U.S. CFTC rebuffs CME legal stance in consequential fight over perpetual futures

The future of perps in the U.S. may be at stake as the CFTC argues that CME hasn't shown the new policy is hurting it after the agency OK'd its first bitcoin perp.

The U.S. Commodity Futures Trading Commission threw open the doors for perpetual futures in the U.S. in May, approving the first bitcoin perp from Kalshi and suggesting that it was open for business on ensuring a domestic surge in such contracts. But the CME Group objected in court, and the CFTC has responded in court that the derivatives giant has no right to get in the way.

"Allegations of increased competition, without any plausible inference of an imminent financial injury," don't give CME the legal standing to challenge the CFTC's actions, the agency said in a brief filed on Friday, noting that volume in crypto futures at the CME has actually risen since its policy shift.

Perp contracts had soared overseas, becoming a major form of transaction in crypto derivatives, and the CFTC's move sought to clarify how the market could get rolling in the U.S. The agency — in response to President Donald Trump's aggressive crypto agenda that included bringing perps into domestic trading — said it'll regulate the products on a case-by-case basis as futures.

Perps allow traders to speculate on the future price of an asset with a typically leveraged position, and the contracts don't come with a built-in expiration.

But CME, which operates the leading global venues for derivatives trading, has insisted the contracts are not futures, because they have no end date. They're really swaps, the company's argument would have it, which would come with an entirely different regulatory approach. Spokespeople for CME didn't immediately respond to a request for comment on the CFTC's latest filing.

The CFTC first asked a federal judge to dismiss CME's case last month, and this latest filing details its argument against the company's legal standing.

"CME must plausibly allege an actual or imminent increase in competition," the CFTC argued. "CME has not even done that."

The agency argued that CME has been telling investors that it hasn't heard of a demand for perps and that they aren't substitutes for the futures it's offering.

"CME cannot have it one way with the court and another way with the investing public on earnings calls," the CFTC contended in its brief.

Jaret Seiberg, a policy analyst at TD Cowen, argued in a Monday client note that CME may still have the edge, in both its standing as a competitor and its argument that perps may be appropriately treated as swaps. However, the clock is ticking on the new market.

"What increasingly concerns us is the growth in perps while the litigation is playing out," Seiberg wrote. "If this growth continues, it could create complications in trying to unwind this market if the CME prevails in the lawsuit."

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