SEC enters fight over who regulates perpetual derivatives on stocks in the US

Judgment

The federal judge in the Capital Markets Alliance suit must decide whether to vacate the CFTC’s Nov. 2 approvals of equity perpetuals; the SEC’s amicus brief backs the CFTC, raising CMA’s burden but not resolving the turf question.

Basis

The SEC filed an amicus brief supporting the CFTC after the Capital Markets Alliance—whose members include Cboe and Citadel Securities—sued last week to overturn approval of equity perpetuals. CMA argues the CFTC violated the Administrative Procedure Act because the products should be under SEC jurisdiction, that the CFTC did not explain its decision, and asks the court to vacate the approvals. The SEC said the depiction of a “CFTC gone rogue, and an SEC gone missing” is mistaken, and that CFTC rule changes are subject to SEC review and the agencies collaborate often on equity perpetuals. Coinbase, Kraken parent Payward, Kalshi, DRW Holdings, Paradigm and Jump Trading filed a joint amicus brief against CMA. Coinbase, Kalshi and Payward applications to list equity perps tied to U.S. stocks were deemed approved on Nov. 2. Better Markets and former SEC Commissioner Allison Herren Lee said the products should be SEC-regulated; Better Markets called them securities swaps and cited the 2008 crash and retail-loss risk.