Perpetuals on stocks: the SEC comes to the aid of the CFTC against Cboe and Citadel

Common front in Washington. The SEC filed an amicus curiae brief this week in Manhattan federal court to defend the CFTC, attacked since November 3 by the Capital Markets Alliance, the lobby of Cboe and Citadel Securities which wants to cancel the perpetuals on stocks. The stock policeman could have claimed the file for himself. On the contrary, he defends the green light given to Kalshi, Coinbase and Bitnomial, Kraken's platform.

The heart of the complaint is contained in one sentence. For the Capital Markets Alliance, a perpetual contract on Nvidia or Tesla is a “security swap” which falls under the SEC, and the CFTC would therefore have exceeded its powers by allowing the files of Kalshi, Coinbase Derivatives and Bitnomial to pass, on November 2, without a written order.

The lobby depicts an “out of control” CFTC and an absent SEC.

It is precisely this image that the SEC brief dismantles. According to The Block, which viewed the document on November 11, the text explains why “this description, of a CFTC that has gone out of control and an SEC that has disappeared, is erroneous.”

The agency recalls that the CFTC rule changes are submitted to it for examination, that the two authorities have jointly launched a public consultation on the qualification of perpetuals, and that it “often” works with its neighbor, a collaboration that it considers vital to monitor these products.

The SEC therefore knowingly allowed this to happen.

The platforms did not wait for the regulator. On November 9, Coinbase, Kalshi, Payward (parent company of Kraken), DRW, Jump Trading and Paradigm filed their own joint brief.

Their central argument is chronology: the SEC was “at the table from the beginning.” A victory for the alliance would also close the door to the American market for these products.

Molly Abraham, Coinbase's legal director, added on

Opposite, Better Markets and former SEC Commissioner Allison Herren Lee have filed in the opposing camp and maintain that these are indeed securities swaps.

On the ground, Kalshi formalized on November 5 the launch of its perpetuals on more than 50 American stocks, with a leverage that goes up to 4.9 times depending on the securities.

Coinbase Derivatives and Bitnomial have not yet announced a comparable launch.

On November 3, the court refused an immediate suspension, while considering that the alliance had a good chance of winning on the merits. He must now rule on the request for a preliminary injunction, with no hearing date known.