The Chicago Mercantile Exchange (CME), a prominent player in the financial markets, has initiated legal action against the U.S. Commodity Futures Trading Commission (CFTC) and its chairman, Michael Selig, following the approval of perpetual futures contracts by Kalshi, a prediction markets platform, and cryptocurrency exchange Coinbase. The lawsuit, which was filed in the federal court of Washington, D.C., asserts that the contracts in question should be classified as swaps under the Dodd-Frank Act of 2010—a stance the CME argues was previously endorsed by the CFTC.
At the core of the CME’s complaint is the contention that the CFTC’s May 29 decision permitting Kalshi to introduce a bitcoin perpetual future, along with a related policy statement allowing futures exchanges to issue similar contracts, was made in an “arbitrary and capricious” manner. Additionally, on the same day, the CFTC indicated it would not oppose Coinbase allowing U.S. investors access to its offshore perpetual futures tied to cryptocurrencies.
The CFTC’s spokesperson has dismissed the lawsuit as “frivolous,” highlighting that neither Kalshi nor Coinbase are defendants in the case. Perpetual futures, which are derivatives designed to replicate the price movements of underlying assets like cryptocurrencies, allow for high leverage and do not have expiration dates. This unique feature enables traders to maintain positions indefinitely, often qualifying for more advantageous tax treatment.
CME’s complaint further highlights concerns regarding competitive injury, suggesting that the CFTC’s decision effectively enables Kalshi, Coinbase, and similar platforms to vie for retail customers. Shares of both CME and Intercontinental Exchange, which is the parent company of the New York Stock Exchange, saw declines in value following the CFTC’s approval—a clear signal of investor apprehension about emerging competition from new exchanges.
In a pointed response to CME’s litigation, the CFTC spokesperson accused the exchange of resorting to “lawfare” instead of competing directly in the market. This sentiment was echoed by Kalshi spokesperson Elisabeth Diana, who remarked that the issue at hand revolves more around competitive anxiety than legal matters. Coinbase’s chief policy officer, Faryar Shirzad, praised the CFTC for encouraging competition and innovation, emphasizing their vital role in fostering dynamic financial markets and benefiting American investors.
The perpetual futures market has gained significant traction, with trading volumes surging by 29% last year to reach $61.7 trillion, as investors increasingly sought methods to capitalize on the volatility of cryptocurrencies. In a recent commentary, CFTC chairman Selig expressed that approving perpetual futures aligns with the agency’s mandate to foster responsible innovation in financial markets and supports broader national objectives of establishing the United States as a leading hub for cryptocurrency activity.
Currently, Selig stands as the sole commissioner on the CFTC, which typically comprises five commissioners. The commission is also grappling with numerous legal challenges from various U.S. states over prediction markets, which allow bets on the outcomes of diverse events, including sports and elections—many of which states categorize as forms of gambling.
