# Wall Street Watchdog Challenges CFTC Approval of Perpetual Stock Derivatives Better Markets files legal brief arguing perpetual futures bypass critical investor protections. - **Source:** [Bitcoin News](https://brifing.si/source/d8aeaf1e-9839-4dad-9d25-7a6bf3fbeef8) - **Published:** 2026-11-12 - **Topic:** [Finance](https://brifing.si/c/finance) - **Original article:** - **On Brifing:** https://brifing.si/s/9e740c0e-a866-4cb1-aa2d-bed74b47353a ## Legal Challenge Against CFTC Better Markets has filed an amicus curiae brief supporting the Capital Markets Alliance in a lawsuit against the Commodity Futures Trading Commission. The legal action targets the commission's recent approval of perpetual derivatives on individual U.S. stocks, which the plaintiffs argue should be classified as security-based swaps rather than futures. ## Jurisdictional Dispute Over Swaps Former SEC Commissioner Allison Herren Lee and Harvard Law Professor John C. Coates argue these perpetual products lack fixed delivery dates. By classifying them as swaps under the Dodd-Frank Act, they contend the products fall under SEC jurisdiction, requiring strict registration and trading on regulated national securities exchanges instead of CFTC oversight. ## Retail Investor Risk Exposure The brief warns that perpetual futures enable six-to-one leverage, creating extreme volatility for retail participants. Because these instruments lack expiration dates and feature automated liquidation, a 16% market movement could result in the total loss of an investor's portfolio, posing significant threats to individual financial stability within the broader market ecosystem. ## Industry Coalition Against Approval The Capital Markets Alliance, representing major entities like Cboe Global Markets, Citadel Securities, and the Healthy Markets Association, is leading the challenge. They demand the court vacate the CFTC approvals, arguing the commission failed to justify its departure from historical precedents that previously categorized these perpetual derivatives as security-based swaps. ## Regulatory Friction and Alignment The conflict highlights a deepening rift between federal regulators and market participants. While the CMA accuses the CFTC of overstepping its authority, the SEC has filed its own amicus brief supporting the CFTC’s rule changes, directly contesting allegations that the commission is acting outside its established legal mandate during this process. ## Mechanics of Shadow Stocks Critics label these perpetual derivatives as shadow stocks due to their speculative nature and high leverage. Unlike traditional futures, these instruments remain open indefinitely, meaning automatic liquidation thresholds can be triggered at any time, including overnight, potentially wiping out retail positions in minutes without the protection of standard market closing hours. ## Historical Precedent and Oversight The dispute centers on whether the CFTC can unilaterally redefine financial products to bypass Dodd-Frank Act protections. By moving these instruments into the futures category, the commission avoids the rigorous registration requirements mandated for security-based swaps, a shift that plaintiffs argue undermines the integrity of the existing U.S. securities regulatory framework. ## Implications for Market Stability This litigation serves as a critical test for the future of retail access to leveraged derivatives. The outcome will determine if the CFTC maintains the authority to approve complex, high-risk products or if the SEC will reclaim jurisdiction, potentially forcing a restructuring of how perpetual derivatives are traded and regulated nationwide. ## Sources covering this story - https://news.bitcoin.com/regulation-and-legal/shadow-stocks-wall-street-watchdog-fights-cftc-stock-perpetuals-push/ — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._