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Citadel Securities, one of the largest market makers on the planet, has formally asked the SEC to step in and claim jurisdiction over equity-linked event contracts tied to US public companies. The firm submitted a comment letter to both the SEC and CFTC on September 9, arguing that certain trading venues are gaming the system by routing products through the CFTC’s lighter-touch approval process instead of submitting to SEC scrutiny.
The core complaint is straightforward: some platforms are listing what are essentially bets on public company performance metrics, like sales figures or passenger counts, by self-certifying them through the CFTC. That process lets trading begin the next business day without any public comment period. The SEC’s review process, by contrast, involves considerably more regulatory scrutiny. Citadel’s position is that these products look, walk, and quack like securities, and should be regulated accordingly.
The self-certification shortcut
The CFTC’s self-certification mechanism was designed to allow commodity futures exchanges to efficiently list new products. A venue files the paperwork, and unless the CFTC objects, trading can start almost immediately. It’s fast, it’s streamlined, and according to Citadel Securities, it’s being used to sidestep the agency that should actually be in charge.
Stephen John Berger, Citadel’s global head of government and regulatory policy, made the firm’s stance clear in the letter. Trading venues, he argued, should not be able to unilaterally choose their regulator based on their own definitions of a product.
The specific products in question are KPI-linked binary options. These contracts pay out based on whether a company hits certain performance benchmarks, things like quarterly revenue targets or operational metrics such as passenger numbers. If a contract’s value is derived from the performance of a publicly traded company, Citadel argues, it should fall under the SEC’s domain as a security-based swap.
Insider trading and the information problem
Beyond the jurisdictional turf war, Citadel flagged a more concrete risk: insider trading. When contracts are tied to metrics that company insiders know before the public does, the potential for abuse is significant. Quarterly sales figures, passenger counts, production numbers. These are all data points that flow through corporate reporting channels before they reach investors.
Under SEC oversight, trading in instruments linked to public company performance would be subject to the full suite of insider trading prohibitions and disclosure requirements. Under the CFTC’s framework, those protections are thinner. Citadel’s letter essentially argues that the current setup creates an environment where someone with material nonpublic information about a company’s KPIs could trade on that knowledge with less risk of enforcement action.
Why this matters for derivatives markets
The comment letter arrives during a period of intensifying debate over where prediction markets and novel derivatives products belong in the US regulatory framework. The CFTC and SEC have been engaged in ongoing collaborative efforts to clarify the boundaries between their respective jurisdictions when it comes to swaps and swap-like products.
The firm also called on the SEC to provide clear guidelines on equity-linked perpetual derivatives, another product category that has been growing in popularity. Citadel wants the SEC to speed up its review process for newly proposed products in this space. Notably, the letter did not reference any crypto tokens or digital assets, maintaining its focus on traditional equity-linked products and their regulatory implications.
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