CME Group has initiated legal action against the CFTC, claiming the agency improperly sanctioned Kalshi’s initial U.S. perpetual futures product. The lawsuit seeks to annul the approval and self-certified products granted to Kalshi.

Futures or swaps?

The narrative

CME Group has filed a lawsuit against the CFTC, arguing that the agency failed to adequately evaluate Kalshi’s request to list perpetual futures contracts before approving it. This legal move follows a day after outgoing CEO Terry Duffy announced plans to contest the approval made at the end of May.

Why it matters

It is quite rare for a well-established company like CME to sue its main regulator. Perpetual futures, often referred to as perps, are a relatively novel concept, with the cryptocurrency sector playing a significant role in these agreements. CME’s lawsuit raises procedural concerns, asserting that the CFTC’s approval process for Kalshi’s perps breached Dodd-Frank regulations and could potentially damage the company.

Breaking it down

CME contends that perps could adversely affect its long-term futures offerings. The lawsuit claims that the CFTC neglected to assess the implications of endorsing perps and that these instruments should be classified as «swaps» according to the Dodd-Frank Act, rather than «futures.»

Each classification has different regulatory consequences and requirements for the companies that issue them. CME’s CEO, Terrence Duffy, who recently announced his impending resignation next year, indicated to CNBC that the classification requires distinct rules for participants.

«The CFTC did not engage in its own analysis of whether its approval of Kalshi’s Bitcoin perpetual as a future is consistent with law,» the lawsuit states. «The CFTC did not even mention the relevant Dodd-Frank provision defining ‘swap.’ Indeed, the word ‘swap’ appears nowhere in the Order.»

Instead, the CFTC merely «rubberstamped Kalshi’s application,» according to the lawsuit.

Interestingly, the number of companies obtaining designated contract market (DCM) approvals and venturing into perps is rapidly increasing. On the same day the CFTC approved Kalshi’s request, it issued a no-action letter to Coinbase, seemingly clearing the way for that exchange to also list perps — albeit through an offshore intermediary.

However, perps are a unique product that is not explicitly addressed in the Dodd-Frank Act that CME references in its lawsuit.

In an email, former Starkware General Counsel Katherine Kirkpatrick Bos stated, «Future is not defined anywhere, whereas swap was defined by Dodd-Frank. The CFTC has the discretion to categorize novel products that have the characteristics of a future as opposed to swap. CME is making the argument that ‘future delivery’ means that the lack of expiry is determinative.»

She remarked on X (formerly Twitter) that there is «no clear precedent» for a «future delivery» being a requirement for a future.

This week

Tuesday

— 14:00 UTC (10:00 a.m. ET) The Senate Banking Committee will conduct a hearing on «The Affordability Agenda,» featuring Consumer Bankers Association CEO Lindsey Johnson, National Association of Realtors President Kevin Brown, and Digital Chamber CEO Cody Carbone.

Wednesday

— 14:00 UTC (10:00 a.m. ET) The House Financial Services Committee will hold a hearing titled «Future of Payments.» The speakers have not yet been disclosed.

Thursday

— 14:00 UTC (10:00 a.m. ET) The House Financial Services Committee will conduct a hearing on «The Future of How America Invests.» The speakers have not yet been disclosed.

— 18:00 UTC (2:00 p.m. ET) The House Oversight Committee’s Subcommittee on Military and Foreign Affairs will hold a hearing on digital currencies.

If you have thoughts or questions on what I should cover next week or any other feedback, feel free to email me at nik@decryptnews.com or find me on Bluesky @nikhileshde.bsky.social.

You can also join the group discussion on Telegram.

See you next week!

In May, combined exchange volumes decreased by 3.45% to $4.41T; the lowest level since September 2024. RWA perpetual futures volumes increased by 10.4% against the trend, reaching a new all-time high.