A lawsuit has been filed in the U.S. District Court for the Southern District of New York against the CFTC (the U.S. derivatives market regulator) and its chairman Michael Selig. The approvals for three venues are being challenged: KalshiEX, Bitnomial Exchange and Coinbase Derivatives.
The dispute is about classification. The CFTC classified the perpetual futures contract (a contract with no expiration date, whose price is kept tied to the underlying asset through periodic payments between the parties) as a security future under the 2000 law. The plaintiffs argue that without a delivery date, these are security-based swaps, and their oversight falls under the SEC, meaning a different set of trading and investor protection requirements.
Judge Valerie Caproni, in a ruling dated November 3, found that the regulator appears to have exceeded its authority: there are no signs of delivery of a single security in the contracts, while there are signs of a swap. The conclusion is preliminary. However, the judge did not order an immediate halt to trading - the CMA did not show real and imminent harm; the arguments concerned future consequences. The court weighed the balance of interests and the public interest in favor of the plaintiffs, citing the risk of disruption to the U.S. stock market.
The CFTC's objections are due November 6, the CMA's response November 10; the judge may move the dates. Next will come a motion for a preliminary injunction, which could suspend the approvals for the duration of the proceedings. The approvals themselves went through under Regulation 40.3 - automatically, without a separate order. Kalshi filed its contracts in September, with the assets including major technology stocks and popular indices, and OG.com Markets is seeking permission to trade such contracts 24 hours a day, 5 days a week.
Were you waiting for round-the-clock index contracts?
The perpetual contract scheme is familiar to anyone who has traded crypto, and many have been waiting for it to be extended to stocks and indices precisely for the sake of an almost uninterrupted schedule. But the size of your account won't change because of the court's decision: with a deposit of a couple thousand, even a precise entry on an index contract yields a result about the size of a trip to the store. In prop trading, the company provides the notional for the trade: you pay for the evaluation, stay within its loss limits, and take an agreed share of the profit. While the perpetuals case is in court, there's time to break down this mechanic step by step.