The CME Group has filed a lawsuit against the CFTC, claiming improper approval of Kalshi's perpetual futures, raising regulatory concerns.
The CME Group has launched a legal challenge against the Commodity Futures Trading Commission (CFTC), arguing that the agency improperly approved Kalshi's first U.S. perpetual futures product.
CME Group's Legal Challenge
In its lawsuit, filed on Thursday, CME claims the CFTC did not adequately assess Kalshi's application for listing perpetual futures contracts before granting approval. This legal action follows statements from CME's outgoing CEO, Terry Duffy, indicating intentions to contest the approval made in late May.
Significance of the Lawsuit
It is unusual for a major trading entity like CME to sue its regulatory body. The case raises questions about the CFTC's approval process, specifically whether it adhered to Dodd-Frank regulations, which could have implications for CME's market position. CME asserts that the approval of perpetual futures could undermine its traditional futures offerings.
Classification Disputes
CME contends that perpetual futures should be classified as "swaps" rather than "futures" under the Dodd-Frank Act, which carries different regulatory requirements. Duffy emphasized that the CFTC's failure to properly evaluate the approval in relation to legal standards is concerning. The lawsuit alleges that the CFTC effectively "rubberstamped" Kalshi's request without thorough scrutiny.
On the same day Kalshi's application was approved, the CFTC also issued a no-action letter to Coinbase, allowing it to pursue similar offerings through an offshore intermediary. As more companies seek designated contract market (DCM) approvals for perpetual futures, the regulatory landscape is becoming increasingly complex.
Legal expert Katherine Kirkpatrick Bos noted that while the term "future" is not explicitly defined in the Dodd-Frank Act, the term "swap" is, giving the CFTC the authority to classify new products accordingly. CME's argument hinges on the idea that the lack of an expiration date for these contracts should categorize them as swaps.
