The Commodity Futures Trading Commission (CFTC) has approved perpetual futures tied to individual US stocks for trading on exchanges it registers, according to a November 3 statement from CFTC Chairman Michael Selig. The decision was quickly challenged by a lawsuit from a group backed by Cboe and Citadel Securities, which claims the CFTC lacked the authority to approve such products.
Approval Under Regulation 40.3
The CFTC approved the products, 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. Selig said the approval gives US traders access to products popular in overseas markets without relying on offshore venues, and described perpetuals as tools for risk management and price discovery that must operate with appropriate safeguards.
Exchanges seeking to list single stock perps must also file notice with the Securities and Exchange Commission (SEC) to trade security futures, meaning oversight will fall on both agencies. Selig linked the decision to a memorandum of understanding signed by the CFTC and SEC earlier this year to improve coordination. He also noted that earlier this year the CFTC approved the listing of the first true Bitcoin perpetual futures contract on a CFTC-regulated exchange, and said the new announcement extends the availability of perpetual futures beyond digital commodities and into traditional securities.
Capital Markets Alliance Files Suit
Soon after the CFTC's 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 is not the first time such a dispute has arisen. In June, CME Group said it would sue the CFTC over its approval of the Bitcoin perpetuals Selig referenced. 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.
