A few hours of respite. Late Tuesday, November 3 in Washington, CFTC President Michael Selig announced that perpetual contracts on individual stocks could begin trading on regulated American stock exchanges. The Capital Markets Alliance filed a lawsuit hours later in Manhattan federal court to overturn those approvals. The association counts Cboe and Citadel Securities among its members.
Perpetuals on stocks: what the complaint accuses the CFTC of
The text tabled on Tuesday targets the CFTC and its president. It covers the contracts that KalshiEX, Coinbase Derivatives and Bitnomial had submitted on September 18. Bitnomial is the derivatives exchange of Payward, parent company of Kraken. The regulator allowed its 45-day review deadline to run until November 2 without issuing a written order. The contracts were therefore deemed approved under Rule 40.3, the CFTC press release said. They fall under security futures, under joint supervision of the CFTC and the SEC.
The alliance supports the opposite. A perpetual contract is a derivative with no maturity, which does not require any future delivery. Financing payments between buyers and sellers bring its price towards that of the underlying. It would therefore be a security swap, an instrument that the law reserves for the SEC alone. To support the argument, the complaint cites the CFTC's own proceeding against Binance in 2023, in which the agency characterized the exchange's perpetuals as swaps. She also accuses the commission of having violated the Administrative Procedure Act by not explaining anything, and asks the judge to suspend approvals during the trial.
Cboe and Citadel Securities, the heavyweights behind the association
The Capital Markets Alliance is a recent structure. A spokesperson confirmed to CoinDesk that Cboe, Citadel Securities and the Healthy Markets Association are among them, the outlet reports. Cboe operates America's first options exchange. Citadel Securities is the nation's leading equity market maker. These are the two players who have the most to lose. Some leveraged equity trading could migrate to non-maturity contracts listed on Coinbase or Kalshi. Adam Ford, secretary of the alliance, denounces a “rushed deployment of financial products that circumvent well-established regulatory frameworks” and which “erodes investor protection”.
A CFTC spokesperson speaks of a “litigation campaign” led by an “anonymous” group, and a worrying attempt to interfere with regulated markets. Selig, however, demanded an exit from the regulatory “no man’s land” described by SEC President Paul Atkins. In today's press release, he owes it to the memorandum of understanding signed between the two agencies on March 11.
After the CME, a second judicial front against Selig's perps
The CFTC approved the first regulated Bitcoin perpetual at Kalshi on May 29, followed by Coinbase. CME Group, the largest derivatives exchange in the world, already took the regulator to court in June. He accused him of having changed his doctrine without warning. The CFTC requested the dismissal of this first complaint. The actions file uses the same mechanism, with the SEC as a potential arbitrator. If the judge considers it a security swap, the product falls outside the scope of the CFTC.
Kalshi did not wait. Since Tuesday, the platform has listed around fifty stocks and ETFs in perpetual, including Nvidia, Apple, Tesla, SpaceX, SPY and QQQ, with a maximum leverage of 4.9x on the securities. Coinbase Derivatives and Bitnomial have not yet opened their books. Coinbase already offers “perpetual-style” contracts with a five-year maturity, Robinhood offers crypto perpetuals with up to 10x leverage. The alliance asks the judge to freeze these stock perps throughout the procedure, and to prohibit the CFTC from bringing them back by self-certification.
