Judge Lets Stock Perpetual Futures Keep Trading but Says CFTC Likely Overstepped Its Authority
A federal judge denied an emergency bid to halt stock perpetual futures trading on Kalshi, Coinbase Derivatives and Bitnomial, while finding that Wall Street-backed challengers likely proved the CFTC overstepped its authority.
U.S. District Judge Valerie Caproni denied the temporary restraining order on Nov. 3 after a teleconference with the parties, hours after the CFTC announced the products could begin trading on U.S.-regulated exchanges. The plaintiff is the Capital Markets Alliance Association, a New York nonprofit whose members include Cboe Global Markets, Citadel Securities and the Healthy Markets Association.
The group sued the CFTC and Chairman Michael S. Selig in the Southern District of New York, seeking to undo the approvals of filings by all three exchanges. Caproni wrote that the group "is likely to succeed on the merits" of its claim that the agency lacks statutory authority to allow perpetual derivatives on individual stocks to be offered to retail investors on CFTC-regulated platforms.
Because the perpetual contracts, by definition, do not provide for a 'sale for future delivery of a single security,' they cannot be a security future over which the CFTC has statutory and regulatory authority.
Regulatory Turf Battle
Instead, Caproni said the contracts "appear to satisfy the definition of a swap," which falls to the Securities and Exchange Commission. She also found that the balance of equities and the public interest favor the alliance, writing that the agency's actions "seem to represent a major disruption to the equities market."
The request failed on one prong. Caproni said the declarations from Cboe, Citadel Securities and Healthy Markets were "conjectural" about the harm members would suffer and did not show irreparable harm that was "actual and imminent."
The order leaves the approvals in place. It does not decide the case or the alliance's separate motion for a preliminary injunction. The CFTC's opposition is due Friday, Nov. 6, and the alliance's reply is due Tuesday, Nov. 10.
Crypto Industry Implications
For crypto-native venues, the stakes reach past stocks. Perpetuals are the core product of crypto derivatives trading, and Kalshi and Coinbase have used the CFTC's framework to bring them onshore. The agency approved the first U.S.-listed bitcoin perpetual on May 29, and Kalshi went live with the product soon after.
That approval already faces a challenge. CME Group sued the CFTC in June, arguing that a contract built on exchanged funding payments is a swap, not a future. That case is pending in Washington. The New York order covers security futures, not commodities like bitcoin. But a federal judge has now said, at least preliminarily, that a contract with no expiration does not look like a future.
Our markets should be governed by law, not litigation campaigns intended to block innovation.
The fight is over a label. Selig's Nov. 3 statement said the contracts were deemed approved under Commission Regulation 40.3 as security futures products, a category the CFTC and SEC oversee jointly. The exchanges filed them Sept. 18, and the agency let its 45-day review period lapse without a written order.
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