filed for Chapter 11 on July 13, 2022, and the bankruptcy court held on January 4, 2023 that its Terms of Use had transferred title to Earn customers' crypto, making about 600,000 Earn account holders unsecured creditors. Voyager filed the same month. The FTC later settled with both companies, with suspended judgments of $4.7 billion against Celsius, which it said had misappropriated more than $4 billion of customers' deposits, and $1.65 billion against Voyager.

FTX. FTX collapsed in late 2022. The SEC charged its founder on December 13, 2022 with defrauding equity investors who had put more than $1.8 billion into the company. FTX, Celsius & the 2022 Collapse covers the bankruptcy examiner's findings on the ledger, the keys and the exemptions that made the fraud possible.

The rules. The responses were mostly guidance and accounting rather than statute. NYDFS's custody guidance of January 23, 2023 required its licensees to segregate customer virtual currency on-chain and in their ledgers, keep per-customer records in omnibus wallets, and not use customer assets; it was updated on September 30, 2025. The SEC's SAB 121 (published April 11, 2022, 87 FR 21015), which had required custodians to book customers' crypto as a liability, predated the collapse and was rescinded by SAB 122 on January 23, 2025 in favor of contingent-liability accounting. Accounting for Crypto & Treasury Companies covers both; Cash, Sweeps & Yield covers the yield programs that failed.

2023: SVB and the USDC Depeg#

The California DFPI closed Silicon Valley Bank on March 10, 2023; it had about $209.0 billion of assets and $175.4 billion of deposits at the end of 2022. Circle said the next day that $3.3 billion of USDC's roughly $40 billion of reserves remained at SVB, and USDC traded below a dollar, at $0.95 on Kraken when CoinDesk reported it. The bank side of the run is Banking & Lending's Anatomy of a Run. The stablecoin answer came two years later: the GENIUS Act (Pub. L. 119-27, signed July 18, 2025) limits permitted issuers' reserves to US currency and Federal Reserve balances, insured demand deposits, Treasuries with 93 days or less to maturity, overnight repo and reverse repo backed by them, government money market funds holding only those, other similarly liquid federal assets the regulator approves, and tokenized forms of the same. A reserve with billions in one bank's uninsured deposits is what the list, and the counterparty limits in the regulators' rules, are built to prevent (Stablecoin Law; Depegs, Runs & Synthetic Dollars).

2025 and 2026#

Bybit, February 21, 2025. About $1.5 billion of virtual assets were stolen from Bybit; the FBI attributed the theft to North Korea's "TraderTraitor" on February 26, 2025 (Exchange Security & Hacks covers how it was done).

Coinbase, May 2025. Coinbase disclosed on Form 8-K (Item 1.05, the material cybersecurity incident item the SEC adopted on July 26, 2023, generally due four business days after an incident is determined to be material) that a threat actor had paid contractors and employees in support roles outside the US to take customer data from internal systems, received an extortion demand on May 11, 2025, and estimated $180 million to $400 million of remediation and voluntary customer reimbursement costs. The target was support tooling and customer data, not keys (Account Security & Fraud).

The GENIUS Act, July 18, 2025. The first federal stablecoin statute, effective the earlier of January 18, 2027 or 120 days after final regulations; the OCC's final rule was published on October 23, 2026 at 91 FR 67000 with a January 18, 2027 effective date, and the other agencies' rules were still proposals as of November 2026 (Stablecoin Law).

October 10, 2025. More than $19 billion of leveraged crypto positions were liquidated in roughly a day after a threatened 100% tariff on Chinese goods. FTI Consulting's analysis found perpetual funding had risen to nearly 30% annualized by October 6, top-of-book bitcoin depth fell more than 90% on key venues, USDe traded in the mid-$0.60s on Binance while staying near $1 elsewhere, and auto-deleveraging closed profitable hedges and left traders unhedged. No US rule cites the day; the CFTC's policy statement on listing perpetual contracts (91 FR 33160, June 3, 2026) addresses perpetuals on registered venues without referring to it. Perpetuals & Crypto Derivatives covers mark prices, liquidation engines and ADL.

