Judge Denies Emergency Halt of Stock Perps, Questions CFTC Authority

U.S. District Judge Valerie Caproni denied an emergency request Tuesday, Nov. 3, to halt the CFTC’s approval of stock perpetual futures, while finding the challengers likely to succeed on a claim that the agency lacked statutory authority.

The Capital Markets Alliance Association sued the CFTC and Chairman Michael S. Selig the same day the agency said perpetual futures tied to individual stocks could begin trading on qualifying markets. The CFTC classified the contracts as security futures under Commission Regulation 40.3 and the Commodity Futures Modernization Act of 2000. Eligible venues must be designated contract markets that are also notice-registered with the SEC as national securities exchanges for security futures products.

At this preliminary stage, Caproni found the contracts appeared to meet the definition of swaps regulated by the SEC. The alliance argues they are security-based swaps and alleges the CFTC violated the Administrative Procedure Act by failing to explain its decision. Caproni denied emergency relief because the group had not shown its members faced actual and imminent irreparable harm.

These contracts can remain open indefinitely, without a set expiration date. The order does not resolve the case’s merits. The CFTC’s response to the alliance’s preliminary injunction request is due Friday, Nov. 6, with the group’s reply due Tuesday, Nov. 10.