At a glance

  • The Securities and Exchange Commission (SEC) has told a federal court it supports the Commodity Futures Trading Commission (CFTC) in a lawsuit over the CFTC’s approval of perpetual futures on single US stocks, The Block and Law360 reported.
  • The challengers, a trade group backed by Cboe and Citadel Securities, argue the contracts are security-based swaps that belong under the SEC. The SEC has now told the court it is not being bypassed.

The brief was filed on Tuesday in Capital Markets Alliance Association v. CFTC in federal court in Manhattan, a day after Coinbase, Kalshi and four other firms filed their own brief on the CFTC’s side. CryptoWatchDesk has not yet read the SEC’s filing; this account relies on the two reports.

The challengers’ case rests on a picture of “a CFTC gone rogue, and an SEC gone missing.”

The SEC’s brief “addresses why that depiction … is mistaken,” the agency wrote, according to The Block. It said the CFTC’s rule changes are also subject to SEC review, and that the two agencies work together often, which it called vital for overseeing these products.

Why the label matters

A security future is a futures contract on a single stock. Since 2000, the CFTC and the SEC have overseen them jointly.

A security-based swap falls to the SEC alone and faces tighter limits on sales to ordinary investors. The CFTC treated the new contracts as security futures when they were deemed approved on 2 November, as Chairman Michael Selig said in a statement the next day.

The challengers say a contract that never expires cannot be a future. That point has already found a listener. When US District Judge Valerie Caproni refused their request for a temporary restraining order on 3 November, she also found they were likely to win on it, as we reported when the CFTC opened the door to single-stock perps.

So the SEC’s brief takes away one argument, that the CFTC acted behind its sister agency’s back. It does not settle the legal definition, which is for the judge.

Who else has filed

Better Markets, a group that campaigns for tighter financial rules, and former SEC Commissioner Allison Herren Lee filed briefs against the approvals, The Block reported. “These products are in fact securities swaps that are supposed to be regulated by the SEC,” Better Markets said in a statement on Tuesday.

On the other side are Coinbase, Kraken parent Payward and Kalshi, whose venues won approval to list the contracts, along with DRW, Jump Trading and Paradigm. Kalshi is also dealing with its regulator on another front this week, after it confirmed a CFTC probe into some contract filings.

What happens next

The court still has to rule on the challengers’ request for a preliminary injunction, which would pause the approvals. No hearing date had been published at the time of writing. Until then, the approvals stay in effect.

Related: The White House has since nominated two SEC and two CFTC commissioners

This article is for information only and is not investment advice.