Cboe, Citadel-Backed Group Sues CFTC Over Single-Stock Perpetuals
A Wall Street alliance is suing the CFTC to stop perpetual futures on US stocks. A judge let trading go ahead but said the challengers will likely win.
A new industry group backed by exchange operator Cboe Global Markets and market maker Citadel Securities has sued the Commodity Futures Trading Commission (CFTC), the federal regulator of US futures markets. The suit seeks to stop a product imported from the crypto world: perpetual futures on individual US stocks. Trading began anyway after a federal judge declined to halt it on Nov. 3. In the same order, though, the judge said the challengers are likely to win the main argument of the case.
The fight pits traditional stock-market players against newer venues such as prediction-market operator Kalshi and crypto exchange Coinbase. At stake is which agency oversees a fast-growing type of leveraged bet on household-name shares: the CFTC or the Securities and Exchange Commission (SEC).
What happened
The plaintiff is the Capital Markets Alliance, a New York nonprofit whose members include Cboe, Citadel Securities and the Healthy Markets Association, an investor advocacy group whose members include the California pension fund CalPERS. It filed suit in the US District Court for the Southern District of New York on Nov. 3, according to reports by Ledger Insights, The TRADE and Bitcoin Magazine. Ledger Insights reported that the group’s web domain was registered in mid-October, a sign the lawsuit was prepared before the regulator acted.
The complaint was filed hours after Michael Selig, chairman of the CFTC, announced that eligible US exchanges could start offering perpetual futures on single stocks. Kalshi, Coinbase Derivatives and Bitnomial Exchange had filed to list the contracts on Sept. 18. Under CFTC rules, a new product is deemed approved if the agency does not object within 45 days. The commission let that window close without issuing a written order. Selig’s statement said the contracts had been deemed approved as security futures products, a category the CFTC and SEC oversee jointly, Bitcoin Magazine reported.
The alliance wants the court to:
- vacate the approvals for all three exchanges;
- declare the contracts security-based swaps, which fall under SEC authority;
- bar the CFTC from giving the approvals effect while the case proceeds.
US District Judge Valerie Caproni denied the group’s request for a temporary restraining order after a teleconference with both sides. She described the members’ claims of harm as “conjectural” and said they had not shown injury that was actual and imminent. She also wrote that the group is likely to succeed on the merits, that the contracts “appear to satisfy the definition of a swap,” and that the agency’s actions “seem to represent a major disruption to the equities market,” according to Bitcoin Magazine and The TRADE.
Why it matters
A standard futures contract expires on a set date. A perpetual never expires and never delivers anything. Instead, traders make periodic payments to keep their positions in line with the underlying price. The alliance argues that a contract like this is not a future at all, but a cash bet on a stock’s price with no ownership attached. That, it says, matches the legal definition of a security-based swap.
The difference matters for ordinary investors. Under the 2010 Dodd-Frank financial reform law, security-based swaps can be sold to retail customers only on a fully registered securities exchange with an SEC-approved disclosure document, Ledger Insights noted. No such products currently exist. If the court agrees with the alliance, retail investors could no longer trade stock perpetuals on CFTC-regulated venues.
The complaint accuses the CFTC of inviting “a parallel, synthetic market” in US stocks outside the SEC’s reach. Citadel Securities has warned that such a market could create blind spots around insider trading, position reporting and investor protection. Craig Donohue, chief executive of Cboe, told The TRADE that these products belong on registered securities platforms and that the issue is investor protection and the rule of law. Adam Ford, the alliance’s secretary, said coherent oversight “underpins the global pre-eminence of US securities markets.”
The CFTC pushed back. A spokesperson called the suit “troubling” and said markets should be governed by law, not by litigation campaigns meant to block innovation. Ledger Insights attributed those remarks to comments the spokesperson gave Reuters.
Background
Perpetual futures were developed on offshore crypto exchanges and have become one of the most heavily traded instruments in digital assets. The CFTC approved the first US-listed bitcoin perpetual on May 29, and Kalshi launched one soon afterward, Bitcoin Magazine reported. By the morning of Nov. 4, Kalshi had listed single-stock perpetuals on Qualcomm, McDonald’s, Amgen and Costco, with maximum leverage of 4.9 times.
The challengers say the agency has not been consistent. According to Ledger Insights, the CFTC said in June that equity perpetuals raised novel questions that would benefit from review by both regulators. The commission’s own past enforcement cases against crypto exchanges BitMEX and Binance also treated perpetuals as swaps. Selig is currently the commission’s only sitting member.
This is not the only legal attack on the products. CME Group, the world’s largest futures exchange operator, sued the CFTC in June over crypto perpetuals offered by Kalshi and Coinbase. It argues that contracts settled through recurring funding payments are swaps, not futures. That case is still pending in Washington.
What comes next
The temporary order leaves the approvals in place and does not decide the case. The alliance has also asked for a preliminary injunction, which is still pending. The CFTC’s response was due Friday, Nov. 6, and the alliance’s reply is due Tuesday, Nov. 10, though the schedule could change. The court docket lists Judge Lorna Schofield as the judge assigned to the case. Until a ruling comes, the contracts remain available to traders, along with the legal uncertainty over whether they will survive.
