Key Points

• The approval of CFTC has expanded U.S. access to sustainable derivatives.
• Wall Street exchanges question leverage and clearing protection measures
• Legal disputes may reshape the rules for cryptocurrency derivatives

The Commodity Futures Trading Commission (CFTC) of the United States, which is pushing to include sustainable futures in regulated markets, is facing growing resistance from Wall Street. Major exchanges have warned that high-leverage contracts could expose investors to sudden liquidations and lead to broader market instability.

Disputes arose after Chairman Michael Selig announced on November 3rd that perpetual futures linked to individual stocks could be further developed once they became tradable on eligible US exchanges. This decision was made following the approval of Bitcoin perpetual futures in May, continuing the trading model that had previously been mainly concentrated on overseas cryptocurrency platforms.

CME Group and the alliances involving Cboe Global Markets and Citadel Securities are now challenging the practices of regulatory authorities, arguing that existing futures regulations may not be sufficient to address the risks associated with these products.

Wall Street questions the classification of CFTC as a sustainable futures product

Unlike traditional futures, perpetual contracts do not have a fixed expiration date. Traders can hold positions indefinitely, but they must meet margin requirements and pay a funding rate periodically to keep the contract price in line with the underlying market.

These features make perpetual futures quite popular among cryptocurrency traders, especially those who wish to obtain leverage exposure without having to repeatedly roll over expiring contracts.

However, after CFTC approved perpetual bitcoin futures in May, it sparked opposition from established derivatives operators.

CME believes that perpetual contracts are more akin to swaps, as they involve continuous payments of funds and do not have a traditional settlement date. Swaps typically face different regulatory requirements, involving capital, reporting, and collateral.

The exchange's previous legal challenges have become part of a larger controversy surrounding whether regulatory authorities are applying the correct investor protection measures to cryptocurrency-style products.

Automated liquidation raises concerns about market stability

Sustainable futures can amplify both gains and losses, as traders may control positions larger than their initial collateral.

For example, with a leverage of 20 times, traders only need to deposit $1,000 in margin to gain a market exposure of $20,000. If there is an adverse price movement of about 5%, the initial margin may be depleted before any fees and maintenance margin requirements are deducted.

When the collateral falls below the required level, the trading platform may automatically close the position to limit further losses.

Such forced selling could exacerbate the market downturn, leading to a chain reaction similar to the previous wave of Bitcoin liquidations.

CME CEO Terry Duffy has repeatedly warned about leverage risks, believing that expanding access to perpetual contracts may increase the risks for inexperienced traders.

Despite facing legal challenges, Coinbase and Kalshi still see opportunities.

Regulatory expansion has also brought opportunities for new financial platforms.

Kalshi has entered the regulated sustainable futures sector, while Coinbase continues to expand its derivatives infrastructure in the United States after obtaining approval from the clearinghouse.

Webull has also announced plans to launch perpetual futures for cryptocurrencies through the infrastructure of Kalshi, which may further expand the range of retail investors who can participate.

Supporters believe that bringing perpetual contracts under U.S. regulation can provide greater transparency and customer protection than concentrating transactions on overseas exchanges.