SEC backs CFTC in U.S. fight over stock perpetual derivatives

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SEC backs CFTC in derivatives dispute

Highlights

SEC filed an amicus brief this week supporting the CFTC’s authority over equity perpetuals amid litigation brought by Capital Markets Alliance.
Crypto firms including Coinbase, Kraken parent Payward, and Kalshi filed a joint brief opposing CMA and backing CFTC’s approval of equity perpetuals tied to U.S. stocks on Nov. 2.
Better Markets and former SEC Commissioner Allison Herren Lee argue that perpetuals should be classified as securities under SEC oversight due to high retail investor risk.

Regulators and industry groups deepen court clash

As first reported by The Block, the Securities and Exchange Commission this week filed an amicus brief supporting the Commodity Futures Trading Commission in litigation over whether equity perpetuals fall under the CFTC’s authority.

The filing comes after the Capital Markets Alliance sued the CFTC last week, arguing that the agency violated the Administrative Procedure Act when it allowed the products and that the approvals should be vacated. CMA, whose members include Cboe and Citadel Securities, argues that the perpetual derivatives should be regulated by the SEC rather than the CFTC.

In its brief, the SEC rejects the claim that the CFTC has "gone rogue" and says the CFTC’s rule changes remain subject to SEC review. The agency also says its coordination with the CFTC is important for oversight of equity perpetuals and that the portrayal of a missing SEC is mistaken.

Crypto firms and investor advocates split on market oversight

A group of crypto firms including Coinbase, Kraken parent Payward, Kalshi, DRW Holdings, Paradigm and Jump Trading has also filed a joint amicus brief against CMA. Coinbase, Kalshi and Payward have submitted applications with the CFTC to list equity perpetuals tied to U.S. stocks, and those applications were deemed approved on Nov. 2.

Opposition to the products is also building from other corners of the market. Better Markets and former SEC Commissioner Allison Herren Lee have filed amicus briefs arguing that the new perpetuals should be treated as securities products under SEC oversight.

Better Markets said on Tuesday that, although the instruments are labeled as perpetual futures by the CFTC and trading platforms, they are in fact securities swaps that should carry stronger investor protections. The group also warns that such products pose a high risk of total losses for retail investors and links that concern to financial products that contributed to the 2008 crash.

As a reminder, we covered Hainan Rubber’s proposed BBB- rated Fitch perpetual securities to refinance offshore debt via Halcyon Agri.

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