SEC backs CFTC in stock perpetuals suit without futures-swaps ruling

The SEC told a New York court it opposes an injunction against single-stock perpetual futures, without saying whether the contracts are futures or swaps, Ledger Insights reported on Nov. 11.

The contracts began trading in the US last week after the CFTC let a 45-day review clock expire on applications from Kalshi, Coinbase and Bitnomial. Within a day, the Capital Markets Alliance, a new group representing Cboe, Citadel Securities and the Healthy Markets Association, sued the CFTC in New York to halt them, arguing the perpetuals are swaps that belong under SEC jurisdiction. A judge declined an emergency order but said the alliance would probably win on the law, according to Ledger Insights. Briefing on the injunction concluded this week.

For advisors, a ruling that follows the judge’s reading of the law could leave a client holding a contract on an exchange whose rules the SEC later overturns. The date that matters is Dec. 31, the deadline for the SEC to decide whether to overturn the exchange rule filings behind the listings, and the agency has not said whether the contract is a future or a swap.

The SEC's brief argues the alliance has no right to sue and calls the alliance's description of “a CFTC gone rogue, and an SEC gone missing” mistaken, according to Ledger Insights. It outlines the SEC's own powers over the contracts without taking a position on whether they are futures or swaps.

Citadel Securities fills around 35% of US retail stock orders through its wholesale business. A move in volume from equities to perpetuals would shift orders away from the products Citadel specializes in and onto venues where Jump and DRW already operate, Ledger Insights reported.