The CFTC Let Perpetual Futures Onto U.S. Stocks. A Federal Judge Already Doubts It.

A week ago today, the Commodity Futures Trading Commission said Americans can trade perpetual futures on individual U.S. stocks on regulated domestic exchanges for the first time.¹ Within hours, a new group backed by Cboe and Citadel Securities sued to stop it. That same day a federal judge refused to block the product, but wrote that the challengers are likely to win on the core legal question.² The reply brief on a preliminary injunction is due today. The people trying to shut this door are not consumer groups. They are the incumbents. And one company with a $34.6 billion market value is sitting on both sides of the threshold.

Key Highlights

• The action: Equity perpetual futures were "deemed approved" as security futures under CFTC Regulation 40.3 and can list on exchanges that are also notice-registered with the SEC, under joint CFTC and SEC oversight.³
• Who filed: Kalshi, Coinbase Derivatives and Bitnomial each filed on Sept. 18. Kalshi's filing covers up to 58 large-cap contracts, Bitnomial's starter list is 10 names, and the filed margin floors sit around 15%, or roughly 6.5 times the cash put up.⁴
• The fight: Judge Valerie Caproni denied a temporary restraining order but found the plaintiffs "likely to succeed on the merits" that the contracts are swaps, not security futures.^{5, 6}
• The contract: Coinbase's filed design pays funding every hour, caps it at plus or minus 0.10% per hour, trades Sunday 8 p.m. to Friday 5 p.m. ET and clears through Nodal Clear.⁷
• The idea: Coinbase Global (COIN), at $130.84 and within 1% of its 52-week low, already holds 10.7% of global crypto trading volume and $8.6 billion of cash.^{8, 9}

What Actually Happened

A perpetual future is a futures contract with no expiration date. You hold one position for as long as you post margin, and a periodic funding payment keeps its price tied to the underlying asset. When the perp trades above the stock, longs pay shorts, and the reverse.

Crypto made this the dominant way to trade borrowed exposure worldwide. Americans were mostly locked out, which meant foreign venues with weak rules and no U.S. recourse.

The CFTC has been working the problem in pieces: a bitcoin perpetual earlier this year, then a March memorandum of understanding with the SEC.¹⁰ On Sept. 18, three exchanges filed to list perps on single stocks.

Here is the procedural detail that matters. Nobody voted. Under Regulation 40.3, a product an exchange submits for approval is deemed approved if the agency does not object within its review window. That window closed on Nov. 2.¹¹ Michael Selig, currently the only sitting commissioner, announced the result the next morning: the contracts are security futures under the Commodity Futures Modernization Act of 2000, subject to both the Commodity Exchange Act and the federal securities laws.¹²

His framing was blunt: Americans should be able to use these products "within the protections of the CFTC's proven regulatory framework, rather than being forced to turn to offshore, and often unregulated, venues".¹³

How the Onshore Contract Works

I read Coinbase Derivatives' filing for a Pfizer perpetual because it shows the machinery. One contract is 0.01 of the underlying, about 30 cents at the example price of $30.47. Funding is computed every hour from the gap between the futures mark and the index. The rate is clamped to plus or minus 0.10% an hour. Trading runs Sunday 8 p.m. through Friday 5 p.m. Eastern, and the contract halts whenever the underlying stock is halted. Nodal Clear, a registered clearinghouse, stands in the middle.⁷

Two design choices stand out. First, it is not 24/7. Second, the borrowing limit is far below the offshore version. Coinbase's own Bermuda entity offers stock perpetuals with up to 25 times exposure to eligible non-U.S. users.¹⁴ The filed U.S. contracts carry margin floors around 15%, which works out to roughly 6.5 times.¹⁵ For comparison, buying stock on margin under the Fed's Regulation T requires 50% down, or 2 times.¹⁶

So the U.S. version is the cautious middle.

The rollout is already happening. Kalshi went live first on more than 50 names.¹⁷ Coinbase Derivatives self-certified individual contracts including Caterpillar, Texas Instruments, Walmart and Exxon Mobil¹⁸, and its vice chairman said the exchange is "getting equity perps ready for U.S. customers".¹⁵

The Lawsuit, and Who Filed It

The Capital Markets Alliance filed in the Southern District of New York on Nov. 2. Its members include Cboe, Citadel Securities and the Healthy Markets Association.¹⁹ The complaint makes three arguments: the products are security-based swaps that belong exclusively to the SEC, the CFTC never explained why it abandoned its long practice of treating perpetuals as swaps, and it failed to weigh the effect on investors and the stock market.²⁰

Judge Caproni denied the restraining order because the alliance's declarations were "conjectural" about harm. On the merits she went the other way. Because perpetual contracts by definition do not provide for a "sale for future delivery of a single security," she wrote, "they cannot be a security future over which the CFTC has statutory and regulatory authority." She added that the CFTC's actions "seem to represent a major disruption to the equities market".²¹

The schedule set the CFTC's opposition for Nov. 6 and the alliance's reply for today, Nov. 10, subject to change.⁵ A ruling on the preliminary injunction could come at any point after that.

