A federal judge has rejected an emergency request to halt US stock perpetual futures while finding that the challengers are likely to succeed in arguing that the CFTC exceeded its legal authority.
Summary
- Stock perpetual futures avoided an emergency trading halt in a lawsuit backed by Cboe and Citadel Securities.
- Judge Valerie Caproni found the challengers likely to succeed on their claim against the CFTC.
- The court denied immediate relief because the alliance failed to demonstrate imminent, irreparable harm.
- The CFTC’s preliminary injunction response is due Nov. 6, with the alliance’s reply due Nov. 10.
According to the Southern District of New York’s Nov. 3 order, Judge Valerie Caproni denied the Capital Markets Alliance Association’s request for a temporary restraining order covering stock-linked perpetual derivatives at KalshiEX, Bitnomial Exchange and Coinbase Derivatives.
The decision leaves the challenged approvals in place while the court considers a separate request for a preliminary injunction. Caproni issued the order after a telephone conference with the parties that day.
Stock perps ruling questions the CFTC’s classification
In her initial assessment, Caproni found that perpetual contracts appeared to lack the future delivery required for classification as security futures. She said the instruments appeared instead to meet the definition of swaps subject to SEC regulation.
The judge found that the balance of equities and public interest favored the alliance. Emergency relief nevertheless failed because the supporting declarations described possible harmful events without showing that members were likely to suffer irreparable damage.
Her assessment was preliminary. The order rejected the temporary restraining order without finally deciding the lawsuit or the pending preliminary injunction request.
The court set Nov. 6 for the defendants’ opposition and Nov. 10 for the alliance’s reply. Both deadlines remain subject to changes by the assigned district judge; the order did not schedule another hearing.
CFTC says stock perps fall under joint oversight
The CFTC’s Nov. 3 announcement said equity perpetual futures could begin trading on designated contract markets that hold the required SEC notice registration for security futures.
In his accompanying statement, Chairman Michael Selig said the contracts were deemed approved under Commission Regulation 40.3 as security futures products under the Commodity Futures Modernization Act of 2000.
Selig said the products therefore remained subject to the Commodity Exchange Act, federal securities laws and the regulatory requirements of both agencies. His explanation placed the approvals within an existing system of joint supervision.
The chairman argued that domestic access would allow American investors to use perpetual futures within regulated markets instead of relying on offshore venues. He described the products as tools for managing risk and discovering prices.
His statement cited the agencies’ March memorandum of understanding on coordination and the CFTC’s May 29 approval of Kalshi’s Bitcoin perpetual futures contract as foundations for its approach.
Cboe challenges the investor protection framework
Cboe identified itself, Citadel Securities and the Healthy Markets Association as alliance members in a Nov. 3 statement supporting the legal challenge.
Chief Executive Craig Donohue argued that securities-linked products offered through CFTC platforms were bypassing the protections Congress established for securities markets. He said the company had raised concerns through public comments and industry discussions before joining the lawsuit.
“This issue, however, is about investor protection for securities trading and the rule of law,” Donohue said.
Cboe rejected the suggestion that its objection was simply commercial. Donohue said the company operates CFTC-regulated trading and clearing platforms through which it could introduce competing products.
The exchange operator accused the agency of authorizing securities-related filings without adequately explaining their legal basis or departures from earlier positions. Its statement called for securities products to remain subject to the oversight and safeguards required by US securities laws.
Ondo previously argued expiration was unnecessary
The classification dispute follows industry requests to bring stock perpetuals into the existing US security futures framework.
As crypto.news previously reported, Ondo Finance urged US regulators in three Aug. 24 letters to accommodate the contracts under current rules. Its position was that a fixed expiration date was unnecessary for a product to qualify as a security future.
Ondo argued that recurring funding payments perform a function similar to expiration by helping keep a perpetual contract’s price close to its reference asset.
The company’s proposal covered product classification, margin requirements, and blockchain-based pricing data. Ondo said its Panama-based affiliate had processed $8 billion in cumulative stock perpetual trading volume by Aug. 14, approximately six weeks after launch, serving eligible customers outside the United States.
