Judge lets stock perpetual futures keep trading but says CFTC likely overstepped

Trading can continue for now

A federal judge denied a request to halt stock perpetual futures on Kalshi, Coinbase Derivatives and Bitnomial. Perpetual futures are contracts with no set end date.

U.S. District Judge Valerie Caproni denied the temporary restraining order on Nov. 3. She made the decision after a teleconference with the parties. It came hours after the CFTC said the products could begin trading on U.S.-regulated exchanges.

The judge also said the challengers are likely to prove the CFTC exceeded its authority. That part is a preliminary view. It is not a final decision in the case.

Main points from the ruling

• Stock perpetual futures can keep trading on the three exchanges for now.
• Judge Caproni said the challengers are likely to succeed on the merits.
• She said the contracts appear to be swaps, which fall under the SEC.
• She denied the halt request because the group did not show actual and imminent irreparable harm.
• The case itself and a separate request for a preliminary injunction are still undecided.

Who brought the case

The plaintiff is the Capital Markets Alliance Association. It is a New York nonprofit. Its members include Cboe Global Markets, Citadel Securities and the Healthy Markets Association, according to a declaration from its secretary, Adam Ford.

The group sued the CFTC and Chairman Michael S. Selig in the Southern District of New York, case No. 1:26-cv-09608. It is seeking to undo the approvals of filings by all three exchanges.

The judge's view on CFTC authority

Caproni wrote that the group is likely to succeed on its claim that the agency lacks authority to allow perpetual derivatives on individual stocks for retail investors on CFTC-regulated platforms.

She said the perpetual contracts, by definition, do not provide for a sale for future delivery of a single security. On that basis, she said they cannot be a security future under CFTC authority. Instead, she said they appear to meet the definition of a swap, which falls to the SEC.

She also found that the balance of equities and the public interest favor the alliance. She wrote that the agency's actions seem to represent a major disruption to the equities market.

The halt request failed on one point. Caproni said the declarations from Cboe, Citadel Securities and Healthy Markets were conjectural about harm to members. She said they did not show irreparable harm that was actual and imminent.

Approvals stay in place, but the case is not decided

The order leaves the approvals in place. It does not decide the case. It also does not decide the alliance's separate motion for a preliminary injunction.

Kalshi was already listing four single-stock perps on Qualcomm, McDonald's, Amgen and Costco by Wednesday morning, with maximum leverage of 4.9 times.

Bloomberg Law reported that the judge signaled she might ultimately side with the Wall Street firms opposed to the products.

The label fight behind the lawsuit

The fight is over what the contracts should be called. Selig's Nov. 3 statement said the contracts were deemed approved under Commission Regulation 40.3 as security futures products. That category is overseen jointly by the CFTC and SEC. The exchanges filed them Sept. 18, and the agency let its 45-day review period lapse without a written order.

The alliance argues that a contract with no expiration date and no delivery obligation is a security-based swap. It says Congress limited retail trading in those to national securities exchanges under full SEC oversight.

Its complaint says the CFTC invited a parallel, synthetic market in U.S. stocks to grow outside the exclusive jurisdiction of the SEC.

A CFTC spokesperson called the lawsuit troubling. The spokesperson told Reuters that markets should be governed by law, not litigation campaigns intended to block innovation.

Why crypto venues are watching

For crypto-native venues, the stakes reach beyond stocks. Perpetuals are the core product of crypto derivatives trading. Kalshi and Coinbase have used the CFTC's framework to bring them onshore.

The agency approved the first U.S.-listed bitcoin perpetual on May 29, and Kalshi went live with the product soon after.

That approval already faces a challenge. CME Group sued the CFTC in June, arguing that a contract built on exchanged funding payments is a swap, not a future. That case is pending in Washington.

The New York order covers security futures, not commodities like bitcoin. But a federal judge has now said, at least preliminarily, that a contract with no expiration does not look like a future.

What happens next

The CFTC's opposition is due Friday, Nov. 6. The alliance's reply is due Tuesday, Nov. 10. The order says that schedule is subject to change by the assigned judge. The docket lists Judge Lorna G. Schofield as assigned to the case.

Sources

• Bitcoin Magazine