CFTC Clears Stock Perpetual Futures as Wall Street Coalition Sues to Block Approval

CFTC Opens U.S. Market to Stock-Based Perpetual Futures

CFTC Chairman Michael Selig announced that equity perpetual futures had been deemed approved under CFTC Regulation 40.3. The contracts could be offered through exchanges registered with both the CFTC and SEC to trade security futures products, creating a regulated domestic route for instruments that have become popular on offshore cryptocurrency trading platforms.

Perpetual futures, commonly called perps, allow traders to speculate on an asset's price movements without owning the underlying asset. Unlike conventional futures contracts, they have no expiration date. Cryptocurrency exchange BitMEX helped popularize the instruments in 2016, establishing a trading model that has since attracted attention from traditional financial markets.

Selig said the CFTC's decision "builds on that milestone by extending the availability of the perpetual futures contract instrument in the U.S. beyond digital commodities and into traditional securities." He also argued that regulated domestic trading would give American market participants access to the products under U.S. safeguards rather than being "forced to turn to offshore, and often unregulated, venues."

The announcement followed several regulatory applications submitted in September. Coinbase, Kalshi and Kraken parent company Payward, through its Bitnomial exchange, sought authorization to offer perpetual futures linked to individual American stocks. OG.com joined the effort days later, proposing contracts that could trade around the clock on weekdays. Selig did not identify which exchanges would introduce the approved products or provide a trading launch schedule.

Citadel-Backed Coalition Challenges Approval in Federal Court

Capital Markets Alliance filed its lawsuit in the U.S. District Court for the Southern District of New York on the same day as the CFTC announcement, seeking to overturn the approval and prevent it from taking effect while the litigation proceeds.

The recently formed organization represents traditional financial market participants, including exchanges, broker-dealers and investment firms. A Capital Markets Alliance spokesman identified Cboe, Citadel Securities and Healthy Markets Association among its members.

The coalition argues that stock perpetual futures should be classified as security-based swaps, placing them under the SEC's regulatory authority. Its lawsuit contends that the CFTC improperly approved products that fall within another regulator's jurisdiction.

Capital Markets Alliance also accused the CFTC of violating the Administrative Procedure Act. The lawsuit argues that the derivatives regulator failed to adequately explain its decision, address its departure from an earlier regulatory position or consider the potential consequences for investors.

The CFTC rejected the legal challenge. An agency spokesman said: 

"It is troubling that an anonymous group is seeking to use litigation to interfere with CFTC regulated markets."

The spokesman added: 

"Our markets should be governed by law, not litigation campaigns intended to block innovation."

The American Securities Association (ASA) also criticized the decision. ASA President and CEO Chris Iacovella argued that classifying the contracts as security futures allowed the CFTC to bypass restrictions governing retail participation in security-based swaps.

"By labeling stock perps as security futures, the CFTC sidestepped the SEC’s jurisdiction and Congress’ ban on selling security-based swaps to retail investors,” Iacovella said.