The opposition is broader than one lawsuit. SIFMA asked both agencies to stay or abrogate the filings and send them back through notice and comment.²² The American Securities Association noted that Congress banned selling security-based swaps to retail investors at all.¹⁹

The Free-Market Read

Let me steelman the critics first, because they have real points.

Heavy borrowing on a single stock is dangerous for most people. A 15% adverse move wipes out a position margined at 15%. Single names gap on earnings and overnight news, and a product that trades on Sunday night invites moves with thin liquidity behind them. SIFMA's concern about cross-market manipulation is legitimate, because a perp can move the stock and the stock can move the perp. And the process was thin. A single commissioner, no vote, no public comment on the classification question. If you believe agencies should make big changes through notice and comment, this one fell short.

I take all of that seriously. I still think the CFTC has the better side of the policy argument, for three reasons.

First, the choice was never between perps and no perps. It was between perps under U.S. law and perps offshore. Coinbase alone already sells stock perpetuals with up to 25 times exposure through a Bermuda entity.¹⁴ The demand exists. The question is whether the trader has a regulated clearinghouse and a U.S. regulator to call. Pushing activity offshore does not make it safer. It makes it invisible.

Second, the U.S. version is materially more conservative. Roughly a quarter of the offshore exposure limit. Trading halts keyed to the underlying stock. Position limits and coordinated surveillance.²³ Funding capped at 10 basis points an hour. That is what onshoring is supposed to look like: the same tool with guardrails.

Third, look at who sued. Cboe runs the dominant U.S. options franchise. Citadel Securities is one of the largest market makers in U.S. equities and options. CME, which already sued over the CFTC's bitcoin perp approval, markets its own dated single stock futures.²⁴ Every one of them earns money from the way Americans currently get geared stock exposure. That does not make their legal arguments wrong. It does mean their warnings about "disruption" deserve the same skepticism you would give any incumbent asking a judge to keep a competitor out.

Being pro-market is not the same as being pro-incumbent. Options won the last round because they were better. Perps deserve the chance to win or lose on the same terms.

History shows how this could also simply fail. The U.S. had single stock futures for almost two decades. OneChicago listed them until its owners closed it on Sept. 18, 2020, after the product never found deep demand.²⁵ That is the market working. If equity perps are a bad product, traders will tell us with their volume. They should not need a court to tell them first.

Winners and Losers

Winners if it survives: the dual-registered futures exchanges (Kalshi, Coinbase Derivatives, Bitnomial and anyone else who files), the clearinghouses that sit under them, and U.S. traders who want geared single-stock exposure without wiring money to an offshore entity.

Losers if it survives: anyone whose revenue depends on retail paying for gearing through short-dated options, and the offshore venues that have been the only door for U.S. demand. A perp has no strike, no expiry and no time decay. Simple products often take share over time.

If the court rules the other way: the contracts likely get pushed into the swaps framework, where the retail sales ban the American Securities Association cited would apply. Equity perps would remain a product for eligible institutions and offshore customers. The incumbents would keep the retail lane.

The Numbers

Coinbase is the cleanest public way to own the outcome. In the third quarter, total revenue was $1.2 billion, flat from the second quarter and down 35% from a year earlier. Transaction revenue was $590.2 million, down 44% year over year. Subscription and services revenue was $570.2 million, 49% of net revenue.²⁶

Net income of $719 million leaned on gains in its crypto holdings. Adjusted EBITDA was $333 million, and cash was $8.6 billion.^{9, 27}

The derivatives business is the part I care about here. Coinbase's crypto derivatives volume reached $4.2 trillion over the trailing twelve months, a 179% compound annual growth rate over two years, with four straight quarters of market share gains. Prediction markets passed $200 million of annualized revenue, and prediction markets plus derivatives made up about 25% of transaction revenue.^{28, 29} It also plans to relaunch Coinbase Pro this quarter with equities alongside crypto.³⁰

The Bear Case

The bear case starts in a courtroom. A federal judge has already said, in writing, that the plaintiffs are likely to win. If she grants a preliminary injunction, U.S. equity perps stop before they build any volume, and the earliest relief would come from an appeal. On the statute, the judge's reading is not a stretch. A contract with no delivery date is hard to describe as a "sale for future delivery."

Even a win may not be worth much. OneChicago spent nearly 20 years proving U.S. traders did not want single stock futures badly enough, and the U.S. perp's lower borrowing limit removes the main thing offshore users came for. Onshore volume could end up a rounding error.

The business itself is under pressure. Crypto asset volatility hit multi-year lows last quarter and total market volume fell 10% from the prior quarter.⁹ Transaction revenue for the fourth quarter through Oct. 25 was about $165 million, and management warned against extrapolating it.³¹ Kalshi got to market first, and competition will be real.

Finally, deregulation done by deemed approval under a single commissioner can be undone the same way.

