Following a decision by the CFTC, perpetual futures tied to individual US stocks can now trade on exchanges registered by the agency.
However, a group backed by Cboe and Citadel Securities has filed a lawsuit against the decision, claiming that the CFTC had no authority to make it.
CFTC Greenlights Equity Perps
In a November 3 statement, CFTC Chairman Michael Selig confirmed the commission had approved perpetual futures on individual equity securities, known as equity perps, under its Regulation 40.3.
They have been classified as security futures products under the Commodity Futures Modernization Act of 2000, making them subject to the Commodity Exchange Act and federal securities laws.
According to Selig, they can give US traders access to products that are popular in overseas markets without them having to rely on offshore venues. He described perpetuals as tools for risk management and price discovery but also insisted that they must operate with appropriate safeguards.
Per the statement, exchanges looking to list single stock perps must also file notice with the SEC to trade security futures, meaning oversight will fall on the two agencies. Selig linked the decision to an MoU signed by the CFTC and SEC earlier this year in a bid to improve how they coordinate.
“Earlier this year, the CFTC took historic action in this regard by approving the listing of the first true Bitcoin perpetual futures contract on a CFTC-regulated exchange,” read Selig’s statement. “Today’s announcement builds on that milestone by extending the availability of the perpetual futures contract instrument in the US beyond digital commodities and into traditional securities.”
Industry Group Sues
Soon after the CFTC had put out its statement, a group calling itself the Capital Markets Alliance filed a lawsuit arguing that the financial watchdog had gone against laws passed by Congress and “invited a parallel synthetic market in US stocks” that it claimed would grow outside what it believes is rightfully the SEC’s exclusive jurisdiction.
According to Reuters, a CFTC spokesperson called the case “troubling” interference with markets regulated by the agency. They added that US markets ought to be governed by law rather than litigation campaigns whose main intention was to “block innovation.”
It’s not the first time something like this has happened. Recall that in June, the CME Group said it would sue the CFTC for its approval of the Bitcoin perpetuals Selig referenced in his statement. At the time, CME CEO Terrence Duffy said perpetual contracts should be classified as swaps under the Dodd-Frank Act instead of futures and that providers had to go through the Chicago Mercantile Exchange since it held exclusive benchmark licenses.
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