Economy: Perpetual equity contracts arrive on US regulated markets

The “perps” are expanding their territory. Perpetual futures contracts on individual stocks can begin trading on markets registered with the CFTC, announced its president Michael Selig today, November 3. This format, widely used in crypto trading, thus joins the American securities derivatives market.

The green light concerns products covered by the approval procedure. It does not constitute a general authorization allowing any platform to immediately launch any contract.

Key Points

The contracts concerned relate to individual shares and do not have an expiry date.

They fall under the regulatory frameworks of the CFTC and SEC.

A financing mechanism aims to keep their price close to that of the underlying stock.

Their perpetual nature does not guarantee exchanges open 24 hours a day, seven days a week.

A popular format in crypto, now applied to stocks

A traditional futures contract has an expiry date. A perpetual contract allows you to maintain exposure without having to regularly renew your position, subject to meeting margin requirements and supporting financing payments.

These payments flow between buyers and sellers according to the rules of the product. They create an economic incentive to bring the price of the contract closer to that of its reference asset. Their frequency varies: settlement every eight hours, common on certain crypto platforms, is not a universal rule.

The American markets already offered similar instruments. Coinbase's perpetual-style contracts include a five-year maturity and hourly funding. They are therefore distinguished from true perpetuals without expiration.

Michael Selig's announcement extends the opening initiated this year on Bitcoin. On May 29, the CFTC published a position on the listing of perpetuals, favoring a case-by-case examination for the new categories of underlying assets.

Shared supervision and risks specific to the equity market

The new products belong to the category of security futures, futures contracts on securities. They must therefore comply with the applicable requirements of derivatives legislation such as those of American securities law, under the supervision of the two agencies.

Michael Selig clarifies that the contracts were deemed approved under rule 40.3. Presenting their launch as a simple self-certification filed one business day before listing therefore does not correspond to the announced procedure.

The design of these instruments must also take into account dividends, stock splits and other operations affecting their underlying. Furthermore, the absence of a deadline does not determine trading times.

If a contract remains accessible when its reference market closes, price reliability and liquidity become particularly important. SIFMA, an association representing brokers and investment banks in particular, has requested additional examination of these risks, including the possibilities of manipulation between markets.