CFTC clears stock perpetual futures as an industry group sues to stop them

Perpetual futures tied to individual stocks can begin trading on US exchanges for the first time, the Commodity Futures Trading Commission said on Tuesday, and an industry coalition sued the agency the same day to undo the decision.

Chairman Michael S. Selig announced the change in a statement the agency released as release 9319-26. "Today, perpetual futures contracts on individual equity securities (the 'Equity Perps') can begin trading for the first time on CFTC-registered exchanges," he wrote. The contracts may be offered only on exchanges registered with both the CFTC and the Securities and Exchange Commission to trade security futures products, the release states.

Selig framed the decision as an alternative to unregulated venues. Bringing the products into regulated markets "ensures that American investors and traders can access these products within the protections of the CFTC's proven regulatory framework, rather than being forced to turn to offshore, and often unregulated, venues," he wrote. The statement also invokes SEC Chairman Paul Atkins's description of a regulatory "no man's land" for products that fall between the two agencies, and says the CFTC and SEC have "turned the page on that era."

The contracts were deemed approved under CFTC Regulation 40.3, Cointelegraph reported, and Selig did not identify which exchanges would list them or when trading would start. Decrypt reported that the equity perps were treated as security futures products under the Commodity Futures Modernization Act of 2000, placing them under joint CFTC-SEC oversight, and that Selig credited a memorandum of understanding the two agencies signed in March for ending the jurisdictional limbo.

The decision follows a rush of filings. Coinbase, Kalshi and Kraken parent Payward, through its Bitnomial exchange, sought approval to offer perpetual futures tied to individual US stocks in September, and OG.com joined days later, according to Cointelegraph. Coinbase has proposed contracts on names including Apple, Tesla and Nvidia, Decrypt noted. The same reporting traces the line back to the CFTC's May approval of bitcoin perpetual futures for Kalshi.

The lawsuit

The Capital Markets Alliance filed suit in the US District Court for the Southern District of New York on Tuesday afternoon, seeking to overturn the approvals, Cointelegraph reported. The group argues that the contracts are security-based swaps that fall under the SEC's exclusive jurisdiction, and that the CFTC violated the Administrative Procedure Act by failing to explain its decision or account for the impact on investors. It asked the court to vacate the approvals and to block them from taking effect while the case proceeds.

The alliance includes Cboe, Citadel Securities and Healthy Markets Association, Cboe said in a statement supporting the action. Craig Donohue, Cboe's chief executive, said the products "belong on registered securities platforms" and should carry the investor protections Congress set out for securities markets. He added that Cboe could bring such products to market itself on venues it operates, and that the dispute is about investor protection rather than competition.

The judge denied the group's bid for a temporary restraining order because the harms it identified did not warrant emergency relief, The TRADE reported. The same judge indicated the alliance is likely to succeed on the merits, saying the balance of equities and the public interest favor the plaintiffs and that the CFTC's actions "seem to represent a major disruption to the equities market."

The ruling left the case on a normal schedule. The government's opposition to the preliminary injunction motion is due Friday, Nov. 6, with the alliance's reply due Tuesday, Nov. 10, according to The TRADE. Adam Ford, secretary of the alliance, said in the same report that "the hasty roll out of financial products that circumvent well-established regulatory frameworks erodes investor protection and undermines the integrity and resiliency of the American financial system."

The challenge sits alongside existing litigation over perpetuals. CME Group sued the CFTC in June over its approval of cryptocurrency perpetual futures, arguing those contracts should be regulated as swaps, and the agency moved to dismiss that case in September on standing grounds, Cointelegraph reported.