Judge: CFTC Likely Exceeded Authority on Stock Perps, Allows Trading to Continue

A federal judge on Tuesday refused an emergency request to stop stock perpetual futures, allowing trading on Kalshi, Coinbase Derivatives and Bitnomial to continue, while also indicating that the Wall Street-backed group challenging them will probably succeed in showing the CFTC exceeded its regulatory mandate.

Judge Valerie Caproni of the U.S. District Court denied the temporary restraining order on Nov. 3 following a teleconference with counsel, coming just hours after the CFTC announced that such products could launch on regulated U.S. exchanges.

The lawsuit was brought by the Capital Markets Alliance Association, a New York nonprofit counting Cboe Global Markets, Citadel Securities and the Healthy Markets Association among its members, per a declaration from secretary Adam Ford.

The alliance filed suit against the CFTC and Chairman Michael S. Selig in the Southern District of New York (case 1:26-cv-09608), aiming to reverse the approvals of filings from each of the three exchanges.

In her order, Caproni stated that the alliance "is likely to succeed on the merits" of its argument that the CFTC lacks statutory power to permit perpetual derivatives on single stocks for retail investors on its regulated platforms.

She wrote that because such perpetual contracts by their nature do not involve a "sale for future delivery of a single security," they cannot qualify as security futures subject to CFTC authority.

Rather, she noted, the contracts "appear to satisfy the definition of a swap," placing them under SEC jurisdiction.

Caproni also determined that the balance of equities and public interest support the alliance, stating that the CFTC's actions "seem to represent a major disruption to the equities market."

However, the request fell short on one aspect: Caproni found the declarations from Cboe, Citadel Securities and Healthy Markets to be "conjectural" regarding the harm to members, failing to demonstrate "actual and imminent" irreparable injury.

What the ruling does and does not do

The order does not overturn the approvals. It does not resolve the overall case or the alliance's separate request for a preliminary injunction.

The CFTC must file its opposition by Friday, Nov. 6, and the alliance's reply is due Tuesday, Nov. 10. The order notes that schedule may be altered by the assigned judge, who is listed on the docket as Judge Lorna G. Schofield.

By Wednesday morning, Kalshi was already offering four single-stock perpetuals on Qualcomm, McDonald's, Amgen and Costco, at a maximum leverage of 4.9 times.

Bloomberg Law reported that Caproni indicated she may eventually rule in favor of the Wall Street firms objecting to these products.

A CFTC-SEC turf fight with crypto venues in the middle

The dispute centers on classification. In a Nov. 3 statement, Selig said the contracts were considered approved under Commission Regulation 40.3 as security futures products, jointly overseen by the CFTC and SEC. The exchanges submitted their filings on Sept. 18, and the agency allowed the 45-day review window to expire without issuing a written order.

The alliance contends that a contract lacking an expiration date and delivery requirement constitutes a security-based swap. Congress restricted retail trading in such instruments to national securities exchanges under complete SEC supervision.

The complaint alleges that the CFTC "invited a parallel, synthetic market in U.S. stocks to grow outside the exclusive jurisdiction" of the SEC.

A CFTC spokesperson described the lawsuit as "troubling" and said to Reuters: "Our markets should be governed by law, not litigation campaigns intended to block innovation."

The implications extend beyond stocks for crypto-focused platforms. Perpetual contracts are central to crypto derivatives, and both Kalshi and Coinbase have leveraged the CFTC's regulatory framework to offer them domestically.

The CFTC approved the first U.S.-listed bitcoin perpetual on May 29, and Kalshi launched the product shortly thereafter.

That approval is already being contested. In June, CME Group sued the CFTC, asserting that a contract based on exchanged funding payments is a swap rather than a future. That case remains pending in Washington.

The New York ruling pertains to security futures, not commodities such as bitcoin. Nonetheless, a federal judge has now stated, at least on a preliminary basis, that a contract without an expiration date does not resemble a future.