SEC backs CFTC in court fight over single-stock perpetual futures

The SEC has entered the court fight over who regulates perpetual futures on individual U.S. stocks, filing an amicus brief that supports the Commodity Futures Trading Commission in a lawsuit brought by an industry group whose members include Cboe and Citadel Securities.

The Capital Markets Alliance Association sued the CFTC and its chairman, Michael S. Selig, on Nov. 3 over the agency's approval of single-stock perpetual futures, Crypto Briefing reported. The plaintiffs argue the products are security-based swaps that belong under SEC jurisdiction, not the security futures category that the CFTC and SEC jointly oversee.

A perpetual future is a futures contract with no expiry, so a position can stay open indefinitely instead of settling on a fixed date. That missing deadline is the whole dispute. The CFTC cleared the contracts after a 45-day review under Regulation 40.3 and classified them as security futures under the Commodity Futures Modernization Act of 2000, the report said. The alliance's suit rests on the absence of an expiration date: a contract that never comes due, the plaintiffs contend, cannot create the future delivery obligation that defines a futures contract.

Security futures already sit in an unusual spot in U.S. market regulation because both agencies police them at once, which is rare. The litigation will help decide which regulator has authority over a newer derivative tied to single stocks, and whether venues such as Coinbase Derivatives and Kalshi can keep offering the contracts.

The SEC's brief told the court that the alliance's picture of the dispute was mistaken, Bankless reported. Exchange listing rules for the contracts still run through the SEC's own review process, and the agency agreed with the CFTC that the plaintiffs have no right to sue. The brief did not take a position on whether the products are futures or swaps, and the SEC has until Dec. 31 to decide whether to overturn the exchange rules that allow the contracts to trade.

Judge Valerie Caproni denied the alliance's emergency request on Nov. 3 because the group had not shown irreparable harm, while finding that it was likely to win its argument that the products are security-based swaps, according to the same report. The case now sits with Judge Lorna Schofield, who was assigned the matter, and no hearing date has been set on the alliance's bid for a preliminary injunction.

Briefs have piled up on both sides. Coinbase Derivatives, Kalshi, Kraken parent Payward, DRW and Jump filed arguing the contracts are security futures, while Better Markets and former SEC Commissioner Allison Herren Lee have asked to weigh in for the plaintiffs, Bankless reported. Better Markets and a group of former SEC officials filed against the CFTC's approval on the other track, Crypto Briefing noted.

The plaintiff membership shows who is pushing the tighter reading. Cboe runs major U.S. options and equities venues, and Citadel Securities is one of the largest market makers in U.S. stocks. The defense lineup comes largely from the crypto and prediction-market world: Coinbase Derivatives, Kalshi and Bitnomial built their U.S. businesses under CFTC oversight, and KalshiEX and Bitnomial are among the platforms positioned to list the contracts. Two of those firms are already arguing for the CFTC in court.

If the plaintiffs prevail, securities rules would replace the framework the contracts currently trade under. Securities rules generally carry heavier investor protections than the current regime, which could mean more scrutiny of how the contracts are offered and to whom. For platforms such as Coinbase Derivatives, Kalshi and Bitnomial, a loss could mean reworking or pulling a product line that was approved through the CFTC process.

The SEC's support for the CFTC does not settle the statutory question the court has to answer, and one judge has already signaled the plaintiffs are likely to win on the merits. For now the products Kalshi launched last week keep trading, and the SEC's Dec. 31 deadline on the exchange rules is the next dated checkpoint on the calendar.