The CFTC and SEC initiate a review of the definition of swaps amid the CME lawsuit.
U.S. regulators — the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) — have announced a joint request for public comment. The initiative aims to review and clarify the definitions of several derivative products, including the concepts of "swap" and "security-based swap." In my opinion, this step is a direct response to the growing legal uncertainty that has become particularly evident in light of the CME exchange's lawsuit against the CFTC.
What exactly do regulators want to clarify?
CFTC Chairman Michael Selig noted that the request is aimed at resolving long-standing ambiguities in Title VII of the Dodd-Frank Act. According to him, these ambiguities have hindered fair competition and restrained responsible innovation. Recall that this section of the law grants the CFTC authority to regulate swaps, except for those based on securities, which fall under the SEC's jurisdiction.
SEC Chairman Paul Atkins called the clarification of definitions "long overdue." The request pays special attention to new products such as event contracts and perpetual futures (perps). For the market, this is a critically important step: clear rules of the game will determine under which regulations these innovative instruments, which have long been in the "gray zone" of U.S. regulation, should operate.
The essence of the dispute between CME and CFTC
The trigger 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, classifying them as futures contracts rather than swaps.
In its lawsuit, CME argues that CFTC Chairman Michael Selig, by approving perps for Kalshi and other platforms, ignored the current definition of a "swap" and bypassed the established regulatory procedure. According to CME, these products should be regulated specifically as swaps. CME Group Chairman Terrence Duffy previously stated that perpetual futures are essentially swaps.
The essence of CME's claim is that by allowing Kalshi and other platforms to list crypto perps as futures, the CFTC effectively created new competitors for CME in the battle for retail clients. In response, the CFTC is seeking to dismiss the case, arguing that the lawsuit contradicts the Donald Trump administration's policy of supporting innovation.
Analytical commentary from Cryptalist: I view this move by the CFTC and SEC as an attempt to preempt a court decision and take control of the rulemaking process. The outcome of the CME case could set a dangerous precedent: if the court sides with the exchange, it could freeze the development of an entire segment of crypto derivatives in the U.S. However, the public discussion of definitions is a signal to the market that regulators recognize the problem and are open to dialogue. For investors, this means we are in for a period of uncertainty in the coming months, but with the prospect of forming a clearer and, hopefully, fairer regulatory framework.