CFTC gives the green light! US stock "perpetual contracts" land on US soil, Cboe and CME are anxious.

Notice that a so-called perpetual derivative contract linked to stocks has received the green light from the U.S. Commodity Futures Trading Commission (CFTC) and has been approved for trading. CFTC Chairman Michael Selig said in a statement on Tuesday that these perpetual futures contracts will be treated as security futures and will be subject to regulation by both the CFTC and the U.S. Securities and Exchange Commission (SEC). An industry group has already filed a lawsuit challenging the decision, while Kalshi launched several such contracts the same day. Perpetual contracts (perps) are leveraged contracts with no expiration date, unlike traditional derivatives. They can be traded around the clock, including when stock markets are usually closed. These structural features have made them popular overseas, although opponents warn that 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 take advantage of perpetual futures, subject to applicable law, whose benefits have made them a widely sought-after risk management and price discovery tool." The move is unwelcome in some parts of the trading industry, which complain that the CFTC approved perpetual contracts without going through proper procedures. Craig Donohue, chief executive of Cboe Global Markets (CBOE.US), said in a statement: "Single-stock perpetual derivatives are the latest example of a troubling trend in which securities products are being offered on CFTC platforms outside the appropriate regulatory framework and customer protection regime established by Congress." The Capital Markets Alliance, which represents Cboe, Citadel Securities and other U.S. exchanges, trading firms and investor advocates, asked a federal court in New York to block trading of the perpetual contracts. The industry group said the CFTC did not follow the Administrative Procedure Act when approving the new products. The CFTC did not immediately respond to a request for comment after the lawsuit was filed. The regulator has made bringing perpetual contracts into the regulated U.S. market a priority, including approving the first crypto perpetual contracts earlier this year. Prediction market company Kalshi sought regulatory approval from the CFTC in September to list single-stock perpetual contracts. These contracts had been under regulatory review until November 2. The company began offering its first single-stock perpetual contracts linked to Amgen (AMGN.US), McDonald's Corporation (MCD.US), Qualcomm (QCOM.US) and Costco (COST.US) later on Tuesday. Jake Sachi, a Kalshi spokesperson, said: "We brought single-stock perpetual contracts to the U.S. because we believe they make trading stock prices simpler, cheaper and more efficient. Offshore traders love single-stock perpetual contracts, and we are excited to bring this option to the U.S." Coinbase (COIN.US), Bitnomial and other exchanges are also planning to list these contracts. Andy Ross, head of institutional business at Kalshi, criticized the Capital Markets Alliance's lawsuit. "Monopolists always like to sue when they encounter competition," Ross said in an interview at the Futures Industry Association expo in Chicago. The CFTC's approval of other types of perpetual contracts has already drawn lawsuits. CME Group (CME.US), the largest derivatives exchange, sued the agency earlier this year, arguing that regulators should treat these products as swaps rather than futures. Lynn Fitzpatrick, president and chief financial officer of CME, said at the futures industry conference that these products would "bring more risk" to the system and could trigger contagion even at companies like CME that do not list them. After the CFTC's announcement on Tuesday, shares of Cboe, CME and Intercontinental Exchange, Inc. (ICE.US) all pulled back. Congressional scrutiny If Democrats regain control of the House and Senate, the CFTC's action on perpetual contracts could also invite significant congressional scrutiny. In recent weeks, lawmakers from both parties have expressed concerns about such contracts. Republican Senator Katie Britt of the Senate Banking Committee, in an October 29 letter, called on the SEC and CFTC to work together to ensure these products have adequate investor protections. Senator Elizabeth Warren, the top Democrat on the Senate Banking Committee, sharply criticized the CFTC's decision just minutes after it was announced. She said in a statement that U.S. stock perpetual contracts "could inject serious volatility into our markets."