A trade body sued the CFTC in New York on Tuesday, hours after Chairman Michael Selig announced that perpetual futures on individual US stocks could start trading. The Capital Markets Alliance (CMA) is seeking to have the approvals thrown out, the contracts declared security-based swaps, and trading halted while the case is heard. Cboe confirmed its CMA membership alongside Citadel Securities and the Healthy Markets Association, whose own members include CalPERS and other institutional investors. The plaintiff, CMA, is a newly formed body whose web domain was registered in mid October, suggesting the litigation was planned well before the CFTC’s approval came through.
The central argument is about definitions. A future is a promise to deliver something on a date. A perpetual has no date and never delivers. Strip the expiry and what remains are cash payments based on a stock’s price with no ownership, which is the statutory definition of a security-based swap. Under the Dodd Frank Act, security-based swaps can only be sold to retail investors on a fully registered securities exchange with an SEC approved disclosure document. In practice no such products exist, and the SEC has used the rule to shut down offshore CFD platforms targeting US retail. If the court agrees, it will not be possible to sell equity perps to retail on CFTC venues.
The complaint also targets the process. Kalshi, Coinbase and Bitnomial filed their equity perp applications with the CFTC in September. Under the agency’s rules, a new product is deemed approved if the CFTC does not object within 45 days. The CFTC did not object and issued no written order. It did so despite saying in June that equity perps raised novel questions and would benefit from review by both agencies, and despite years of bringing enforcement actions against BitMEX and Binance on the basis that perpetuals are swaps. Chairman Selig, currently the sole commissioner, issued a statement the following day welcoming the milestone. A CFTC spokesperson told Reuters that markets should be governed by law, “not litigation campaigns intended to block innovation.”
However, the lawsuit is only one side of a three way split that has been building in regulatory comment files since June.
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