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Key Takeaways
- CME Group sued the CFTC one day after CEO Terry Duffy announced the challenge, arguing the agency rubber-stamped Kalshi’s perpetual futures application without conducting its own legal analysis or mentioning the word “swap” in its approval order.
- CME’s central argument is that perpetual futures contracts qualify as swaps under Dodd-Frank, a classification that would subject issuers to materially different regulatory requirements.
- Legal experts say the dispute rests on unsettled ground, with no clear precedent on whether “future delivery” is a required characteristic for a product to qualify as a future rather than a swap.
CME Group filed a lawsuit against the Commodity Futures Trading Commission on Thursday, alleging the agency improperly approved Kalshi’s perpetual futures contracts without adequate legal analysis, and asking a court to vacate both the approval and the self-certified products.
CME Filed One Day After CEO Announced Legal Action
The lawsuit arrived one day after outgoing CME CEO Terry Duffy announced the company would challenge the CFTC’s approval, which was granted at the end of May. The suit alleges procedural violations, arguing that how the CFTC handled Kalshi’s application violated the Dodd-Frank Act and risks harming CME.
CME’s core legal argument is that perpetual futures contracts are “swaps” as defined by Dodd-Frank, not “futures,” and that the distinction carries significant regulatory consequences for how the products are governed and what requirements apply to the companies issuing them. CME CEO Terrence Duffy, who recently announced he is stepping down next year, told CNBC that the classification mandates different rules for market participants.
CFTC Did Not Mention the Word “Swap” in Its Approval Order, Lawsuit Says
CME’s lawsuit contends the CFTC failed to conduct its own legal analysis before granting the approval. The suit states:
“The CFTC did not engage in its own analysis of whether its approval of Kalshi’s Bitcoin perpetual as a future is consistent with law. The CFTC did not even mention the relevant Dodd-Frank provision defining ‘swap.’ Indeed, the word ‘swap’ appears nowhere in the Order.” The lawsuit further claims the CFTC “rubberstamped Kalshi’s application.”
Coinbase Received a No-Action Letter the Same Day Kalshi Won Approval
On the same day the CFTC approved Kalshi’s application, it issued a no-action letter to Coinbase Financial Markets, a registered futures commission merchant, confirming that perpetual contracts it intends to list through its affiliated foreign board of trade, Deribit FZE, may be categorized as foreign futures under Regulation 30.1.
The letter permits Coinbase to post customer-owned digital assets, including Bitcoin, Ether, and stablecoins, as margin collateral for those products, routed through Coinbase Bermuda.
Coinbase Chief Legal Officer Paul Grewal called the action a “massive first for the industry” in a post on X. The landscape of companies securing designated contract market approvals and moving into perpetual futures is expanding rapidly, with Kalshi filing in early June to add perpetuals on 12 additional altcoins beyond Bitcoin.
Legal Precedent on “Future Delivery” Requirement Remains Unsettled
Former Starkware General Counsel Katherine Kirkpatrick Bos said in an email that the legal question at the center of the dispute lacks clear precedent. “‘Future’ is not defined anywhere, whereas ‘swap’ was defined by Dodd-Frank,” she said.
“The CFTC has the discretion to categorize novel products that have the characteristics of a future as opposed to swap. CME is making the argument that ‘future delivery’ means that the lack of expiry is determinative.”
Kirkpatrick Bos added on X that there is “no clear precedent” on whether “future delivery” is a requirement for a product to qualify as a future.
