Perpetual Contracts in the US: Legal Disputes and the CFTC

A legal battle has unfolded in the United States over perpetual contracts instruments that allow trading on changes in the price of an underlying asset without a specified contract expiry date. Coinbase, Kraken, Kalshi and other market participants support the approach taken by the US Commodity Futures Trading Commission, or CFTC. Representatives of the traditional financial sector are challenging the regulator’s decisions. The outcome will determine the rules under which these products can operate in the American market. The dispute covers two areas perpetual cryptocurrency contracts and contracts linked to individual stocks. In both cases, the parties disagree over their legal classification. However, the consequences of that classification differ one proceeding primarily concerns the application of a different set of rules, while the other also concerns the limits of financial regulators’ authority.

Time for Action examined why defining a contract as a future or a swap has become the subject of a legal confrontation and how this dispute relates to competition for the American market.

The distinctive feature of a perpetual contract is the absence of a fixed expiry date. However, its perpetual nature does not mean that a participant must trade over the long term. It describes the structure of the instrument itself, rather than the duration of a particular trading strategy. The legal nature of this product is precisely what has become the subject of disagreement. The parties offer different answers to the question of which category it belongs in. That determination establishes which legal requirements apply to trading and what powers the relevant authorities have.

In the dispute over contracts linked to individual stocks, representatives of the securities industry maintain that these instruments meet the definition of security-based swaps and fall under the jurisdiction of the US Securities and Exchange Commission, or SEC. The challenge to the CFTC rests on this position according to the plaintiffs, the regulator is exceeding its authority by opening the way for them to be traded as futures. The lawsuit was filed by an alliance of capital market participants backed by Citadel Securities and other traditional financial sector firms. The organisation sought emergency judicial relief in an attempt to halt trading in the disputed products.

The question before the court is whether the classification chosen by the regulators complies with existing law.Demand for the instrument and companies’ interest in launching it do not, by themselves, answer that question. Likewise, competitors’ opposition to the introduction of a product does not, in itself, establish that the regulator’s decision is unlawful. Coinbase, Kraken and Kalshi advocate a different position. In their view, perpetual contracts on individual stocks belong in the category of securities futures. Paradigm, DRW Holdings and Jump Trading have also joined the arguments supporting this approach. Their legal argument focuses on assessing the disputed product against the characteristics of a securities future. The companies reject an approach under which resemblance to a swap alone determines the regulatory category. They also refer to the positions of the CFTC and SEC, asserting that both agencies view these instruments as securities futures. The reference to the SEC carries particular significance. The plaintiffs link their claims to the authority of this regulator. Supporters of the contracts’ launch, meanwhile, emphasise its involvement in the regulatory process and its support for the classification in question. The parties therefore differ both in their assessment of the product’s nature and in how they interpret the actions of the supervisory authorities.

At the same time, the regulators’ position remains subject to judicial review. The argument that their approaches are aligned is important to the defence of the challenged decision, but it does not replace a court’s determination of its legality. The parallel confrontation with CME Group concerns perpetual cryptocurrency contracts. CME also insists on their classification as swaps. In this case, however, such a classification, according to the parties’ stated positions, would not deprive the CFTC of jurisdiction. It would mean that the products must be regulated under different rules. This distinction is important to understanding both cases. In the dispute over cryptocurrency contracts, the central issue is the regulatory regime. In the case concerning stock contracts, the allocation of authority between the CFTC and SEC is an additional issue. Combining these proceedings into a single story about an attempt to ban perpetual instruments obscures the difference between the parties’ legal claims.

Commercial interests also lie behind the legal arguments. The ability to offer a new instrument depends on the rules under which it is allowed to enter the market. The outcome of the dispute therefore matters both to companies supporting the launch and to participants already operating in the regulated financial environment. In a court document filed in the federal court for the Southern District of New York, supporters of perpetual stock contracts explicitly link the lawsuit to competition. They argue that members of the alliance could offer such a product themselves but instead chose a legal challenge and a request to halt its trading. This is a clear position taken by a party to the dispute seeking to protect the instrument’s access to the market. The claim that the plaintiffs are blocking competitors cannot be treated as an established motive. Their stated legal objection concerns an excess of authority and the incorrect classification of contracts. The court must assess that objection on its legal arguments, regardless of the commercial consequences for the participants.

Likewise, describing a perpetual contract as a better product reflects its supporters’ assessment. The absence of an expiry date is a specific feature of the instrument, but does not, in itself, establish its superiority for all market participants. The legal dispute provides no grounds for equating permission to trade with a conclusion that the product is universally beneficial. At an early stage in the stock contracts case, the judge allowed trading to continue while noting that the arguments concerning the CFTC’s overreach had merit. These circumstances should be considered together trading was not halted, but the legal objections were not definitively dismissed. The temporary continuation of trading does not amount to a final confirmation that the regulatory approach is lawful. It determines the product’s position at the relevant stage of the proceedings. In the CME case, the regulator sought dismissal of the lawsuit, but that dispute also remains unresolved.

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The confrontation is unfolding as Donald Trump’s administration pursues the integration into the American market of perpetual contracts widely used outside the United States. This policy direction explains the interest in opening opportunities for these products. However, its implementation depends on whether specific regulatory decisions withstand judicial review. Both cases demonstrate how important a financial product’s legal definition is to its market entry. Classification as futures or swaps has practical consequences: it determines operating rules, the powers of supervisory authorities and companies’ ability to organise trading. Subsequent court decisions should clarify whether regulators can apply their chosen approach to perpetual contracts within their existing authority. The legal basis for these products’ presence in the American market depends on that determination.