CME Sues CFTC Over Perpetual Futures, Claims Agency Ignored Dodd-Frank

CME Group has filed a lawsuit against the Commodity Futures Trading Commission (CFTC) and its Chair, Michael Selig, over the approval of perpetual futures contracts. The exchange operator claims that the CFTC misclassified these contracts as futures when it approved them for trading in the US.

The dispute centers around the definition of a swap under the Dodd-Frank Act, with CME arguing that perpetual futures meet this definition due to their funding-payment mechanism. This mechanism allows traders to keep positions open without rolling into new contracts, while regular payments between buyers and sellers help keep the contract price close to the underlying asset's spot price.

CFTC Chair Michael Selig has defended the approvals, saying that regulated perpetual futures can fit within the futures framework. He pointed out that courts and the commission have interpreted the term 'contract for future delivery' in the Commodity Exchange Act (CEA) over time, indicating that a fixed expiration date is not necessary for a contract to be considered a futures contract.

The lawsuit comes as Kalshi's newly approved bitcoin perpetual futures contract has generated $5.5 billion in trading volume during its first two weeks. CME Chairman and CEO Terry Duffy argued that the CFTC ignored Dodd-Frank when approving these contracts, saying 'When there's two parties exchanging payments to each other, that's deemed a swap.'