The U.S. Commodity Futures Trading Commission (CFTC) recently filed a motion with a federal court, requesting that the judge dismiss the lawsuit filed by the Chicago Mercantile Exchange (CME) over the approval decision for cryptocurrency perpetual futures. The CFTC believes that CME cannot prove that the relevant regulatory decision has caused it actual harm and therefore lacks the constitutional standing required to bring the lawsuit.
In the motion filed on Wednesday, the regulator described the dispute as “manufactured,” pointing out that CME has not made specific allegations of economic losses and therefore cannot prove that it suffered actual harm sufficient to support the lawsuit.
The CFTC further stated that the regulatory order currently being challenged by CME was not directed only at one exchange, but allows any registered designated contract market, including CME, to list similarly structured products. Therefore, the order itself did not impose any discriminatory restrictions on CME.
Meanwhile, CME had previously stated publicly that its customers had not expressed demand for the launch of perpetual contracts. The CFTC therefore argued that if CME faces an alleged competitive disadvantage because of its own decision not to offer such products, that harm was caused by its own decision and cannot demonstrate that the regulator’s decision infringed upon its legal rights.
The CFTC also pointed out that even if the court ultimately supports CME’s claims, it would not achieve the competitive effect CME seeks. Kalshi and other designated contract markets could continue offering the relevant perpetual contracts in the form of swaps. Therefore, merely changing the regulatory classification of these contracts would not eliminate the competitive harm claimed by CME.
The regulator also emphasized that the measures taken by CME to avoid competition do not fall within the interests that the Commodity Exchange Act is intended to protect and therefore are insufficient to serve as a legal basis for challenging the CFTC’s decision.
CME filed a lawsuit against the CFTC in June, after the CFTC had approved Kalshi’s launch of the BTCPERP contract and classified it as a futures contract. The product uses a cash-settlement mechanism, tracks the spot price of Bitcoin, supports around-the-clock trading, and has no expiration date.
BTCPERP makes periodic funding payments between long and short traders and uses a funding-rate mechanism to keep the contract price close to the spot price of Bitcoin.
The order issued by the CFTC on May 29, 2024, also covered similarly structured perpetual contracts related to other digital commodities with deep, active, and continuous spot markets. Perpetual contracts involving other asset classes will continue to be reviewed on a case-by-case basis under the accompanying policy statement.
CME argues that these contracts have no expiration date and no delivery obligation, while being settled through funding payments between traders. Therefore, under the legal definition, they should be classified as swap contracts (swaps), rather than futures contracts.
CME also accused the CFTC of failing to adequately explain why its classification of cryptocurrency perpetual contracts this time differs from previous enforcement cases that classified similar cryptocurrency perpetual contracts as swap instruments.
Regarding the litigation proceedings, U.S. District Judge Colleen Kollar-Kotelly last week rejected the CFTC’s request to delay providing the administrative record until the court rules on its motion to dismiss. The judge believed that these materials may contain evidence related to the competitive harm alleged by CME.
Colleen Kollar-Kotelly also required both parties to submit a consolidated briefing schedule by September 4, with the subsequent litigation proceedings to continue according to the schedule determined by the court.