CFTC faces suit over approving Kalshi bid to list ‘perpetual’ futures contracts

WASHINGTON (CN) — The Commodity Futures Trading Commission, the government agency responsible for regulating U.S. derivatives markets, faces a federal lawsuit filed Thursday over its allowing prediction market Kalshi to list perpetual futures contracts.

The Chicago Mercantile Exchange, currently the nation’s most valuable derivatives marketplace, filed the suit in the U.S. District Court for the District of Columbia and argues the CFTC wrongfully allowed the prediction market to list perpetual contracts in a way that received different regulation and favorable tax treatment.

“On May 29, 2026, the Commodity Futures Trading Commission issued an order that overnight transformed federal regulation of a derivative instrument called a ‘perpetual contract,’” the exchange said in the 42-page lawsuit.

“That order, issued without public comment or reasoned decision-making, violates the terms of the Commodity Exchange Act,” it continued. “If allowed to stand, it would enable Kalshi — and any other futures exchange seeking to list similar perpetual contracts — to circumvent the strict regulatory requirements set by Congress.”

A perpetual contract is a derivative intended to track the current price of an underlying asset, such as bitcoin, and is essentially an agreement between two parties to exchange payments based on the underlying value of the commodity. When a contract is trading above the spot price of the underlying commodity, the “long side” pays the “short side,” and vice versa.

Unlike a futures contract, a perpetual contract has no expiration date — hence the name — and neither party is obligated to deliver the underlying asset to the other or to pay the cash value of the delivered commodity, allowing either party to hold its position perpetually.

According to the exchange, the CFTC approved a request by Kalshi, which marked the first time perpetual contracts could be traded in the United States after an expedited review that blew through the regulatory process.

The exchange noted that under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Congress recognized the “special dangers” posed by unregulated swaps — which it defined as any agreement involving payments tied to a commodity’s value that transfers price risk between the parties — and thus classified perpetual contracts as swaps.

On April 21, 2025, the agency opened public comment on over a dozen policy questions regarding whether perpetual contracts should be available in the U.S., including whether they should be classified as swaps or as futures. According to the exchange, the agency did not address any of the over 150 comments it did receive, nor did it issue a final rule.

“Instead, one day after receiving an application from Kalshi, Chairman Michael S. Selig — acting alone as the sole confirmed commissioner of the five-member CFTC — approved Kalshi to list, as futures, perpetual contracts based on the value of bitcoin,” the exchange said.

“The CFTC’s order repeated Kalshi’s reasoning almost verbatim,” it continued. “The order does not acknowledge, much less grapple with, Congress’ directive that instruments with the structural features of Kalshi’s perpetual contracts are swaps and must be regulated as such. Nor does the order acknowledge or explain the CFTC’s departure from its previous and consistent position that perpetuals are swaps.”

Further, the agency’s order authorizes any futures exchange to automatically self-certify, without CFTC approval, any similar perpetual contract based on a cryptocurrency’s value.

“With the stroke of his pen, the chairman overrode Congress’ definition of the term ‘swap’ and circumvented the regulatory regime Congress required for that form of derivative,” the exchange said. “In the short time since, Kalshi has self-certified over a dozen additional cryptocurrency perpetuals in reliance on the chairman’s order and brought those perpetuals to market, resulting already in more than a billion dollars of trades.”

Under the Commodity Exchange Act, the agency cannot approve a new contract for listing that would violate either the same statute or other CFTC regulations.

According to the exchange, the agency’s decision to approve a perpetual contract as a futures contract lifted the regulatory burdens Congress intentionally imposed on swaps and afforded it favorable tax treatment.

“This isn’t about the law, it’s about the fear of competition,” Kalshi spokesperson Elisabeth Diana said in a statement.

“Rather than compete in the marketplace, the CME has decided to undertake lawfare against the agency and the Trump administration’s pro-innovation agenda,” a CFTC spokesperson said in a statement. “Incumbents fear the future and having to compete on a level playing field. We look forward to addressing their claims and dismissing this frivolous lawsuit.”

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