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Judge denies halt on stock perpetuals but signals CFTC overstepped
A federal judge rejected an emergency trading halt while indicating the CFTC likely exceeded its authority over stock perpetual futures.
Key takeaways
- Regulatory uncertainty remains. While trading continues, the preliminary assessment suggests a fundamental misclassification by the CFTC that may not survive full litigation.
- Jurisdiction dispute at core. The legal battle centers on whether perpetuals without expiration dates qualify as futures or swaps, determining which agency has authority.
- Broader implications for crypto. The outcome could affect how crypto exchanges structure derivatives products, as perpetuals are central to crypto trading venues seeking regulatory approval.
What happened
A federal judge in New York declined to halt stock perpetual futures trading on November 3, preserving the ability of Kalshi, Coinbase Derivatives, and Bitnomial to offer the products while litigation proceeds. Judge Valerie Caproni rejected a temporary restraining order sought by the Capital Markets Alliance Association, a group whose members include Cboe Global Markets, Citadel Securities, and the Healthy Markets Association. The decision came hours after the CFTC announced the contracts could begin trading on U.S.-regulated exchanges.
Despite denying the emergency halt, Caproni issued a significant finding against the CFTC. She wrote that the alliance is likely to succeed in proving the agency lacked statutory authority to approve the products. The judge determined that perpetual contracts, which have no expiration date and no delivery obligation, do not fit the legal definition of security futures that fall under joint CFTC and SEC oversight. Instead, she concluded they more closely resemble swaps, which Congress placed under exclusive SEC jurisdiction for retail trading.
The judge rejected the immediate relief on narrow grounds: the alliance's supporting declarations about potential harm were too speculative and failed to demonstrate the kind of actual, imminent irreparable injury necessary for an emergency order. This technical finding allowed the products to remain available while the case proceeds. Caproni set November 6 for the CFTC to file its opposition and November 10 for the alliance's reply, with those dates subject to change by the assigned judge.
Why it matters
The preliminary ruling represents a significant challenge to the CFTC's recent strategy of approving derivatives tied to individual stocks and commodities like bitcoin. Judge Caproni's assessment that the agency likely overstepped its authority creates legal jeopardy for the entire framework under which these products were approved. If the alliance prevails in the full litigation, it could force the CFTC to rescind or substantially restructure approvals it has already granted. The decision also signals that federal courts may scrutinize the agency's interpretation of its own jurisdictional boundaries. The judge noted that the CFTC's actions "seem to represent a major disruption to the equities market," suggesting concern about the broader implications of allowing these products to proliferate. For crypto-native trading venues, which have relied on the CFTC framework to launch regulated perpetuals products, the stakes extend beyond stocks. Kalshi already launched a bitcoin perpetual on May 29, and that approval faces a separate challenge from CME Group, which argues that contracts built on exchanged funding payments should be classified as swaps rather than futures.
Background
The CFTC approved stock perpetual futures under Regulation 40.3, treating them as security futures products overseen jointly by the CFTC and SEC under the Commodity Futures Modernization Act of 2000. The three exchanges filed their applications on September 18, and the CFTC allowed its 45-day review period to lapse without issuing a written order, which the agency treated as tacit approval. CFTC Chairman Michael Selig argued in a November 3 statement that the products would allow American investors to access perpetuals through regulated domestic venues instead of relying on offshore exchanges.
The alliance contends that perpetual contracts, by definition, cannot satisfy the legal requirement for security futures, which must provide for "a sale for future delivery of a single security." Because these contracts lack both expiration dates and delivery obligations, the challengers argue they meet the statutory definition of swaps instead. Congress restricted retail trading in security-based swaps to national securities exchanges under full SEC oversight, meaning the CFTC lacks authority to approve them for retail traders on CFTC-regulated platforms. The alliance's complaint characterizes the CFTC's approvals as inviting "a parallel, synthetic market in U.S. stocks to grow outside the exclusive jurisdiction" of the SEC.
This regulatory dispute emerged after industry participants, including crypto finance firm Ondo Finance, urged regulators in August to accommodate perpetual contracts under existing security futures rules. Ondo argued that a fixed expiration date was not necessary for classification as a security future, claiming that recurring funding payments serve a similar function by keeping contract prices aligned with underlying assets. According to Ondo, its Panama-based affiliate had processed $8 billion in cumulative stock perpetual trading volume by mid-August, approximately six weeks after launch, serving customers outside the United States.
What to watch
The next significant procedural step arrives November 10, when the alliance must file its reply to the CFTC's opposition brief. The court has not scheduled a hearing on the preliminary injunction request, though it may do so after reviewing the written submissions. Judge Lorna Schofield is listed as the judge assigned to the case going forward. If the alliance succeeds on its preliminary injunction motion, the court could halt trading while the full case proceeds, directly contradicting Tuesday's temporary restraining order decision. The CFTC has criticized the lawsuit as a "litigation campaign intended to block innovation," signaling it plans to defend its authority vigorously. The broader litigation landscape also includes CME Group's pending challenge in Washington to the May approval of Kalshi's bitcoin perpetual, which raises similar swap-versus-futures classification questions.
Questions readers ask
What exactly are stock perpetual futures?
These are derivatives contracts that track the price of individual stocks without expiration dates or delivery obligations. They use recurring funding payments to keep the contract price aligned with the underlying stock price. They differ from traditional futures, which expire and involve physical or cash settlement.
Why does the CFTC versus SEC distinction matter?
The CFTC generally allows more retail trading in derivatives with less restrictive safeguards, while the SEC imposes stricter investor protections and margin requirements for securities-related products. Which agency has authority affects what protections apply to traders.
Could this ruling affect bitcoin perpetuals?
Possibly. While this case involves stock perpetuals under SEC-CFTC joint jurisdiction, similar classification logic could apply to bitcoin perpetuals if courts decide that products with no expiration are swaps rather than futures. A separate case involving CME Group raises the same issue for bitcoin products.
