Paradigm Files Amicus Brief in Support of Equity Perpetuals

Today, Paradigm joined Coinbase, Kalshi, Bitnomial, and a broad industry coalition in urging the Southern District of New York to deny a preliminary injunction that would pull single-stock perpetual futures off CFTC-regulated exchanges less than a week after they began trading.

The facts of Capital Markets Alliance Association v. CFTC are simple. Three CFTC-registered exchanges asked the Commission to approve perpetual futures on individual stocks as security futures products, a category Congress created for exactly this kind of product. The Commission reviewed those applications for the full 45 days allowed under its rules, found no reason to object, and deemed the applications to be approved. Mere hours later, a shell group backed by Cboe, Citadel, and Healthy Markets—purpose-built for exactly this litigation just two days earlier—filed a lawsuit, arguing that a perpetual cannot be a future because it has no expiration date.

That argument proves far too much. The Commodity Exchange Act defines a security future as a contract for “future delivery” of an “interest in” a single security. It does not require delivery on a specific date, despite the fact that Congress used that phrase when it meant to in other parts of the exact same statute. And with good reason: as we’ve been explaining since our Cartoon Guide to Perpetual Futures in 2021, the only thing an expiration date does is force the futures price to converge with the spot price. But a perpetual does that through a funding payment that keeps the price honest every day, and improving on a futures contract does not turn it into something else.

The plaintiff’s own lead member agrees, or at least it used to. Just last year, Cboe told the CFTC that a perpetual future is a contract that “either does not have an expiration date or has a long-term-to-expiration” with a funding mechanism, and that perpetuals “simply represent another futures instrument.” Even today, Cboe sells “perpetual-style” futures with a daily funding amount, the same product they are seeking to shut down here. Nothing changed in the statute between now and then, and no court case compels that about-face. But having been beaten at a game it created, Cboe now wants to take its ball and go home, with an assist from the federal courts.

Nor is this a fight about investor protection. Security futures sit under joint CFTC and SEC oversight: the exchanges are registered with the SEC, their listing standards are filed with the SEC, and surveillance is coordinated across both markets. The SEC has had every opportunity to object to these filings and has not. Reclassifying equity perpetuals as security-based swaps, as the fledgling CMAA asks, would not move them to a safer venue. It would simply protect incumbents who got what they asked for and didn’t like result.

Earlier this year, we said in our comment letter on energy perpetuals that the perpetual does not need a regulatory advantage, just the chance to compete in the futures markets on even ground. Unlike some others, we meant it then, and we still mean it now. Our brief is available here.