TD Cowen says CME has the upper hand in lawsuit against CFTC over crypto perpetual futures

The U.S. derivatives market is witnessing a landmark legal battle that could reshape the regulatory landscape for cryptocurrency products. On one side stands the Commodity Futures Trading Commission (CFTC), which recently approved Bitcoin perpetual futures—commonly known as "perps"—for U.S. exchanges Kalshi and Coinbase. On the other stands CME Group, the world's largest derivatives exchange, which has sued the agency over these approvals.

According to investment bank TD Cowen, CME Group holds the stronger legal position in this dispute. This article examines the arguments, the stakes, and what the outcome could mean for the future of crypto derivatives in America.

The Legal Dispute: Perpetual Futures vs. Swaps

At the heart of the lawsuit is a fundamental legal question: can a product that never expires legally qualify as a futures contract?

CME Group, which filed its lawsuit on June 18, 2026, in the U.S. District Court for the District of Columbia, argues that the Commodity Exchange Act (CEA) requires a futures contract to involve delivery—or its equivalent—at a set time in the future. Because perpetual futures have no expiration date, CME contends they should instead be regulated as swaps, which are subject to a different regulatory regime.

This distinction is not merely academic. The classification determines which regulatory framework applies, affecting everything from margin requirements to tax treatment. Swap dealers face registration requirements and five-day margin rules, while futures generally operate under one-day margin requirements and receive more favorable tax treatment.

CME CEO Terry Duffy framed the issue in stark terms, accusing CFTC Chair Michael Selig of acting unilaterally. "With one stroke of his pen, [Selig] overrode Congress's definition of the term 'swap' and circumvented the regulatory regime Congress required for that form of derivative," CME stated in its filing.

TD Cowen's Analysis: Why CME Has the Upper Hand

TD Cowen's analysis, led by managing director Jaret Seiberg of the Washington Research Group, identifies several strengths in CME's case.

Strong Procedural Arguments

First, Seiberg points to the CFTC's own handling of the matter. The agency had previously treated perpetual contracts as swaps and sought public comment on the issue in April 2025. However, when it came time to approve Kalshi's Bitcoin perpetual futures, the CFTC issued its decision in a single day without issuing a formal regulation or adequately explaining its change in position.

Seiberg argues that this may violate the Administrative Procedure Act (APA), which requires agencies to engage in reasoned decision-making and provide adequate justification for their actions. Kalshi's application, he notes, relied on case law that predates Congress's creation of a regulatory framework for swaps, raising further questions about the legal basis for the approval.

Substantive Arguments on the Definition of a Future

The substantive legal question—whether a product with no expiration date can legally be classified as a future—also favors CME, according to Seiberg. The Commodity Exchange Act's definition of a futures contract contemplates a specified delivery date. Perpetual contracts, by their very nature, lack this feature, making them more akin to swaps under the law.

This interpretation could have far-reaching implications. CME holds exclusive benchmark licenses for major price indices, and if crypto perps are classified as swaps, any contract referencing those benchmarks would need to route through CME's infrastructure.

The Benchmark Licensing Angle

CME has emphasized its exclusive licensing arrangements for major price indices. CEO Duffy told CNBC's Fast Money: "We have an exclusive license with every single provider of the benchmarks. They would have to list them as swaps, if that's the way it came out".

This commercial angle adds another layer to the legal dispute. If the court rules that perps are swaps, it could effectively force platforms like Kalshi and Coinbase to route their products through CME's infrastructure, giving the incumbent exchange a significant competitive advantage.

The CFTC's Defense and the Trump Administration's Crypto Agenda

The CFTC has pushed back forcefully against CME's lawsuit. A spokesperson accused CME of engaging in "lawfare" against the agency and the Trump Administration's pro-innovation agenda, calling the lawsuit "frivolous".

CFTC Chair Michael Selig, who approved Kalshi's Bitcoin perpetual contract on May 29, 2026, has argued that perps trade "very similarly" to other derivatives and are "good for investors". In a CoinDesk op-ed, Selig framed the approval as a major step forward in delivering on President Trump's goal of cementing America as the crypto capital of the world.

Selig argued that perpetual contracts were first theorized in a 1992 discussion paper by Nobel-prize winning economist Robert Schiller and have since become a foundational risk management and price discovery tool in global crypto markets. By keeping these products offshore, he contended, the U.S. was pushing liquidity to unregulated venues and putting American firms at a competitive disadvantage.

The CFTC's approval of Kalshi's BTCPERP contract was accompanied by a policy statement indicating that the case-by-case review process under Regulation 40.3 is appropriate for listing perpetual contracts on asset classes not covered by the Kalshi order. This suggests the agency is prepared to approve more such products in the future, provided they undergo the appropriate review process.

