Stock Perps Throw Down the Gauntlet: Coinbase, Kalshi Rally Behind the CFTC ⚔️

Coinbase, Kalshi and four other companies asked a federal court Monday to accept a proposed amicus brief supporting the United States Commodity Futures Trading Commission (CFTC) in a lawsuit challenging the agency’s authority over perpetual futures tied to individual US stocks. The group also includes Kraken parent Payward, trading companies DRW Holdings and Jump Trading, and crypto investment company Paradigm Operations.

The companies argue that stock perpetual futures fall under existing US futures laws and contend that a fixed expiration date is not required for a contract to qualify as a security future, which falls under joint CFTC and Securities and Exchange Commission (SEC) oversight. Stock perps allow traders to speculate on the price movements of individual stocks without owning the shares, but unlike traditional futures, they have no fixed expiration date.

The legal challenge follows the CFTC’s Nov. 3 announcement that single-stock perpetual futures, or stock perps, could begin trading on US-regulated exchanges for the first time. The Capital Markets Alliance Association (CMAA), a newly formed trade and advocacy group representing traditional financial market participants and whose members include Cboe and Citadel Securities, sued the CFTC last week. CMAA argues that because the contracts lack a fixed expiration date, they should be regulated as security-based swaps, a type of derivative linked to stocks or other securities that is primarily overseen by the SEC and faces tighter restrictions on retail trading.

US District Judge Valerie Caproni said the plaintiff was likely to succeed in its claim that the CFTC likely “exceeded its statutory authority” by allowing stock perps to trade as security futures. She found that the contracts appeared to qualify as swaps rather than security futures, but denied CMAA’s request for a temporary restraining order after concluding that the group had failed to demonstrate imminent, irreparable harm. The ruling left the CFTC’s trading approvals in place while the lawsuit proceeds, and CMAA is scheduled to file its reply to the CFTC’s opposition to a preliminary injunction on Tuesday.