Coinbase and Kalshi back the CFTC as a judge doubts stock perps

Coinbase, Kalshi, Kraken parent Payward, DRW, Jump Trading and Paradigm asked a federal court in New York on Monday, Nov. 9, for leave to file a brief supporting the CFTC against a lawsuit that seeks to block perpetual futures on single U.S. stocks. They are lining up behind a regulator whose legal position the same court has already called weak.

The plaintiff, the Capital Markets Alliance Association, sued the CFTC and its chairman, Michael Selig, on Nov. 2 in the Southern District of New York. The Block reports that its members include Cboe and Citadel Securities. The suit targets applications from KalshiEX, Bitnomial Exchange and Coinbase Derivatives that took effect on Nov. 2 because the agency let its review window lapse. The approvals came out of joint CFTC and SEC work that we covered when the CFTC said equity perps can trade on US exchanges.

In a three-page order dated Nov. 3, U.S. District Judge Valerie Caproni denied the group's request for a temporary restraining order. She still found the association "likely to succeed on the merits." A security future must provide for a "sale for future delivery of a single security," she wrote, and contracts that never expire do not appear to meet that test. They look more like swaps, which for single stocks fall under the SEC.

The order went further. It said the balance of equities and the public interest favored the plaintiff, and described the CFTC's move as a likely "major disruption to the equities market." The request failed on a single prong: the declarations about harm to members were "conjectural," so irreparable harm was not shown. The separate motion for a preliminary injunction has not been decided.

The amicus brief argues that the only question is whether equity perps are security futures. The Commodity Exchange Act, it says, requires delivery in the "future," not on a "specific future date," a phrase Congress used elsewhere when it meant one. Under the plaintiff's reading, the firms write, a contract expiring in a thousand years would be a future while an economically identical perpetual would be a swap.

They also say the periodic funding payment, which keeps a perp's price tied to the stock, delivers an interest "based on the value" of the share. And they point out that the SEC and CFTC sought public comment together in June on treating cash-settled equity perps as security futures.

The filing shows who has money at stake. Coinbase Derivatives, KalshiEX and Bitnomial each applied on Sept. 18, and Bitnomial now belongs to Payward, which bought its parent earlier this year. Kalshi won CFTC approval for perpetual bitcoin futures in May, and the agency is already in a separate court fight with Utah over Kalshi. DRW, Jump and Paradigm describe themselves as liquidity providers that trade or are exploring equity perps.

"The U.S. should lead, not cede, this space," Coinbase Vice Chairman Ryan VanGrack said, according to The Block.

Crypto perps face a parallel fight. The brief notes that the Chicago Mercantile Exchange has separately sued in federal court in Washington, D.C., over the CFTC's decision to allow digital-asset perpetuals.