The exchange operator argues that perpetual futures should be classified as swaps under the Dodd-Frank Act rather than futures contracts. The dispute follows the CFTC’s approval of Kalshi’s bitcoin perpetual products and a no-action position granted to Coinbase Financial Markets. CME CEO Terrence Duffy criticized both the classification of the products and the speed of the regulatory review process.
CME Wants to Take CFTC to Court
CME Group, the world’s largest futures exchange operator, is preparing to take legal action against the US Commodity Futures Trading Commission (CFTC) over the regulator’s recent approval of perpetual futures contracts. CME plans to file the lawsuit on Thursday, and it centers on the argument that perpetual futures should be classified as swaps under the Dodd-Frank Act rather than traditional futures contracts.
Perpetual futures are often referred to as “perps,” and are a type of derivative that allows traders to speculate on the price movements of assets without directly owning them. Unlike conventional futures contracts, perpetual futures do not have an expiration date. This makes them a popular instrument among crypto traders.
The dispute follows the CFTC’s decision last month to approve bitcoin perpetual contracts as futures products. The regulator approved Kalshi’s application to offer the contracts and also issued a no-action position for Coinbase Financial Markets, allowing the company to move forward with plans to offer digital commodity derivatives products.
CME CEO Terrence Duffy is one of the strongest critics of the decision. Speaking to CNBC, Duffy said that CME believes the contracts have been incorrectly categorized and that this issue forms the foundation of the company’s legal challenge. He emphasized that CME is taking the matter seriously and is prepared to challenge the regulator’s position in court.
Duffy also voiced concerns about the structure of perpetual futures and the risks they may pose to market participants. Speaking earlier this month at the Piper Sandler Global Exchange & Fintech Conference, he argued that the products offer levels of leverage that exceed those typically seen on CME-regulated markets. According to Duffy, inexperienced traders could face huge losses if they enter products they do not fully understand.
In addition to this, he questioned the speed of the CFTC’s review process, and suggested that the approval was completed quicker than the standard self-certification period for such a novel financial instrument. Duffy warned that the growing popularity of highly leveraged speculative products could create risks similar to those seen before the 2008 financial crisis.
“The housing market has been supplanted by the speculation market,” Duffy said, arguing that excessive speculation in prediction markets and other derivatives products could become “a disaster waiting to happen.” Despite the regulator’s decision, he made it clear that CME intends to continue fighting the approval through legal channels.
