CME Group has the stronger legal case in its lawsuit challenging the U.S. Commodity Futures Trading Commission's approval of crypto perpetual futures, with both procedural and substantive arguments in its favor, according to investment bank TD Cowen.
The world's largest derivatives exchange sued the CFTC on Thursday after the agency recently approved crypto perpetual futures, or "perps," in the U.S. for Kalshi and Coinbase. CME argues that the Commodity Exchange Act requires a futures contract to involve delivery, or the equivalent, at a set time in the future. Because perpetual futures do not expire, CME contends they should instead be regulated as swaps.
"We believe CME has the upper hand in the litigation," Jaret Seiberg, managing director at TD Cowen's Washington Research Group, said in a note. "We expect CME will seek a preliminary injunction to block perps as the case proceeds." A preliminary injunction is a temporary court order that pauses an action while a lawsuit is ongoing.
'Case hinges on definition of swaps'
Seiberg said the dispute is likely to come down to whether a product that never expires, such as a perp, can legally qualify as a futures contract. The distinction matters because swaps and futures are subject to different regulatory and tax rules. Swap dealers face registration requirements and five-day margin rules, while futures generally have one-day margin requirements and receive tax advantages that swaps do not, Seiberg noted.