The Idea: Coinbase Global (COIN)

Coinbase trades at $130.84 this morning, down 3.9% on the day, with a market value of about $34.6 billion. Its 52-week range is $130.04 to $317.09.⁸ Over the past year the stock is down about 59% while the SPDR S&P 500 ETF is up about 10%.³²

This is not a cheap stock on today's earnings power. Annualize the third quarter's adjusted EBITDA of $333 million and you get about $1.33 billion, which puts the market value at roughly 26 times. Trailing GAAP earnings per share are negative.

What I think the market is missing is the option value of the regulatory map. Cash of $8.6 billion covers about a quarter of the market value. Subscription and services revenue of $570 million a quarter gives a base that does not depend on crypto volatility. On top of that, Coinbase has spent three years turning regulatory openings into products: prediction markets went from launch in February to more than $200 million of annualized revenue²⁷, and derivatives volume has compounded at 179% a year for two years. Its derivatives exchange was among the first to file a U.S. equity perp, with its own clearing arrangement through Nodal Clear, and it already runs the same product offshore. Few companies are positioned on both sides of the onshoring question at once.

The market is giving that option value close to nothing. The stock sits within 1% of its 52-week low a week after the CFTC cleared the product it has been building toward. I think the judge's order is too heavily discounted. Even in the downside case where equity perps are reclassified as swaps, Coinbase keeps the offshore product, the U.S. crypto derivatives business and the prediction markets franchise.

What would prove me wrong. A preliminary injunction followed by a weak appellate posture would remove the domestic option for at least a year. Separately, if fourth-quarter subscription and services revenue falls well below the third quarter's $570 million, the floor under the stock is weaker than I think. Either would make me reassess. I keep score on every idea here, winners and losers: the FMR Idea Scorecard.

What To Watch Next

• The preliminary injunction ruling: Briefing closes with today's reply, and a decision could come within days.⁵ This is the single biggest catalyst. I track dated deregulation events like this one on the Deregulation Investor's Catalyst Calendar.
• Coinbase's offshore launches on Nov. 12: Coinbase rescheduled its USDC-settled perpetuals on BMNR, WDC, RKLB and AAOI for Nov. 12 at 12:00 UTC for eligible jurisdictions.³³ Watch how fast the names list expands.
• The first U.S. volume data: Security futures require daily market-data reporting.³⁴ Early volume will show whether this is OneChicago again.
• The broader CFTC agenda: The agency has shown it will also stop contracts it dislikes, as I covered in The CFTC Just Stayed a CME Contract.

Related analysis

• A No-Action Letter Just Opened the World's Biggest Crypto Market to U.S. Traders
• The CFTC Just Wrote the Line Between a Market and a House
• Congress Stalled, So the CFTC Started Writing the Crypto Rulebook

Know someone who trades options or follows the exchange business? Forward this one along.

The Free Markets Report is provided by Lead-Lag Publishing, LLC. All opinions and views mentioned in this report constitute our judgments as of the date of writing and are subject to change at any time. Information within this material is not intended to be used as a primary basis for investment decisions and should also not be construed as advice meeting the particular investment needs of any individual investor. Trading signals produced by the Free Markets Report are independent of other services provided by Lead-Lag Publishing, LLC or its affiliates, and positioning of accounts under their management may differ. Please remember that investing involves risk, including loss of principal, and past performance may not be indicative of future results. Lead-Lag Publishing, LLC, its members, officers, directors and employees expressly disclaim all liability in respect to actions taken based on any or all of the information on this writing. Nothing in this report shall be construed as an offer to provide investment advice or services. Nothing in this report shall be construed to be an offer to provide investment advisory services. Nothing in this report shall be construed as an offer or solicitation to buy or sell any security. The Free Markets Report is for informational purposes only and does not constitute a complete description of our investment services or performance. THE INFORMATION IN THIS REPORT HAS BEEN PREPARED WITHOUT REGARD TO THE INDIVIDUAL CIRCUMSTANCES OF INDIVIDUALS WHO MIGHT RECEIVE IT. THE INVESTMENTS DISCUSSED MAY NOT BE SUITABLE FOR ALL INVESTORS. INVESTORS MUST MAKE THEIR OWN INVESTMENT DECISIONS BASED ON THEIR OWN PARTICULAR FINANCIAL SITUATIONS AND OBJECTIVES. This report is not an offer to provide investment advice or services. Nothing in this report shall be construed as an offer to provide investment advice or services. Nothing in this report shall be construed to be an offer to provide investment advisory services in any jurisdiction in which Lead-Lag Publishing, LLC is not authorized to provide such services. All investments involve risk, including the risk of loss of principal. No representation is being made that any security, account, or strategy is or is likely to achieve results similar to those shown. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives, and Lead-Lag Publishing, LLC's charges and expenses. This report is not a prospectus and does not contain all of the information necessary to fully evaluate any security or strategy discussed, including, but not limited to, the risk of adverse effects of related market developments. You should not rely solely on the information contained in this report, and should seek advice based on your situation from a licensed investment professional. Carefully consider the investment objectives, risks, charges, and expenses of any investment product before investing. This report may not be copied or distributed without the express written consent of Lead-Lag Publishing, LLC. Any decisions made based on any or all of the information in this writing are the sole responsibility of the user, and the user should exercise caution and take appropriate advice before acting.