The SEC submitted a court opinion on the regulatory authority over perpetual derivatives of stocks

This week, the U.S. Securities and Exchange Commission (SEC) submitted a court brief (amicus brief) in support of the U.S. Commodity Futures Trading Commission (CFTC). Previously, the CFTC was sued by the Capital Markets Alliance (CMA) last week, which sought to overturn the CFTC's approval of individual stock perpetual derivatives. CMA is an industry organization with members including Cboe and Citadel Securities.

In the brief, the SEC rebutted CMA's claim that the CFTC has "gone rogue," stating that the CFTC's new rule changes are also subject to SEC review, and that the SEC and CFTC frequently collaborate, which is crucial for regulating stock perpetual contracts. The SEC indicated that its brief clarifies that the description of "CFTC out of control, SEC absent" is incorrect. CMA claimed in the lawsuit that the CFTC violated the Administrative Procedure Act because these perpetual derivatives should fall under SEC jurisdiction and requested the court to "overturn the approval."

Subsequently, several cryptocurrency companies, including Coinbase, Kraken's parent company Payward, Kalshi, DRW Holdings, Paradigm, and Jump Trading, submitted a joint brief opposing CMA. Among them, Coinbase, Kalshi, and Payward have submitted applications to the CFTC for listing stock perpetual contracts linked to U.S. stocks, which were considered approved on November 2. The economic advocacy organization Better Markets and former SEC Commissioner Allison Herren Lee also submitted a brief, arguing that these new products should be regulated by the SEC. Better Markets stated that these products are essentially security swaps and should be regulated by the SEC to provide strong investor protection.