CME Group to Sue CFTC Over Approval of Crypto Perpetual Futures

In brief

CME Group, the world's largest futures exchange operator, plans to sue the CFTC over its approval of crypto perpetual futures, outgoing CEO Terry Duffy told CNBC.

Duffy argued that perpetual futures are legally swaps under the Dodd-Frank Act, not futures, and said the suit would be filed Thursday.

The CFTC cleared Kalshi and Coinbase to offer the products to U.S. traders in late May, the first time perps have been available through domestic regulated exchanges.

CME Group plans to sue the Commodity Futures Trading Commission over its decision to greenlight crypto perpetual futures, the exchange operator's outgoing chief executive said.

Terry Duffy, who runs the world's largest futures exchange operator, told CNBC's "Fast Money" on Wednesday that the company would file the suit Thursday, a plan CME later confirmed to Reuters.

At the heart of the case is a fight over classification. Duffy contends that perpetual futures are really swaps under the Dodd-Frank Act, not futures, which would subject them to different clearing, reporting, and trading-venue rules. "Under the Dodd-Frank Act, it clearly defines what a swap is and what a future is, and when there's two parties exchanging payments to each other, that's deemed a swap," he told CNBC.

Duffy also pointed to CME's exclusive licenses on key market benchmarks, arguing that rival perps would have to route through CME regardless. He faulted the CFTC, too, for clearing a novel instrument faster than a typical review.

The regulator approved prediction market Kalshi in late May to list a Bitcoin perpetual futures contract, and separately cleared crypto exchange Coinbase to connect U.S. customers to offshore perps. It marked the first time the products, long dominated by offshore venues, would reach American traders through domestic regulated exchanges.

Perpetual futures, or "perps," are derivatives that never expire, relying on periodic funding payments between traders rather than monthly roll dates. They can carry leverage as high as 50-to-1, magnifying gains and losses alike.

CFTC Chair Michael Selig has defended the regulator’s decision as a way to bring one of crypto's most liquid markets onshore. A spokesperson for the agency told Reuters that the CFTC looks forward to addressing the claims and dismissing the "frivolous" lawsuit.

Duffy has been scathing about the risks. Earlier this month, he likened current conditions to the run-up to the 2008 crash, warning that "the housing market has been supplanted by the speculation market, including predictions and everything else, and this could be a disaster waiting to happen."

Speaking to CNBC, he said he had spent the past eight months preparing the challenge with CME's board, and welcomed the fight. "I'm always up for a good battle," Duffy said. "I've never shied away from one, and I won't shy away from this."