The Capital Markets Alliance (CMA) filed a suit earlier this week to challenge the Commodity Futures Trading Commission’s (CFTC) approval of US single-stock perpetual derivatives.
The trade association – which consists of Cboe, Citadel Securities and Healthy Markets Association – argues that by approving perpetual derivatives on US stocks and ETFs, the Administrative Procedure Act has been violated.
Specifically, the CMA makes the case that as security-based swaps, the products should come under the Securities and Exchange Commission’s (SEC) exclusive jurisdiction.
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In addition, the industry body states that the CTFC gave “no explanation for its decision” and did not acknowledge the definition of perpetual derivatives as swaps, hence “failing to reasonably consider the impacts on investors and securities markets.”
“Coherent regulatory oversight underpins the global pre-eminence of US securities markets,” asserted Adam Ford, secretary of CMA.
“The hasty roll out of financial products that circumvent well-established regulatory frameworks erodes investor protection and undermines the integrity and resiliency of the American financial system.”
The CMA’s complaint has called on the US District Court for the Southern District of New York to vacate the approvals, declare the products as security-based swaps, and bar the CFTC from giving the approvals effects while the case is pending.
In response to the CMA’s request for a temporary restraining order, US District Judge Caproni has since denied the call for action, due to the harms surfaced by the trade association not “warranting emergency relief.”
Despite this, however, the Judge indicated that the CMA will likely succeed in its claim, since the balance of equities and public interest favour the CMA.
“The CFTC’s actions seem to represent a major disruption to the equities market, and the public, including Plaintiff, would be served by preventing such a disruption before it occurs.”
The government is expected to respond to the motion by Friday 6 November, with a reply from the CMA set for Tuesday 10 November.
Commenting on the news, Craig Donohue, chief executive of Cboe, emphasised the CMA’s argument that single-stock perpetual derivatives should remain on registered securities platforms, subject to the investor protections, oversight, and safeguards required under US securities laws.
He added: “We support the mission and purpose of the CFTC to oversee the products that Congress has placed under its authority.
“This issue, however, is about investor protection for securities trading and the rule of law. Investors deserve the specific protections Congress established for securities markets, and regulators have a responsibility to enforce the framework Congress created. When securities products are permitted to trade outside that framework, it creates regulatory arbitrage, bypasses both federal and state laws, and undermines the integrity of those markets.”