Regulatory tensions in the U.S. derivatives market are escalating after the approval of perpetual futures products earlier this month. CME Chief Executive Terrence Duffy says the company plans to sue the U.S. Commodity Futures Trading Commission, arguing the decision creates uncertainty over how such contracts are classified under federal law.
Highlights
- CME CEO Terry Duffy announced plans to legally challenge the CFTC's approval of Kalshi's perpetual futures, arguing it violates the Dodd-Frank Act's definition of a futures contract.
- Duffy claims the CFTC misrepresented perpetual futures as futures instead of swaps, which would impose different participation and access requirements for market participants.
- The regulatory dispute over perpetual futures could reshape derivatives market oversight, impacting U.S. exchange competition, product innovation, and participant requirements.
Duffy challenges legal basis for approval
As reported by CoinDesk, Duffy says the CFTC's approval of Kalshi's perpetual futures product does not meet the Dodd-Frank Act's definition of a futures contract and instead appears to fall under the rules governing swaps.Speaking to CNBC on Wednesday, Duffy says the law clearly distinguishes between swaps and futures, and that products involving two parties exchanging payments would be deemed swaps. He says that if the approved products are swaps rather than futures, different participation requirements would apply.
Duffy also says CME needs to understand the regulatory framework before considering whether to list perpetual futures contracts of its own. He says the current rules are not very clear at present.
Broader implications for derivatives oversight
Duffy says he believes, at least to some extent, that the CFTC is misrepresenting certain facts. He points to the agency's release on 24/7 trading, saying it described the matter as a rule even though it was not a formal rule.His comments signal a potential legal and regulatory clash over how perpetual futures are treated in the U.S. market, a question that could affect exchange competition, product development and access requirements across the derivatives sector. Duffy, who is stepping down from his role next year, says there are many problems with the current situation.
In our earlier article, we covered CME Group’s plan to sue the CFTC over the regulator’s approval of perpetual futures for U.S. investors. We noted CEO Terry Duffy’s concerns about the products’ high leverage and retail-risk implications, as well as the competitive pressure the approval could create for established exchanges as new entrants move to launch perpetual crypto futures.
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