Court Fight Over Stock Perpetuals Turns on Classification

The CFTC cleared three exchanges — KalshiEX, Coinbase Derivatives and Bitnomial — on November 2 to list perpetual futures tied to individual stocks, and a federal judge in New York has already signaled the approvals may not survive review. Judge Valerie Caproni denied an emergency halt on November 3 but found the challengers likely to succeed on their argument that the CFTC lacked statutory authority. The products remain live while the case proceeds.

The dispute, Capital Markets Alliance Association v. CFTC, No. 1:26-cv-09608 in the Southern District of New York, turns on a single legal question: are these contracts security futures under joint CFTC-SEC oversight, or security-based swaps under a different framework? The alliance — whose members include Cboe and Citadel Securities — argues the contracts' indefinite life, with no scheduled delivery, fits the swap definition. The exchanges counter that the law does not require a fixed expiration date.

What does the classification change for market participants?

Everything downstream of the label. In Release 9319-26, the CFTC described the contracts as security futures, requiring venues to be designated contract markets and notice-registered with the SEC as national securities exchanges. CFTC Chairman Michael Selig framed domestic availability as a way to keep American traders on regulated venues rather than offshore platforms.

If the court reclassifies the products as security-based swaps, retail access narrows sharply. A November 10 proposed brief from Better Markets, former SEC Acting Chair Allison Herren Lee and former SEC General Counsel John Coates argues that classification would require an effective registration statement for sales to non-eligible contract participants and execution through a registered securities-exchange route.

Better Markets President and CEO Dennis Kelleher criticized the CFTC's November 12 opposition to the group's participation: "What is the CFTC afraid of?" The statement reflects the group's position, not a judicial finding.

The industry lines up

Six firms — Coinbase, Kalshi, Payward, DRW Holdings, Jump Trading and Paradigm Operations — filed a proposed 36-page industry brief on November 9 supporting the CFTC's authority. The SEC has also entered the case; per a Lowenstein Sandler account of its November 12 briefing, the agency supports joint oversight while its review of the exchanges' related rule changes remains pending, and it expressly declined to state whether those changes should be abrogated.

The leverage arithmetic

Kalshi's filed rules set a 15.50% minimum customer margin ratio — roughly $6,451.61 of notional exposure per $1,000 committed. At that floor, a 5% adverse move produces a loss near $322.58, about 32.3% of starting collateral; a 10% move erases roughly 64.5%. The same 5% decline on an unleveraged $1,000 share position costs $50.

Funding payments replace the expiration-driven convergence of dated futures. Kalshi's September SEC filing, Release 34-106422, describes payments from long holders to short holders when the perpetual trades above the underlying, reversing direction otherwise. At an illustrative 0.01% rate on $10,000 of exposure, a trader owes $1 per interval — $30 over 30 intervals, or 3% of a $1,000 collateral base.

The CFTC's product register shows the granularity of the rollout: a November 5 entry identifies a Coinbase-listed Costco equity perpetual classified as a security futures product.

Parallel fronts

The commercial stakes extend beyond the courtroom. Intercontinental Exchange, owner of the NYSE, announced an agreement with Trade[XYZ] on October 29 to build a US perpetual market on Hyperliquid infrastructure, covering stocks, commodities, FX and crypto — subject to separate regulatory approvals. Separately, CME is challenging the CFTC's earlier approval of crypto perpetuals; the agency has moved to dismiss, arguing CME could list comparable products itself.

The November 3 order set briefing dates for the preliminary-injunction motion. An injunction, merits ruling or appeal would reshape the route — or close it — for every venue counting on the security-futures pathway.