Summary: CME Group said it will bring legal action against the Commodity Futures Trading Commission (CFTC) over the regulator's recent approval of perpetual futures. CEO Terry Duffy, who has announced he will step down from his role next year, criticized the approval as hasty and reiterated concerns about the risks these instruments pose to retail investors. The CFTC's sign-off, which enabled Coinbase and Kalshi to announce plans for perpetual crypto futures, was followed by declines in shares of several large exchange operators.
Terry Duffy told a television interviewer that the company will initiate a lawsuit on Thursday challenging the CFTC's approval for perpetual futures - derivatives contracts that carry no expiration date and allow holders to maintain positions indefinitely without rolling them over. "I’m always up for a good battle. I’ve never shied away from one," he said, and added the firm would file the suit on Thursday. CME later confirmed the planned litigation in an emailed statement.
Perpetual futures, often called "perps," differ from standard futures by lacking a settlement date and by permitting substantial leverage. The instruments can offer leverage commonly as high as 50-to-1, amplifying both gains and losses for market participants. Duffy has argued that such high leverage, in combination with automatic liquidation mechanisms prevalent in parts of the market, threatens less sophisticated retail investors who may not fully appreciate how ongoing funding rate costs can erode their positions.
Duffy has also criticized the CFTC's approval process, saying the agency bypassed a traditional full review for what it characterized as a novel and complex product. He described the regulator's path to authorization as hasty, noting his objection to the expedited approach.
The CFTC's clearance for perpetual futures opened the door for cryptocurrency exchange Coinbase and prediction market operator Kalshi to announce last month that they would launch perpetual crypto futures on U.S. regulated exchanges, marking a first for such instruments being made available to domestic investors through regulated venues.
Market reaction was swift. Shares of CME Group, Cboe Global Markets and Intercontinental Exchange - the parent company of the New York Stock Exchange - fell after the approval, as investors worried the regulator's decision could create a long-term competitive threat to incumbent exchanges. Reported intraday moves included declines attributed to each firm following the announcement.
Duffy has been at the helm of CME for about a decade. The company announced earlier in the day that he will make way for Lynne Fitzpatrick, an insider who will become CME's first female CEO when the transition occurs next year.
Contextual notes included in this report are limited to the information provided by the company and public statements made by the CEO. The regulator did not immediately respond to a request for comment.