Arthur Hayes, co-founder of BitMEX, said he was “flattered” by Coinbase’s support for the Commodity Futures Trading Commission (CFTC) in a US legal dispute over stock perpetual futures.
“When we launched the perpetual swap at BitMEX in 2016, Washington’s reaction was less than warm,” Hayes told Cointelegraph. “Ten years later, Coinbase is in federal court defending the right to offer them on US stocks. I’m flattered. Imitation is the sincerest form of regulation.”
Coinbase and five other companies submitted a brief on Monday opposing the alliance’s request to block trading in perpetual futures tied to individual stocks. The court accepted the brief on Tuesday.
The Capital Markets Alliance Association (CMAA), which brought the lawsuit, says the contracts should be treated as security-based swaps, which face tighter restrictions on retail trading.
Hayes was CEO of BitMEX when the crypto derivatives exchange launched its Bitcoin perpetual swap, which let traders take leveraged positions on Bitcoin without a fixed expiration date. The product helped make perpetual swaps a staple of crypto trading.
SEC weighs in on stock perpetuals
The US Securities and Exchange Commission (SEC) reportedly submitted a proposed court brief on Monday, opposing the alliance’s request to temporarily halt trading in the contracts.
The agency said it was reviewing the exchanges’ rules for listing the contracts. The brief left open whether the SEC would set those rules aside and whether the contracts qualify as security futures or security-based swaps.
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In a Tuesday court filing, CMAA said that the CFTC had approved the contracts without adequately explaining its decision or addressing unresolved regulatory questions.
The group also cited about $375 million in reported 24-hour notional trading volume for Kalshi’s stock perpetuals shortly after launch, claiming the products were already diverting business from traditional stock markets.
Stock perpetuals’ lack of expiry is at issue
Stock perpetuals let traders speculate on individual share prices without owning the underlying stocks. Unlike traditional futures, the contracts have no fixed expiration date.
On Nov. 3, US District Judge Valerie Caproni denied the group’s request for a temporary restraining order because it had yet to show likely irreparable harm. She found the alliance was likely to succeed on its claim that the CFTC exceeded its authority.
Wojciech Kaszycki, strategy adviser to BTCS SA, said the lack of a fixed expiration or delivery date could complicate the case for treating perpetual contracts as futures.
Kaszycki told Cointelegraph that the case “sale for future delivery.”
However, he warned that a ruling against the CFTC could push trading activity toward offshore and decentralized platforms.
“The product doesn’t die; it just changes address,” he said.
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