U.S. regulators plan to reconsider the definition of swaps: CME's lawsuit against CFTC accelerates the process
The U.S. Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have announced a joint request for public comment aimed at updating and clarifying the definitions of certain derivative instruments. In my opinion, this step is a long-overdue attempt to bring clarity to a regulatory framework that has failed to keep pace with market developments, and it is directly linked to the recent lawsuit filed by the CME exchange against the CFTC.
What exactly do regulators want to clarify
The request covers a wide range of issues, including the basic definitions of "swaps" and "security-based swaps," as well as what does not fall under these concepts. Particular attention is paid to new products, such as event contracts on prediction markets and perpetual futures (perpetual swaps), which have long been in a "gray area" of regulation in the U.S.
CFTC Chairman Michael Selig stated that the goal is to eliminate long-standing ambiguities in Title VII of the Dodd-Frank Act, which, he said, have hindered fair competition and responsible innovation. SEC Chairman Paul Atkins called the clarification of definitions "long overdue." From my perspective, this is an acknowledgment that the current regulatory architecture is inadequate for modern hybrid products that combine features of futures and swaps.
The essence of the dispute between CME and CFTC
The catalyst for the escalation was a lawsuit filed by CME Group against the CFTC. The reason is the regulator's decision to allow the Kalshi platform to trade perpetual futures (perps) and classify them as futures contracts. CME argues that in approving perps, the CFTC chairman ignored the existing definition of a "swap" and bypassed the established regulatory process.
According to CME, these products should be regulated as swaps. CME Group CEO Terrence Duffy previously stated that perpetual futures are economically equivalent to swaps. The core of the complaint is that by allowing Kalshi and other platforms to list cryptocurrency perps as futures, the CFTC has effectively created new competitors for CME in the retail segment.
In response, the CFTC is seeking to dismiss the case, arguing that the lawsuit contradicts the Donald Trump administration's policy of supporting innovation. This dispute is a classic example of a conflict between traditional exchanges protecting their market share and a regulator trying to stimulate competition.
My analysis: The CFTC and SEC initiative is an attempt to seize the initiative and legalize existing market realities. The CME lawsuit only accelerated this process, showing that without clear rules, the game turns into a field for legal battles. For the crypto market, this is a positive signal: clarity in defining what constitutes a swap versus a futures contract will pave the way for legal and regulated products, especially in the digital asset derivatives space. However, as always, the devil is in the details—the final wording will be crucial for the future of the entire industry.