- Key insight: The Commodity Futures Trading Commission says CME has no standing because it has not shown financial harm from Kalshi's bitcoin perpetual futures.
- Supporting data: The CFTC argues perpetual contracts are futures under the Commodity Exchange Act and says CME can offer them itself, undermining the exchange's case that allowing predictions market Kalshi to offer perpetual futures contracts for bitcoin confers a competitive advantage.
- Forward look: The dispute over whether perpetual futures contracts are swaps or futures could extend into the next administration if the judge rules only on the question of standing.
The Commodity Futures Trading Commission Wednesday urged a federal judge to dismiss a lawsuit led by the Chicago Mercantile Exchange challenging the agency's decision to allow Kalshi to list bitcoin perpetual futures contracts, known as perps, on its platform.
The motion, filed Sept. 2 in the U.S. District Court for the District of Columbia, argues both that the CME lacks legal standing to bring the case and that bitcoin perpetual futures are futures, not swaps, as the CME asserts.
"CME is wrong on the merits — perpetual futures are futures," the agency wrote in a Wednesday filing. "But there is a more fundamental defect with this lawsuit: CME lacks standing."
The dispute centers on how federal regulators classify perpetual futures, which have become common in crypto markets. Unlike traditional futures, which expire after a fixed period, perpetual contracts have no expiration date. Instead, they use a "funding-rate" mechanism involving regular payments between long and short traders to help keep the contract's price tied to the underlying spot price.
Kalshi pursued approval to offer perpetual futures contracts tied to bitcoin's spot price and was
The CME argues that the Kalshi's bitcoin perpetual meets the CEA's definition of a swap and should be regulated more forcefully under this standard. Futures and swaps face different levels of regulatory treatment and CME has argued that those differences give perpetual futures an advantage over CME's existing, fixed-expiration crypto futures.
The CFTC argued that CME has not proven any financial injury from Kalshi's product that give it standing to sue, saying the complaint "fails to plausibly allege that CME will suffer an increase in competition as a result of the challenged actions."
"The Commission did not simply allow Kalshi to list perpetual futures for trading; it clarified that any DCM — including CME — can offer perpetual futures in digital commodities for trading," the CFTC motion said. "The basis of competitor standing, however, is that "a defendant's actions benefitted a plaintiff's competitors."
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The agency argues instead that CME would engage in "self-inflicted" harm only if it chooses not to offer perpetual futures alongside its fixed futures.
"Thus, to the extent CME's customers substitute toward perpetual futures over futures with fixed expirations … CME is injured only if it chooses not to offer perpetual futures alongside its futures with fixed expirations," the agency continued. "That would be a 'self-inflicted harm,' which 'doesn't satisfy the basic requirements for standing.'"
Jaret Seiberg, an analyst at TD Cowen, said in a research note he expects the court to combine the CFTC's motion to dismiss with CME's anticipated motion for summary judgment.
"We continue to give the CME the advantage as we believe the courts often give standing to rivals to challenge an agency action," he wrote. "Also, we believe CME is alleging Administrative Procedures Act violations that may preclude the court from ever deciding if a perp is a future or a swap."
If the court does not weigh in on whether a perpetual future is a swap or not, Seiberg notes those who believe perpetual futures are futures could have to contend with a more skeptical CFTC chair in the next administration.
"That creates election risk as a Democratic president is more likely to pick a CFTC chair who will see perps as swaps rather than as futures," he continued. "It also is unclear how a future GOP President could view this question."