Binance, October 29, 2026. About $6.36 billion was taken from Binance on or about October 29, 2026, the largest crypto theft on record as reported; press accounts say the FBI attributed it to North Korea on October 31 and that Binance traced it to a compromised engineer's laptop and resumed withdrawals in phases from November 2. Exchange Security & Hacks covers it as the record is published.

Reading the Timeline as an Engineer#

Four patterns repeat across ninety-seven years:

• The failure is usually in the records. The paperwork crunch, Madoff's statements, MF Global's segregation, FTX's ledger and Celsius's terms were all failures to know, or to show, whose asset was where. The rules that followed require the firm to compute it (the reserve formula, segregation), to have someone independent confirm it (surprise exams, custodian statements, attestations), or to report it (CAT, monthly reserve reports).
• Rules arrive years later and keep the crisis's shape. T+1 came three years after January 2021, the BitLicense more than a year after Mt. Gox, the GENIUS reserve list more than two years after SVB. A system built to the rule as written still has to handle the next failure, which rarely looks like the last.
• Customers were made whole where assets were segregated. Lehman's customers got 100% through SIPA because customer property was identifiable; MF Global's eventually did, after years; Celsius's Earn customers became unsecured creditors because the terms said the assets were the firm's. The design choice that matters most in a failure is made at account opening and in the ledger, long before.
• Speed creates the risk. The Flash Crash, January 2021 and October 10, 2025 were all faster than the controls of their day: circuit breakers, LULD, margin calls and ADL are all attempts to slow a market down when it moves faster than its participants can pay.

What This Means for the System You Build#

• Read each rule as the answer to a failure, and design for the failure, not only the wording.
• Make "whose asset is where" computable at any moment, for every entity, because that is the question every crisis asked.
• Keep an independent check on your own records: custodian statements, reconciliations to the depository and the chain, attestations.
• Expect rules to change after the next crisis, and keep the rules your system enforces as dated, versioned data.
• Plan for speed: halts, margin calls, liquidation cascades and withdrawal runs happen faster than humans can approve.

References#

Law and regulation

• 15 USC 77a, the Securities Act of 1933 and its enactment date
• 15 USC 78a, the Securities Exchange Act of 1934 and its enactment date
• 15 USC 78k-1, Exchange Act §11A, the national market system, added by Pub. L. 94-29 (June 4, 1975)
• 15 USC 78aaa, the Securities Investor Protection Act of 1970, Pub. L. 91-598
• 17 CFR 240.15c3-3, the customer protection rule and its 1972 origin (37 FR 25226)
• 12 USC 5301, the Dodd-Frank Act, Pub. L. 111-203
• 12 USC 5903, the GENIUS Act's reserve requirements, Pub. L. 119-27 (July 18, 2025)
• SEC: Custody of Funds or Securities of Clients by Investment Advisers (Release IA-2968, 75 FR 1456), surprise examinations, custodian statements and the March 12, 2010 effective date
• SEC: Consolidated Audit Trail (Release 34-67457, 77 FR 45722), Rule 613
• SEC: Shortening the Securities Transaction Settlement Cycle (Release 34-96930, 88 FR 13872), the T+1 final rule
• CFTC: Enhancing protections afforded customers and customer funds held by futures commission merchants and derivatives clearing organizations (78 FR 68506, November 14, 2013), the customer protection rule's scope and effective date
• CFTC: Residual Interest Deadline for Futures Commission Merchants (80 FR 15507, March 24, 2015), the follow-on rule
• CFTC: Policy Statement Concerning the Listing of Perpetual Contracts (91 FR 33160, June 3, 2026), perpetuals on registered venues
• SEC: Staff Accounting Bulletin No. 121 (87 FR 21015), its publication
• SEC: Staff Accounting Bulletin No. 122, the January 23, 2025 rescission of SAB 121

