‘We have an exclusive license’ – CME to sue CFTC over Kalshi Bitcoin perps approval

The Chicago Mercantile Exchange (CME) plans to sue the U.S. Commodity Futures Trading Commission (CFTC) over Kalshi perpetual futures approval. 

Why is CME suing the CFTC?

During an interview with CNBC, CME’s CEO Terrence Duffy said they will file an official lawsuit on Thursday, the 18th of June, noting that the CFTC Chair Michael Selig violated the Commodity Exchange Act. 

Per Duffy, perpetual futures (commonly known as perps) are swaps under the Dodd-Frank Act, enacted in 2010 as an amendment to the Commodity Exchange Act. 

Perps are popular offerings overseas that allow traders to speculate on prices without owning the underlying asset. They also don’t have expiration dates, provided funding rates are paid. 

For Duffy, the Kalshi’s Bitcoin perps approved in late May have no expiration date and do not meet the threshold of a ‘futures contract.’ However, they involve exchanging funding rates between two parties, which makes them a swap. 

He added,

If anything, these products that he supposedly approved as futures are not futures. They are swaps. So he(Selig) circumvented the Dodd-Frank Act.

However, the CME holds a monopolistic license that ensures all swaps route through its system. Duffy pointed out that, 

We have an exclusive license with every single provider of the benchmarks. So all of these would have to go through CME regardless of the perpetual. They would have to list them as swaps if that’s the way that it came out.

Perpetual wars: A big miss for CFTC?

Worth pointing out that Duffy acknowledged that he initially mulled shelving the lawsuit, but opted to go ahead with it. 

Interestingly, the move comes after CFTC signaled plans to block CME’s rollout of 24/7 trading for gold and oil futures contracts. The regulator argued that CME’s plan would ‘worsen’ oil price volatility. 

CME will likely challenge the regulator if it blocks its 24/7 oil trading plans. Reacting to Duffy’s planned lawsuit over Kalshi perps, Robert Schwertz, a former lawyer at CFTC, said, 

This will be very interesting. The Kalshi order does not say anything about swaps, and the CFTC has said before that perps are swaps. That could be a pretty big miss from an APA standpoint.

For her part, Amanda Fischer, a Biden-era Chief of Staff at the SEC and a vocal critic of the Trump Administration’s crypto push, hailed CME’s plan as ‘huge news.’

This is huge news and signals that the bonanza of giveaways to crypto and prediction markets won’t go unchallenged.

To others, however, the CME move is part of a broader fear amongst traditional Wall Street players of the disruption that crypto firms pose. In fact, last month, the CME pressed the CFTC to regulate Hyperliquid amid its oil trading dominance during the West Asia crisis. 

Final Summary

• CME plans to sue CFTC for the recently approved perpetual futures in the U.S. 
• If CME wins, even prediction markets’ approvals could be revisited, warned analysts.