CFTC gives the green light! US stock "perpetual contracts" land in the United States, Cboe and CME are anxious

Smart Finance APP has noted that a so-called perpetual derivative contract linked to stocks has received approval from the U.S. Commodity Futures Trading Commission (CFTC) and has been authorized to begin trading.

CFTC Chairman Michael Selig stated in a Tuesday announcement that these perpetual futures contracts will be classified as security futures and will be overseen by both the CFTC and the U.S. Securities and Exchange Commission (SEC). An industry body has already filed a lawsuit challenging this decision, while Kalshi launched several such contracts on the same day.

Perpetual contracts (perps) are leveraged contracts without an expiration date, differing from traditional derivatives. They can be traded around the clock, including when the stock markets are normally closed. This structure has made them popular overseas, although critics warn they also pose significant risks to inexperienced traders.

Selig said the CFTC's decision "marks an important step toward allowing U.S. market participants to utilize the advantages of perpetual futures under applicable laws—advantages that have made them highly coveted risk management and price discovery tools."

This move is unpopular in some parts of the trading industry, with complaints that the CFTC approved perpetual contracts without proper procedures.

Cboe Global Markets (CBOE.US) CEO Craig Donohue stated: "Single-stock perpetual derivatives are the latest example of a disturbing trend where securities products are being offered on CFTC platforms outside of the proper regulatory framework and customer protections established by Congress."

The Capital Markets Coalition, representing Cboe, Citadel Securities, and other U.S. exchanges, trading firms, and investor advocacy groups, has petitioned a federal court in New York to halt the trading of perpetual contracts. The industry group argued that the CFTC did not comply with the Administrative Procedure Act in approving these new products.

After the lawsuit was filed, the CFTC did not immediately respond to requests for comment. The regulator has made bringing perpetual contracts to regulated U.S. markets a priority, including approving the first crypto perpetual contracts earlier this year.

Prediction market company Kalshi sought CFTC regulatory approval in September to list single-stock perpetual contracts. These contracts have been under regulatory review until November 2.

The company began offering the first single-stock perpetual contracts tied to Amgen (AMGN.US), McDonald’s (MCD.US), Qualcomm (QCOM.US), and Costco (COST.US) later on Tuesday.

Kalshi spokesperson Jack Sach said: "We're bringing single-stock perps to the U.S. because we believe they make trading stock prices simpler, cheaper, and more efficient. Offshore traders love single-stock perps, and we're excited to bring that choice to the U.S."

Coinbase (COIN.US), Bitnomial, and other exchanges are also planning to offer these contracts.

Andy Rose, Head of Institutional Business at Kalshi, criticized the Capital Markets Coalition lawsuit.

Rose said during an interview at the FIA Expo in Chicago: "Monopolists love to litigate when facing competition."

Previous CFTC approvals of other types of perpetual contracts have already attracted legal action. The largest derivatives exchange, CME Group (CME.US), earlier this year sued the commission, arguing the regulator should treat these products as swaps rather than futures.

CME President and CFO Lynne Fitzpatrick stated at the futures industry conference that these products will "add more risk to the system," and even firms like CME that do not list these products could face risk contagion.

After the CFTC announced the decision on Tuesday, stocks in Cboe, CME, and Intercontinental Exchange (ICE.US) all declined.

Congressional Review

If the Democratic Party regains control of both the House and Senate, the CFTC's actions regarding perpetual contracts could face significant scrutiny from Congress.

In recent weeks, lawmakers from both parties have voiced concerns about these contracts. On October 29, Republican Senator Katie Britt of the Senate Banking Committee called for the SEC and CFTC to work together to ensure these products have adequate investor protections.

Elizabeth Warren, the Democratic lead on the Senate Banking Committee, slammed the CFTC’s decision just minutes after it was announced. In a statement, she said U.S. stock perpetual contracts "could inject severe volatility into our markets."