Regulators and guidance

• Federal Reserve History: Stock Market Crash of 1929, the October 28 and 29 declines, the peak, the 1932 low and the 1954 recovery
• Federal Reserve History: Stock Market Crash of 1987, the 508-point, 22.6% decline and the circuit breakers that followed
• SEC: The Laws That Govern the Securities Industry, the Exchange Act's creation of the SEC and the Dodd-Frank signing
• SIPC: History, the paperwork crunch, the original limits, total advances and recoveries, and the Lehman distributions
• SIPC: MF Global liquidation concludes (February 9, 2016), $8.1 billion returned and 100% of allowed customer claims
• SEC: SEC charges Bernard L. Madoff (Press Release 2008-293, December 11, 2008), the charges, the $50 billion statement and the reported assets
• SEC: Single-stock circuit breakers (Press Release 2010-98, June 10, 2010), the five-minute pause after a 10% move
• SEC: Expansion of circuit breakers and erroneous trade rules (Press Release 2010-167, September 10, 2010), the Russell 1000 and ETF expansion and the 60% threshold on May 6
• SEC: Limit Up-Limit Down and market-wide circuit breakers (Press Release 2012-107, June 1, 2012), the 7%, 13% and 20% levels and implementation by February 4, 2013
• SEC: Consolidated audit trail adopted (Press Release 2012-134, July 11, 2012), the adoption of Rule 613
• CFTC: Staff Report on the Market Events of May 6, 2010, the joint findings of September 30, 2010
• CFTC: History of the CFTC, the 2010s, the Flash Crash's more-than-5% fall, MF Global's bankruptcy and missing funds, and Dodd-Frank
• CFTC: Complaint against MF Global and its officers (Release 6626-13, June 27, 2013), the alleged misuse of nearly a billion dollars of customer funds
• SEC: Staff Report on Equity and Options Market Structure Conditions in Early 2021 (October 2021), NSCC's January 27, 2021 margin calls, trading restrictions and shortening the settlement cycle
• SEC: Press Release 2023-29, the T+1 compliance date
• NYDFS: Virtual Currency Businesses, the BitLicense's June 24, 2015 effective date
• NYDFS: Guidance on Custodial Structures for Customer Protection in the Event of Insolvency (January 23, 2023), segregation and omnibus records, superseded September 30, 2025
• Japan FSA: Weekly Review No. 239 (April 13, 2017), the 2016 amendments and the April 1, 2017 effective date
• FDIC: Silicon Valley Bank, Santa Clara, California (March 10, 2023), the closing and SVB's assets and deposits
• FTC: Settlement with Celsius Network (July 2023), the $4.7 billion suspended judgment and misappropriated deposits
• FTC: Settlement with Voyager Digital (October 2023), the July 2022 bankruptcy and the $1.65 billion suspended judgment
• SEC: SEC charges Samuel Bankman-Fried (Press Release 2022-219, December 13, 2022), the charges and the $1.8 billion from equity investors
• US Attorney's Office, SDNY: United States v. Kwon, the December 11, 2025 sentence
• FBI IC3: North Korea responsible for $1.5 billion Bybit hack (PSA I-022625-PSA, February 26, 2025), the attribution and amount
• SEC: SEC adopts rules on cybersecurity risk management and incident disclosure (Press Release 2023-139, July 26, 2023), Form 8-K Item 1.05 and its timing

Courts and filings

• In re Celsius Network LLC, No. 22-10964 (MG) (Bankr. S.D.N.Y. Jan. 4, 2023), Earn account ownership
• Celsius Network: Chapter 11 case information (Stretto), the July 13, 2022 filing
• Madoff Recovery Initiative, recoveries and distributions as of October 23, 2026
• Mt. Gox: Trustee notices, the 2014 filings and the October 16, 2026 extension to October 31, 2027
• Coinbase Global: Form 8-K (Item 1.05) dated May 14, 2025, the support-tool data theft, the extortion demand and the cost estimate
• OCC: Implementing the GENIUS Act (91 FR 67000, October 23, 2026), the final rule and its effective date

In practice

• FTI Consulting: Crypto crash October 2025, leverage met liquidity (December 24, 2025), the liquidations, funding, depth, the USDe dislocation and auto-deleveraging
• CoinDesk: Circle confirms $3.3B of USDC's cash reserves stuck at failed Silicon Valley Bank (March 11, 2023), the SVB exposure and the depeg
• BleepingComputer: FBI links $6.3 billion Binance crypto heist to North Korean hackers (November 1, 2026), the amount, attribution and cause as reported
• CBS News: Binance withdrawals after the heist (November 2026), the phased resumption of withdrawals