Six firms back CFTC authority in stock perpetuals lawsuit

The six companies—along with DRW Holdings, Jump Trading and Paradigm Operations—asked the U.S. District Court for the Southern District of New York to accept their proposed amicus brief, according to a November 9 filing. The case, brought by the Capital Markets Alliance Association, concerns applications from Coinbase Derivatives, KalshiEX and Bitnomial Exchange to list perpetual contracts tied to large-cap U.S. stocks.

The exchanges submitted their applications on September 18. They were deemed approved on November 2 under the CFTC’s product review process. The alliance, whose members include Cboe and Citadel Securities, argues that contracts without expiration dates should be classified as security-based swaps and regulated by the SEC. It is seeking to overturn the approvals and block their effect while the case proceeds.

The firms supporting the CFTC argue that the Commodity Exchange Act allows perpetual contracts to fit within the existing security futures framework, even though they have no fixed expiration date. They say the relevant issue is whether the contracts meet the statutory definition of security futures, not whether they resemble other derivatives. Their brief also says the framework provides for oversight by both the CFTC and SEC. Payward owns Kraken and acquired Bitnomial earlier this year.

U.S. District Judge Valerie Caproni denied the alliance’s request for a temporary restraining order on November 3, finding it had not shown sufficiently immediate harm. But she questioned whether the contracts qualify as security futures because they do not provide for delivery of a security on a specified future date, and said they appeared to meet the definition of security-based swaps. The approvals remain in place as the parties continue briefing the alliance’s separate request for a preliminary injunction.

Coinbase general counsel Molly Abraham defended the filing on November 10, saying Congress created a security futures framework in legislation enacted in 2000. The companies contend that both regulators took part in discussions before the approvals and that exchanges submitted listing standards to both agencies. The CFTC’s November 3 clearance covered the first equity perpetual futures products for eligible domestic trading venues; participating exchanges must maintain CFTC designation and meet applicable SEC registration requirements.