Represented by former Solicitor General Elizabeth Prelogar at Cooley LLP, HPC filed an amicus brief in the U.S. District Court for the District of Columbia urging the court to dismiss CME’s lawsuit against the CFTC challenging the first perpetual futures contract approved for a U.S.-regulated exchange. Our brief highlights two defects in CME’s lawsuit: CME has no injury that gives it standing, and CME’s interest in blocking innovation in the futures markets falls outside the interests the Commodity Exchange Act protects.

CME’s lawsuit is an attempt to halt innovation in the U.S. futures markets. Earlier this year, the CFTC approved the first-ever true perpetual futures contract listed on a U.S.-regulated exchange. In doing so, it confirmed that every U.S. derivatives exchange, including CME, can list the same type of contract. At least for now, CME has decided not to. But instead of leaving other futures exchanges to make their own commercial decisions, CME has asked a court to take the decision out of their hands. We filed this brief because CME’s anticompetitive effort must fail.

Although rarely the focus of public discourse, the U.S. futures markets are fundamental to our daily lives. These markets allow companies and individuals to plan, borrow, and invest by connecting them with counterparties willing to take on risks that they cannot carry alone. As a result, they are the primary mechanism for managing risk across the real economy: without them, farmers could not price crops before planting; airlines could not fix fuel costs before flying; and homebuyers could not lock in mortgage rates before closing. The same markets anchor the prices of essential commodities in global trade.

The strength of the U.S. futures markets has always depended on their capacity to change with the times. Futures markets began with grain in 1850s Chicago and, through decades of relentless innovation, grew to encompass thousands of different products and serve millions of people across the world. CME deserves much of the credit. It brought the first currency futures, cash-settled contracts, and electronic futures trading platform into the United States.

Perpetuals are the latest product of that tradition of innovation. Put simply, a perpetual is a futures contract with no expiration date. Perpetuals regulated under the Commodity Exchange Act share all the defining features of dated futures: they have standardized terms, match on a central order book, require margin on both sides, clear through a registered clearing house, and may be closed through an offsetting trade. The only distinction is the mechanism that each uses to track the price of the underlying asset. Dated futures converge with that price through expiration, while perpetuals converge through a “funding rate,” a small periodic payment between participants that have taken long positions and participants that have taken short positions. Each product is useful to address different types of risk. Dated futures hedge risks that end on a known date, such as crop harvests or bond maturities. Perpetuals hedge risks that do not, such as fuel needs or long-term investment portfolios.

There is already vast global demand for perpetuals. Last year, the notional value of perpetuals traded in global markets was nearly $90 trillion, with contracts referencing digital assets, oil, metals, and more. Yet, due to regulatory uncertainty, not one of those contracts traded on a U.S.-regulated exchange accessible to Americans. Instead, perpetual markets arose entirely offshore: foreign venues earned all the profit, foreign governments earned all the tax revenue, and foreign traders earned all the liquidity and risk management benefits.

This year, the CFTC set out to resolve the uncertainty and bring perpetuals inside the U.S. regulatory perimeter. In May, the CFTC issued an order allowing Kalshi to list a Bitcoin perpetual as a futures contract and confirming that any U.S. derivatives exchange can list a similar perpetual referencing a digital asset without seeking prior approval. The CFTC also issued a policy statement advising exchanges to seek approval before listing perpetuals on other asset classes. These measured steps represent great progress for U.S. futures markets and American end users.

CME now asks a federal court to undo the progress that the CFTC has made. CME offers no basis to establish that the CFTC has caused it any injury; on the contrary, the CFTC created a business opportunity for CME by allowing it to offer a new product and compete for new market participants. CME is well within its rights to sit this one out. But it has no right to ask a court to make the same choice for every other U.S. exchange.

There is more at stake in this case than U.S. access to regulated perpetual futures. Once a titan of innovation, CME now advances a novel theory of standing under which an incumbent exchange is injured whenever its regulator permits a new product that it chooses not to offer. If CME prevails, every product that the CFTC approves will invite litigation from incumbents who prefer the status quo, and the pace of progress in the U.S. futures markets will slow to a crawl. The consequences would be disastrous.

The CFTC is now working to bring other innovations onshore, including onchain markets that trade, clear, and settle on public blockchains such as Hyperliquid, and each would face the same challenge from any incumbent that declines to adopt it. U.S. leadership in global finance depends on the CFTC’s ability to approve products without CME’s permission.

Our brief addresses two defects in CME’s suit:

1. CME lacks Article III standing because it fails to show an injury.  CME relies on the doctrine of competitor standing to supply an injury in fact, but the doctrine applies only where government action intensifies competition in a fixed market so that injury to the plaintiff follows as a matter of economic logic. The CFTC order it challenges does nothing of the kind. It enlarged the market rather than dividing it, opening exchanges to new market participants who would not have traded in dated futures contracts. And it added no new competitors to the marketplace, because Kalshi has been a CFTC-regulated exchange since 2020.
2. CME is an unsuitable challenger because its interests fall outside the zone of interests of the CEA provisions it invokes.  The CEA’s stated purposes include promoting responsible innovation and fair competition among exchanges, and its swap provisions were enacted to promote transparency and oversight of an otherwise opaque, largely unregulated swaps market. CME’s interest in stymying its rivals’ innovation frustrates each of those statutory objectives.

For those reasons, our brief urges the federal district court hearing the case to grant the CFTC’s motion to dismiss CME’s complaint.

Read our full brief here.

Source: HPC