Perpetual Futures Come Onshore: The CFTC's New Regulatory Framework

The CFTC's new regulatory framework for crypto perpetual futures marks a pivotal shift, bringing these financial products onshore and enhancing market clarity for traders.

In a significant move, the Commodity Futures Trading Commission (CFTC) has taken steps to regulate the $1 trillion market for crypto perpetual futures, welcoming these financial products onshore after years of regulatory uncertainty. What does this mean for traders and the future of crypto regulation in the U.S.? What Are Perpetual Futures? Perpetual futures, often referred to as "perpetuals" or "perps," are derivatives that uniquely have no scheduled expiration. They gained in popularity due to their flexibility and continuous trading nature allowing traders to speculate on asset values without being tied to a specific settlement date. Instead of converging with spot prices through expiring contracts, they utilize a periodic funding rate, which creates a dynamic balance between long and short positions. Why the Delay in Regulation? The regulatory status of perpetual futures has been contentious, with debates surrounding their qualification as futures under the Commodity Exchange Act (CEA). Given that neither the CEA nor CFTC regulations provide a clear definition of "futures," this ambiguity has prompted courts to evaluate cases based on characteristics typically associated with futures, such as standardization and fungibility. The central question has been whether an instrument without a fixed termination date can still satisfy the traditional "futurity" requirement. What Changes Did the CFTC Announce? On May 29, the CFTC took three substantial actions to create a supportive framework for perpetual futures: The Commission approved a bitcoin perpetual futures contract for listing on a registered designated contract market (DCM). A detailed policy statement was issued setting forth the expectations for future submissions involving perpetual contracts. Interpretive and no-action relief was provided, enabling a registered futures commission merchant (FCM) to facilitate customer access to foreign-listed perpetual futures products. Chairman Michael S. Selig described th