Key facts
- CME Group has filed a lawsuit against the Commodity Futures Trading Commission (CFTC) and its chairman, Mike Selig.
- The lawsuit challenges the CFTC's decision to permit the listing of blockchain-based perpetual futures products on platforms like Kalshi and Coinbase.
- CME argues that these perpetual futures are mislabeled as futures when they function as swaps, which carry different regulatory and tax obligations.
- The exchange claims these products are detrimental to its existing long-dated futures contracts and that the CFTC did not adequately consider the ramifications of their approval.
- The CFTC's approval of these products was made under Chairman Selig as the sole member of the commission.
- CME's attempt to launch 24/7 trading for its own crude oil futures contract was recently blocked by the CFTC.
The CME Group, the largest derivatives exchange operator in the U.S., has initiated a lawsuit against the Commodity Futures Trading Commission (CFTC) and its chairman, Mike Selig. The legal challenge targets the CFTC's recent decision to permit blockchain-based perpetual futures products, which allow users to speculate on asset prices with leverage and no expiration date, to be listed on platforms like Kalshi and Coinbase.
CME contends that the CFTC is mischaracterizing these perpetual futures, effectively misapplying the law. The exchange argues that futures contracts inherently require an end date, and these perpetual products, by design, lack one, posing a threat to CME's established long-dated futures offerings. CME alleges the CFTC's embrace of these products did not adequately consider the potential ramifications.
Tensions between CME and the CFTC have escalated, particularly as interest in perpetual contracts on commodities like oil surged during recent geopolitical events, with such contracts trading 24/7 on offshore decentralized finance (DeFi) exchanges. Jake Chervinsky, CEO of the Hyperliquid Policy Center (HPC), described the situation as highly unusual, noting that the regulator is essentially allowing registered entities, including CME, to offer these products, while CME is opposing their availability.
Further complicating the dispute, the CFTC blocked CME's attempt to fast-track 24/7 trading for its West Texas Intermediate (WTI) crude oil futures contract, a traditional expiring product. CME Chairman Terry Duffy has asserted that perpetual futures fall under the definition of swaps, which necessitates registration with the CFTC and adherence to margin requirements. He also questioned the CFTC's ability to police U.S. participants from engaging in potentially illegal offshore perpetual trading.
Industry experts like Liz Davis, a partner at Davis Wright Tremaine, highlight the fundamental differences between crypto-style perpetual contracts and traditional commodity futures, citing issues like delivery and the limited trading hours of physical commodities. Jaret Seiberg, a financial policy analyst at TD Cowen, suggests that CME might hold an advantage in the legal battle, particularly given the CFTC's approval process, which involved a single commissioner's decision rather than a formal rulemaking.