SEC enters fight over who regulates perpetual derivatives on stocks in the US

The Securities and Exchange Commission is stepping into the brewing fight over whether its sister agency should have approved perpetual derivatives on individual stocks in the U.S. 

This week, the SEC filed an amicus brief, a court document in support of the Commodity Futures Trading Commission after it was sued last week by the Capital Markets Alliance seeking to overturn approval of those products. The CMA is an industry association with members including Cboe and Citadel Securities.

The SEC pushed back against the CMA's assertion that the CFTC has "gone rogue." The CFTC's new rule changes are also subject to the SEC's review and the SEC said it collaborates often with the CFTC, which is vital when it comes to overseeing equity perpetuals, the agency said in the brief. 

"The SEC’s amicus brief addresses why that depiction—of a CFTC gone rogue, and an SEC gone missing—is mistaken," the agency said. 

In its lawsuit, CMA said that the CFTC violated the Administrative Procedure Act — a law that governs how federal agencies propose rules — because the perpetuals derivatives should be under the SEC's jurisdiction. The CMA also argued that the CFTC did not explain its decision, and asked the court to "vacate the approvals." 

Since then, a group of crypto firms including Coinbase, Kraken parent Payward, Kalshi, DRW Holdings, Paradigm and Jump Trading have filed a joint amicus brief against CMA.  Three of those firms — Coinbase, Kalshi and Payward — have submitted applications with the CFTC to list equity perps tied to U.S. stocks, and the applications were deemed approved on Nov. 2. 

Others have also filed amicus briefs, including economic advocacy organization Better Markets and former SEC Commissioner Allison Herren Lee, who said that the new perpetuals should be regulated by the SEC. 

"Although labeled by the CFTC and these trading platforms as ‘perpetual futures,’ these products are in fact securities swaps that are supposed to be regulated by the SEC with strong investor protections," Better Markets said in a statement on Tuesday. "That’s because these types of financial products contributed to the 2008 crash and pose an unreasonably high risk of causing total losses to retail investors."