CFTC and SEC Seek Comment on Defining 'Swaps' as CME Sues the CFTC Over the Same Question - Unchained

The Commodity Futures Trading Commission and Securities and Exchange Commission issued a joint request for public comment on Thursday on updating and clarifying how they define key derivatives products, landing on the same legal question now being litigated in CME‘s lawsuit against the CFTC.

The request seeks input on the definitions of “swaps” and “security-based swaps” and the scope of exclusions from them, the treatment of mixed swaps, and how to handle novel or emerging products, a category the agencies said may include prediction-market event contracts and perpetual futures. “Today’s joint request for public comment presents an opportunity to address longstanding ambiguities within Title VII of Dodd-Frank that have stifled fair competition and responsible innovation,” CFTC Chairman Michael Selig said. SEC Chairman Paul Atkins said clarification was “long overdue” on Title VII definitional issues, specifically citing event-based products. The comment period runs 60 days after publication in the Federal Register.

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The request arrives directly on the heels of a legal fight over that very definition. CME Group sued the CFTC on Thursday over its decision to approve Kalshi‘s perpetual futures as futures contracts. CME’s complaint alleges that in approving the products, Selig overrode the established definition of a swap and sidestepped the regulatory regime that should apply, letting new entrants compete for CME’s retail futures customers. CEO Terrence Duffy had argued earlier in the week that perpetual futures, in which two parties exchange ongoing payments, meet the Dodd-Frank definition of a swap rather than a future.

The two developments pull in opposite directions on the same issue. CME is asking a court to find that the CFTC misclassified perpetuals, while the CFTC and SEC are inviting the public to help redraw the definitional lines administratively. The CFTC told reporters it intends to seek dismissal of CME’s suit, characterizing it as running counter to the Trump administration’s pro-innovation agenda. How the “swap” question resolves, in court, through rulemaking, or both, will shape which regulator oversees perpetual futures and prediction-market contracts, and under what rules new entrants can enter the US derivatives market.

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