On June 4, Terry Duffy, CME Group’s chief, blasted perpetual futures, calling them “a disaster waiting to happen.” He warned that U.S. regulators could destabilize financial markets by allowing U.S. investors access to perpetual futures.
Shares of major U.S. exchange operators are falling as investors worry these futures will shift competition across asset classes, according to Reuters.
The CFTC opened the U.S. perps market on May 29
The Commodity Futures Trading Commission approved the first U.S.-regulated perpetual futures contract offered by Coinbase and Kalshi on May 29.
Unlike traditional futures, perpetual ones never expire, allowing traders to hold them indefinitely. They also come with serious leverage, up to 50-to-1, which means an entire position can vanish on a price swing of just 2%.
Such contracts have traded on offshore platforms like Binance, Bybit, and Hyperliquid for some time. The CFTC bringing them onshore was about extending U.S. regulatory safeguards rather than leaving the risks in uncharted territory, according to Katten Muchin Rosenman.
As Cryptopolitan earlier reported, CFTC Chairman Michael Selig said the agency would bring “true” perpetual futures onshore within weeks, moving ahead of Congress rather than waiting for broader crypto market-structure legislation.
Retail traders do not grasp how funding costs drain their positions
Duffy argued that legitimate market function “has been supplanted by the speculation market, and that does not suit anyone’s interest.” He is particularly worried about retail investors.
Retail users often rely on auto liquidation systems that kick in during price drops, pushing traders out whether they like it or not. Many regular investors do not understand how funding rate costs chip away at their positions, Duffy said. He is concerned that unprepared individuals end up liquidated from contracts they should not be part of in the first place.
Duffy also feels the CFTC rushed approvals for these complex products. He noted the product is both novel and complicated, as the agency itself described it, and argued the CFTC shortcut its thorough review guidelines when it okayed them.
Cboe fell 9%, CME lost 4% as investors priced in new competition
The approval of the first US-regulated perpetual crypto futures contract sent traditional exchange operators’ stocks lower. Cboe Global Markets dropped 9% on June 2, and CME and Intercontinental Exchange, the NYSE parent, each fell about 4%.
Investors fear regulators might approve similar futures in equity and commodity markets, putting direct competition in front of existing derivatives platforms.
“The question will be how quickly perps get approved across other asset classes, such as equities and commodities,” TD Cowen analyst Bill Katz said.
Perps target retail speculation, not institutional hedging
Despite the market anxiety, several Wall Street analysts believe big stock exchanges will not be harmed much in the short run. Raymond James’ Patrick O’Shaughnessy said that perps “are not designed for hedging, but rather retail-oriented speculation,” which makes it hard to believe they will replace existing liquidity.
RBC’s Ashish Sabadra agreed, saying the competitive risk is manageable due to structural differences between perps and traditional futures. Even Duffy downplayed any threat to CME’s business, noting that 85% to 90% of its volume comes from institutional clients who have little use for perpetual contracts.
The CFTC will review each perpetual futures application on its own merits. If the asset class is something like agricultural products, precious metals, or equity securities, full compliance with Regulation 40.3 could be required.
Whether Duffy’s systemic-risk warning extends beyond crypto depends on whether applications for those other asset classes get submitted.
