The Commodity Futures Trading Commission and the Securities and Exchange Commission are requesting public comment on an initiative to clarify definitions and interpretations tied to certain derivatives products, including swaps and security-based swaps under the Dodd-Frank Act. The joint request covers the scope of those definitions, exclusions from them, and how regulators should treat novel or emerging products such as event contracts on prediction market platforms and perpetual futures contracts. CFTC Chairman Michael S. Selig said the request gives regulators a chance to address longstanding ambiguities within Title VII of Dodd-Frank that have stifled fair competition and responsible innovation, while SEC Chairman Paul Atkins said clarification is long overdue for certain definitions, specifically referencing event-based products. The timing coincides with CME Group suing the CFTC over the agency's decision to approve Kalshi's offering of perpetual futures trading in the U.S. and classify the products as futures contracts rather than swaps. Title VII of the Dodd-Frank Act gives the CFTC authority over swaps, except for security-based swaps, which fall under the SEC's remit, and the classification determines the venue, compliance framework, capital rules, reporting duties, and customer protections that apply to derivatives products.
Classification Framework Determines Regulatory Treatment for Derivatives Products
The definitions decide which regulator has authority and which legal regime applies to derivatives products. A product classified as a futures contract can trade under one framework, while a swap may trigger a separate set of rules around registration, clearing, reporting, and participant eligibility. Perpetual futures, widely used offshore, do not expire in the same way as traditional futures contracts, and their structure has raised questions over whether they should be treated as futures or swaps when offered in the United States. Event contracts on prediction market platforms offer contracts linked to outcomes rather than traditional financial instruments, creating a similar classification issue where regulators must decide how far existing derivatives law can stretch before a product falls into a different legal category or requires new guidance.
CME Group Sues CFTC Over Kalshi Perpetual Futures Approval
CME Group is suing the CFTC over the agency's decision to approve Kalshi's offering of perpetual futures trading in the U.S. and classify the products as futures contracts rather than swaps. CME argues that the approval process overrode the stated definition of a swap and avoided the required regulatory regime. CME Group CEO Terrence Duffy said earlier in the week that perpetual futures should be regulated as swaps. In short, by authorizing Kalshi and others to enter the derivatives marketplace by listing similar cryptocurrency perpetuals as futures, the CFTC ushered new entrants into CME's retail futures market that seek to compete with CME for retail customers, CME said in the complaint. The case shows how classification decisions can affect market access, as perpetual contracts classified as futures may provide new entrants a clearer path to compete in retail-facing derivatives, while classification as swaps may create a heavier compliance burden and a narrower available market. The CFTC has pushed back against the lawsuit and said it seeks dismissal, arguing that the challenge conflicts with the administration's pro-innovation agenda.
Public Comment Process Opens for Derivatives Definitions Review
The public comment process gives exchanges, crypto firms, market participants, and legal experts a formal route to influence how the agencies interpret Dodd-Frank definitions. For exchanges, the agencies' review could alter the competitive balance between incumbent futures venues, crypto-native firms, and prediction market platforms. For crypto firms, the outcome may affect whether U.S. perpetual futures can develop under a futures framework or face a swaps regime that is more complex and less retail-accessible, as perpetual futures are among the most liquid crypto trading products globally, but U.S. access has remained limited compared with offshore venues. For prediction markets, the review may determine whether event contracts remain under a federal derivatives framework or continue to face legal challenges over whether they resemble wagering products, financial contracts, or a hybrid category.
FAQ
What did the CFTC and SEC request public comment on?
The Commodity Futures Trading Commission and the Securities and Exchange Commission are requesting public comment on an initiative to clarify definitions and interpretations tied to certain derivatives products, including swaps and security-based swaps under the Dodd-Frank Act. The joint request covers the scope of those definitions, exclusions from them, and how regulators should treat novel or emerging products such as event contracts on prediction market platforms and perpetual futures contracts.
Why did CME Group sue the CFTC?
CME Group is suing the CFTC over the agency's decision to approve Kalshi's offering of perpetual futures trading in the U.S. and classify the products as futures contracts rather than swaps. CME argues that the approval process overrode the stated definition of a swap and avoided the required regulatory regime, and CME Group CEO Terrence Duffy said earlier in the week that perpetual futures should be regulated as swaps.
How does derivatives classification affect market access?
The classification determines the venue, compliance framework, capital rules, reporting duties, and customer protections that apply to derivatives products. A product classified as a futures contract can trade under one framework, while a swap may trigger a separate set of rules around registration, clearing, reporting, and participant eligibility, affecting which firms can list contracts and how easily retail users can access them.
