Summary
- The CME Group, recognized as the largest futures exchange globally, intends to file a lawsuit against the CFTC regarding its approval of crypto perpetual futures, as stated by outgoing CEO Terry Duffy during an interview with CNBC.
- Duffy maintains that perpetual futures should be classified as swaps under the Dodd-Frank Act, not as futures, and he confirmed that the lawsuit would be submitted on Thursday.
- In late May, the CFTC granted approval for Kalshi and Coinbase to offer these products to U.S. traders, marking the first instance of perpetual futures being available via regulated domestic exchanges.
The CME Group is preparing to sue the Commodity Futures Trading Commission (CFTC) over its decision to authorize crypto perpetual futures, according to Terry Duffy, the exchange operator's outgoing CEO.
In a conversation with CNBC on Wednesday, Duffy revealed that the CME would file the lawsuit on Thursday, a plan that CME later confirmed to Reuters.
The core issue of the lawsuit revolves around the classification of the products. Duffy argues that perpetual futures are essentially swaps according to the Dodd-Frank Act, which would subject them to distinct regulations regarding clearing, reporting, and trading venues. He stated, "The Dodd-Frank Act clearly defines what constitutes a swap and what constitutes a future; when two parties exchange payments, that's classified as a swap," in his comments to CNBC.
Duffy also highlighted CME's exclusive licenses for crucial market benchmarks, suggesting that competing perpetual futures would inevitably have to engage with CME. He criticized the CFTC for expediting the approval of a new financial instrument compared to standard review processes.
The CFTC had authorized prediction market Kalshi in late May to launch a Bitcoin perpetual futures contract and separately permitted Coinbase to link U.S. clients to offshore perpetual futures. This was significant as it represented the first time these products, which have largely been available through offshore platforms, were accessible to American traders via domestic regulated exchanges.
Perpetual futures, often referred to as "perps," are a type of derivative that do not have an expiration date, relying instead on periodic funding payments among traders rather than traditional monthly rollovers. These instruments can involve leverage up to 50-to-1, enhancing both potential gains and losses.
CFTC Chair Michael Selig has defended the commission’s actions as a necessary step to bring one of the most liquid segments of the crypto market onshore. A representative for the agency expressed to Reuters that the CFTC anticipates addressing the lawsuit and dismissing what they deem a "frivolous" case.
Duffy has expressed serious concerns about the risks associated with these products. Earlier in the month, he compared the current market situation to the lead-up to the 2008 financial crisis, cautioning that "the speculation market has replaced the housing market, and this could lead to a disaster."
During his interview with CNBC, Duffy mentioned that he had been preparing for this legal challenge for the past eight months in collaboration with CME's board and expressed his readiness for the confrontation. "I thrive on a good challenge," he remarked. "I have never backed down from a fight, and I won't start now."
This announcement coincided with CME's announcement of Duffy's successor. He is set to retire in March 2027, passing the reins to Lynne Fitzpatrick, currently President and CFO, who will become CME's first female CEO.