Cryptocurrency Exchanges Enter the U.S. Stock Derivatives Market as CFTC Approves Perpetual Futures Amid Wall Street Backlash

Author: Jae, PANews

On November 3, as the U.S. midterm elections heated up, the regulatory battleground of the CFTC also ignited with "conflict."

In the morning, the U.S. Commodity Futures Trading Commission (CFTC) approved the entry of perpetual futures into the regulated U.S. market, marking the first time that U.S. perpetual contracts received explicit regulatory approval. By the afternoon, opposition arose. The Capital Markets Alliance (CMA), supported by traditional institutions such as the Chicago Board Options Exchange (Cboe) and Citadel Securities, filed a lawsuit in the Southern District of New York Federal Court seeking to overturn the CFTC's product approval.

The collision of approval and opposition on the same day is no mere coincidence in the market. Previously, four cryptocurrency institutions—Kalshi, Coinbase, Bitnomial (a Kraken subsidiary), and OG.com (under Crypto.com)—had already been working on U.S. perpetual futures products. A clash of old and new powers is unfolding over U.S. perpetual contract products.

CFTC Opens the Floodgates, Four Crypto Exchanges Rush Ahead

Perpetual contracts have long been the most mainstream trading tool in the cryptocurrency market. They have no fixed expiration date and rely on a funding rate mechanism to anchor contract prices to the spot market. Traders can amplify their risk exposure through margin without holding stocks, but the trade-off is that they have neither shareholder status nor voting rights.

Now, this trading mechanism is being transplanted to the U.S. stock market. The CFTC's shift did not happen overnight. On May 29, the CFTC first approved Kalshi's Bitcoin perpetual futures BTCPERP, setting a precedent. Subsequently, the regulatory agency issued a policy statement on the listing of perpetual contracts, stating that different underlying assets such as stocks and precious metals would require "case-by-case review."

Following this, institutional product applications rapidly spread to U.S. stocks and ETFs: on September 18, Kalshi, Bitnomial, and Coinbase Derivatives submitted applications on the same day; on September 24, OG.com followed suit.

The first batch of underlying assets from the four crypto exchanges is highly consistent, almost entirely anchored to large-cap tech stocks such as Nvidia, Apple, Tesla, and Microsoft, as well as mainstream index ETFs like SPY and QQQ. The assets with the best liquidity and highest retail recognition are always the first stop for new categories.

From a trading mechanism perspective, these U.S. perpetual plans will trade continuously from Sunday evening to Friday evening, covering most of the time outside regular U.S. stock market hours, but not the 24/7 schedule of the crypto market. For ordinary investors, the most intuitive change is: in the future, there will be no need to rely on traditional U.S. stock options to directly trade the price fluctuations of large tech stocks, making shorting and hedging much more flexible.

It is worth noting that the CFTC's approval is more based on a mechanism of "deemed approval after the review period expires" rather than issuing formal approvals or licenses to the four entities one by one. The initial 45-day review period for the first three entities expired on November 2, while OG.com must wait until November 8.

However, this entry permit does not mean that U.S. perpetual products are out of the sight of the U.S. Securities and Exchange Commission (SEC). According to the Commodity Futures Modernization Act of 2000, securities futures fall under the joint regulatory purview of the CFTC and SEC. Platforms must not only obtain CFTC's Designated Contract Market (DCM) qualification but also register with the SEC according to the rules for securities futures trading venues.

Wall Street Financial Giants Sue CFTC, U.S. Perpetual Faces Definition Dispute

The green light is on, but not everyone is satisfied. On the afternoon of the CFTC's approval of U.S. perpetual products, the CMA, supported by Wall Street giants, filed a lawsuit in the Southern District of New York Federal Court seeking to overturn the relevant approval.

The core of the CMA's lawsuit is a definitional issue: do U.S. perpetuals count as securities futures or as security-based swaps?

The CFTC classifies U.S. perpetuals as securities futures, thus applying the shared regulatory framework of the CFTC and SEC. The CMA argues that U.S. perpetuals, which have no fixed expiration date and rely on periodic funding payments to maintain price anchoring, are essentially closer to security-based swap products.

In the U.S. regulatory system, securities-based swaps are subject to stricter limitations, and there are special legal barriers to selling them to ordinary retail investors. If the court supports the classification of U.S. perpetuals as securities-based swaps, the existing product entry path will face fundamental challenges.

Behind the legal dispute lies a tangible clash of commercial interests. Cboe and Citadel Securities are teaming up to block this, essentially to prevent U.S. perpetuals from undermining their business moat.

For Cboe, options trading is undoubtedly a cash cow. In the third quarter of this year, its net income from options trading approached $470 million, a 23% year-on-year increase, with its exchanges accounting for 30.5% of the total trading volume in the U.S. options market. In addition to trading fees, market data, access services, and associated clearing are all sources of its income.

U.S. perpetuals, however, show a high degree of substitution for options. For example, if an investor wants to leverage a long position in Tesla, they previously needed to buy call options, considering expiration dates, implied volatility, and strike price choices; in the future, they can directly gain price exposure through U.S. perpetuals without managing rollovers and expirations.

For users who prefer short-term trading or leveraged bets, there is overlap in demand between the two. Once U.S. perpetuals gain traction, the first to be diverted will be retail trading volume in the options market.

For Citadel Securities, the impact falls on its market-making fundamentals. It holds about 30% of the market-making share in the U.S. options market and accounts for 35% of U.S. retail trading volume, with its business model built on the order flow from traditional brokers and a mature pricing hedging system.

If more and more retail investors trade U.S. perpetuals on crypto exchanges, the order flow will bypass traditional trading channels, weakening Citadel Securities' market-making revenue and pricing influence. Especially during after-hours and weekend periods, perpetual platforms can independently form quotes and transactions, effectively creating a second pricing venue during traditional market downtime.

A deeper anxiety lies in the regulatory asymmetry. Traditional stock and options exchanges operate under the strict oversight of the SEC, bearing high compliance costs. If CEX can launch products with similar economic functions merely through CFTC's DCM qualification and SEC registration, it would mean entering the same market with significantly lower compliance costs. Cboe candidly stated in its comments to the SEC: an incorrect product classification would leave room for "regulatory arbitrage" for new entrants.

In other words, what the giants oppose is not the U.S. perpetual products themselves.

Cboe CEO Craig Donohue emphasized: if it were merely a business issue, Cboe could easily launch similar products on its CFTC-regulated trading and clearing platform. Cboe already has a complete futures trading and clearing infrastructure, and its Cboe Clear U.S. has DCO qualifications, having also received temporary registration approval for securities clearing from the SEC in October. They are not incapable of entering the market; they simply do not want to compete under unfair rules.

Thus, this lawsuit resembles a defensive counterattack: if successful, it would revoke the existing approvals and force regulators to raise the bar; if unsuccessful, it could extend the implementation timeline through judicial processes, leaving a window for the giants to strategize. For traditional institutions, compared to blocking new categories, pushing regulators to level the playing field and competing with the early movers on equal terms is a more optimal solution.

Perpetual contracts have introduced a new trading mechanism, and the crypto market has proven user demand for trading perpetual contracts, but ultimately, whether U.S. perpetuals can establish themselves in the market will still depend on liquidity, trading costs, investor protection, and clear, stable regulatory rules. The product advantages must translate into competitiveness in the U.S. derivatives market, which remains to be seen over time.

The CFTC has opened the door to the U.S. perpetual market, but obtaining trading qualifications and truly winning the market are two different matters.

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