SEC joins stock perps fight as jurisdictional gap widens

Briefing closed Tuesday on a preliminary injunction motion that will determine whether Kalshi, Coinbase Derivatives, and Bitnomial can keep offering perpetual futures on US stocks — or whether those contracts belong to a different regulator entirely.

The Capital Markets Alliance, whose members include Cboe and Citadel Securities, filed suit in Manhattan on November 3, the day the CFTC allowed the contracts to list as security futures. Its argument is straightforward: perpetual contracts that never provide for delivery of an underlying stock look like swaps, and swaps fall under SEC authority, not the CFTC's. Judge Valerie Caproni, handling the emergency request the day the suit was filed, found the alliance likely to show the CFTC had exceeded its authority. That is a significant early concession from the bench.

The SEC's decision to file a brief in support of the CFTC is the part that the reporting has not fully connected yet. The agency took care to avoid saying whether the contracts are futures or swaps — the alliance's reply brief notes that explicitly, treating the SEC's silence on the classification question as an admission that the agency has not decided. The SEC has until December 31 to review whether the exchanges' rules for the products comply with its own standards. So the two regulators are coordinating in court while the more consequential jurisdictional call remains open.

I have seen this dynamic before. When two agencies present a united front in litigation while the underlying turf question is unresolved, the litigation outcome often arrives before the regulatory answer does. That sequencing is dangerous for everyone who has already committed capital to these contracts. Kalshi began offering exposure on roughly fifty US stocks and ETFs on November 5. Cboe reported approximately $375 million in notional volume on the second day of trading. That is not a pilot program — that is a market that now has to live with whatever Judge Lorna Schofield decides on the preliminary injunction.

Citadel Securities made the cleaner argument last September, before any equity perpetual was approved: a firm should not be able to choose its regulator by how it labels a product. That principle, if the court accepts it, forecloses the CFTC's current position entirely. The CFTC counters that the alliance lacks standing — that it is a litigation vehicle rather than a genuine membership organization. If that argument lands, the injunction fight collapses on a procedural ground and the contracts continue trading while the deeper question drifts.

My inclination is toward downside scenarios, and I am adjusting for that here. The more probable path is that Schofield denies the preliminary injunction on the harm standard — Caproni already found that Cboe and Citadel described possible harm rather than probable harm — which means trading continues through whatever appeals follow. But the SEC's December 31 deadline introduces a scenario the market appears to be underweighting: the agency could overturn the exchanges' own rules, independent of how the litigation resolves. That would not require a court order. It would require one agency deciding, quietly, that the other moved too fast.