Key Highlights
- The Capital Markets Alliance filed a lawsuit on November 3 in the Southern District of New York challenging the CFTC’s approval of perpetual derivatives tied to individual U.S. stocks.
- The alliance includes Cboe Global Markets, Citadel Securities, and the Healthy Markets Association.
- The plaintiffs argue that single-stock perpetual derivatives qualify as security-based swaps, placing them under the SEC’s exclusive jurisdiction.
The Capital Markets Alliance filed a lawsuit on November 3 in the U.S. District Court for the Southern District of New York, seeking to vacate the Commodity Futures Trading Commission’s (CFTC) approval of perpetual derivatives on individual U.S. stocks.
According to the official release, the alliance, which includes Cboe Global Markets, Citadel Securities, and the Healthy Markets Association, argues that the approvals violate the Administrative Procedure Act. The group contends that the products are security-based swaps, which Congress placed under the exclusive jurisdiction of the Securities and Exchange Commission.
The group said the CFTC provided no explanation for its decision and did not acknowledge that it has long treated perpetual derivatives as swaps. It also asserts that the agency failed to reasonably consider impacts on investors and the securities markets.
The alliance is asking the court to vacate the approvals, declare that the products are security-based swaps, and bar the CFTC from giving the approvals effect while the case is pending.
Statements from the alliance
Adam Ford, secretary of the Capital Markets Alliance, said, “Coherent regulatory oversight underpins the global preeminence of U.S. securities markets. The hasty rollout of financial products that circumvent well-established regulatory frameworks erodes investor protection and undermines the integrity and resiliency of the American financial system.”
Cboe Global Markets issued a supporting statement. Craig Donohue, chief executive officer of Cboe, said, “Cboe has joined this action alongside some of the largest U.S. market participants and investor advocates because we believe the CFTC’s actions threaten to erode the regulatory framework that has protected investors and governed U.S. securities markets for more than nine decades.”
Donohue added that single-stock perpetual derivatives represent an example of securities products being offered on CFTC platforms outside the regulatory framework and customer protection regime established by Congress. He stated that such products belong on registered securities platforms and should be subject to the investor protections, oversight, and safeguards required under U.S. securities laws.
Background on the approval
The action comes the same day the CFTC announced that equity perpetual futures, also known as Equity Perps, could begin trading on qualifying U.S. exchanges.
In a statement, CFTC Chairman Michael S. Selig said the contracts were deemed approved as security futures products pursuant to CFTC Regulation 40.3 under a framework jointly overseen by the CFTC and the Securities and Exchange Commission. The announcement did not identify specific exchanges planning to list the contracts or provide details on the first products.
The CFTC’s November 3 announcement established a regulatory route for qualifying U.S. exchanges to offer perpetual futures contracts tied to individual stocks. The contracts were classified as security futures products under the joint oversight of the CFTC and the SEC.
The Capital Markets Alliance’s filing challenges the legal basis for that determination. The group maintains that the products fall under the SEC’s exclusive authority as security-based swaps and that the CFTC’s process did not meet the requirements of the Administrative Procedure Act.
The lawsuit remains pending in the Southern District of New York. The CFTC has not issued a public response to the filing in the materials provided.
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