The Capital Markets Alliance, whose members include Cboe and Citadel Securities, has sued to overturn a CFTC policy extending to stocks the perpetual futures model widely used in crypto.
According to CoinDesk, the Capital Markets Alliance (CMA) filed suit in the U.S. District Court for the Southern District of New York on November 3, the day the U.S. Commodity Futures Trading Commission (CFTC) announced its new approach. Thus, the green light for perpetual contracts tied to stocks faced a legal challenge the same day.
These contracts allow investors to take positions on a stock’s price without owning the stock, and have no set expiration date. The CMA’s challenge centers on precisely which rules should apply to these products.
The SEC and CFTC’s authority is at the center of the dispute
The CMA, which represents traditional financial firms, argues that these stock-linked contracts should be treated not as futures, but as security-based swaps. It contends that under this classification, the products fall within the SEC’s jurisdiction.
The group also alleges that the CFTC violated the Administrative Procedure Act by failing to adequately explain its policy change and why it departed from its previous position. It is asking the court to overturn the new policy.
In a statement, CFTC Chair Mike Selig said the new move makes perpetual contracts available for traditional securities as well, extending them beyond digital commodities.
The path opened for Bitcoin also faced a lawsuit
About five months ago, the CFTC cleared the way for similar Bitcoin-based contracts to be offered in the United States. One aim was to bring to the U.S. the market for these transactions, which had been growing overseas.
That move was also the subject of a separate lawsuit by CME Group. CME argued that contracts with no expiration date could not be considered futures and were swaps subject to different regulations. The CMA’s latest filing targets the policy for stocks.
A CMA spokesperson said its members include Cboe, Citadel Securities, and the Healthy Markets Association. The American Securities Association (ASA) also criticized the new approach. ASA President and CEO Chris Iacovella argued that by calling the products security futures, the CFTC had sidestepped the SEC’s authority and the ban on selling security-based swaps to individual investors.
Not investment advice.