Industry Reactions and Market Implications

The lawsuit has drawn sharp reactions from industry participants. A Kalshi spokesperson reportedly said, "This isn't about the law, it's about the fear of competition". Coinbase, whose U.S. customers can access its global perpetual products through an affiliate, has backed the CFTC's approach, arguing that competition and innovation benefit U.S. markets.

The stakes are significant. Kalshi's Bitcoin perpetual contract crossed $1 billion in trading volume within days of its May launch—a milestone its original prediction market business took 40 months to reach. The product clearly has strong market demand, and its approval opened the U.S. market for the first time.

If CME wins its lawsuit, the U.S. perps market could face two scenarios: the product gets blocked entirely, or it gets reclassified as a swap and rerouted through CME's own rails. Either outcome would significantly disrupt the current market participants who have already built businesses around the new product.

Broader Regulatory Context

The lawsuit unfolds against a backdrop of broader regulatory developments. The CFTC and SEC jointly requested public feedback on updating and clarifying derivatives rules, covering topics including the definitions of "swaps" and "security-based swaps," the scope of existing exemptions, and how newer products such as prediction market event contracts and perpetual futures should be treated.

On March 17, 2026, the SEC, with the CFTC's concurrence, issued a landmark joint interpretation clarifying how federal securities and commodity laws apply to crypto assets. The interpretation establishes a taxonomy classifying crypto assets into five categories: digital commodities, digital collectibles, digital tools, stablecoins, and digital securities.

These regulatory developments suggest that both agencies are attempting to bring clarity to the crypto derivatives market, even as the legal battle over perpetual futures continues.

What to Watch Next

TD Cowen expects CME to seek a preliminary injunction to block perps while the case proceeds. A preliminary injunction is a temporary court order that pauses an action while a lawsuit is ongoing. The court's timeline and any early rulings will be key developments to watch, according to Seiberg.

The case is likely to set a precedent for how the U.S. regulates innovative financial products like perpetual futures, with potential ripple effects across both traditional and crypto markets. Traders and institutional players will be closely watching for developments, as any court decision could reshape the competitive dynamics in the derivatives space.

Conclusion

TD Cowen's analysis suggests that CME Group has the stronger legal position in its lawsuit against the CFTC over crypto perpetual futures. The combination of procedural arguments under the Administrative Procedure Act and substantive arguments about the definition of a futures contract puts CME on solid legal footing.

However, the case is far from decided, and the CFTC has shown no willingness to back down. Chair Selig has framed the approval of perpetual futures as a matter of national competitiveness and American leadership in crypto innovation. The outcome of this lawsuit will have significant implications for the U.S. derivatives market, the crypto industry, and the future of financial regulation.

For market participants, the case represents both an opportunity and a risk. If CME prevails, it could cement its dominance in the derivatives space while potentially limiting innovation in crypto products. If the CFTC prevails, it could open the door to a new generation of regulated crypto derivatives products, but at the cost of legal uncertainty and potential regulatory overreach.

Either way, the case is a pivotal moment for the intersection of traditional finance and crypto innovation, and its outcome will be closely watched by regulators, market participants, and investors alike.

Frequently Asked Questions

Q1: What is the core legal question in the CME vs. CFTC lawsuit?

A: The central issue is whether perpetual futures—contracts that never expire—can legally be classified as futures contracts under U.S. law. CME argues they should be classified as swaps, while the CFTC has approved them as futures.

Q2: Why does the classification of perpetual futures matter?

A: Futures and swaps are subject to different regulatory frameworks. Swap dealers face registration requirements and five-day margin rules, while futures generally have one-day margin requirements and receive tax advantages that swaps do not.

Q3: What is a preliminary injunction, and why would CME seek one?

A: A preliminary injunction is a temporary court order that pauses an action while a lawsuit is ongoing. CME is expected to seek one to block perps from trading while the case proceeds.

Q4: What was the CFTC's rationale for approving perpetual futures?

A: CFTC Chair Michael Selig argued that perps are already widely traded offshore and that bringing them onshore would promote responsible innovation, limit systemic risk, and advance President Trump's goal of making America the crypto capital of the world.

Q5: How does the benchmark licensing issue factor into the case?

A: CME holds exclusive benchmark licenses for major price indices. If perps are classified as swaps, any contract referencing those benchmarks would need to route through CME's infrastructure, potentially giving CME a competitive advantage.

Q6: What happens if CME wins the lawsuit?

A: If CME wins, the U.S. perps market could face two scenarios: the product gets blocked entirely, or it gets reclassified as a swap and rerouted through CME's own rails, disrupting current market participants.

Q7: How quickly did Kalshi's Bitcoin perpetual contract gain traction?

A: Kalshi's Bitcoin perpetual contract crossed $1 billion in trading volume within days of its May 2026 launch—a milestone its original prediction market business took 40 months to reach.

Q8: What broader regulatory developments are occurring alongside this lawsuit?

A: The CFTC and SEC have jointly requested public feedback on updating derivatives rules, and they issued a joint interpretation in March 2026 establishing a classification framework for crypto assets.