By Townhall Chicago News Staff
Chicago-based Cboe Global Markets on Tuesday joined a legal challenge to the Commodity Futures Trading Commission’s approval of single-stock perpetual derivatives contracts, calling the move a threat to investor protections that have governed U.S. securities markets for more than 90 years.
The action, filed by the Capital Markets Alliance alongside Citadel Securities and the Healthy Markets Association, asks a court to block the CFTC-approved contracts from trading, according to a Cboe news release.
“Cboe has joined this action alongside some of the largest U.S. market participants and investor advocates because we believe the CFTC’s actions threaten to erode the regulatory framework that has protected investors and governed U.S. securities markets for more than nine decades,” Craig Donohue, CEO of Cboe Global Markets, said in the release.
Single-stock perpetual derivatives are contracts tied to the price of individual stocks that do not expire. They are among several securities-related products that have been approved for trading on CFTC-regulated platforms rather than traditional securities exchanges overseen by the Securities and Exchange Commission.
Donohue argued in the statement that these products belong on registered securities platforms under the regulatory protections established by Congress for securities markets.
“Whether tied to individual issuers, broad-based security indices, corporate events, or other securities-related outcomes, these securities products belong on registered securities platforms and should be subject to the investor protections, oversight, and safeguards required under U.S. securities laws,” Donohue said.
The CEO noted that Cboe’s objection is not driven by competition alone. The company operates CFTC-regulated platforms and could bring similar products to market on those venues, he said in the release.
“This issue, however, is about investor protection for securities trading and the rule of law,” Donohue said. “When securities products are permitted to trade outside that framework, it creates regulatory arbitrage, bypasses both federal and state laws, and undermines the integrity of those markets.”
The challenge comes during a period of rapid growth for Cboe. The company reported record third-quarter results on Oct. 30, with net revenue of $712.2 million, an 18 percent year-over-year increase, according to a separate Cboe earnings release. Diluted earnings per share reached a quarterly record of $4.08, up 43 percent.
Cboe launched the world’s first listed options exchange in 1973 and pioneered products including S&P 500 index options and the VIX Index, according to the company. Today the company operates derivatives, equities and foreign exchange markets.
The dispute centers on where regulatory authority lies for financial products that are tied to individual securities but structured as derivatives. The CFTC oversees futures and commodities markets, while the SEC regulates securities. The boundary between the two has become a growing point of contention as new product types blur traditional categories.
“The CFTC has authorized a multitude of filings for securities-related products that break with decades of precedent and its own prior determinations, without providing a clear public explanation of the legal basis for doing so,” Donohue said in the statement.
Cboe said it is seeking injunctive relief to resolve the regulatory uncertainty.
