CFTC continues efforts to integrate perpetual digital commodity contracts into regulated US derivative markets: Staff relief provides exchanges with expedited path to convert “perpetual-style” contracts into true perpetuals

Summary

Earlier this summer, Commodity Futures Trading Commission (CFTC) staff issued a no-action letter (CFTC Letter No. 26-19) to give designated contract markets (DCMs)—CFTC-registered derivatives exchanges¹—a conditional, time-limited window to convert certain existing “perpetual-style” digital commodity futures contracts into true perpetual contracts.² The issuance of the staff no-action letter followed Commission-level action, in May, to clarify the regulatory treatment of digital commodity perpetual contracts. The no-action letter represents yet another step in the CFTC’s efforts to integrate digital commodity perpetual contracts into regulated US derivatives markets. 

Background 

Unlike traditional futures contracts, perpetual contracts do not have a fixed expiration date. Instead, they typically rely on a periodic funding rate mechanism to maintain alignment between the price of the perpetual contract and the underlying asset’s spot price. This mechanism provides for periodic payments between the long and short sides of the contract, “the direction and magnitude of which is generally determined by the difference between the perpetual contract’s market price and the underlying asset’s spot price.”³

On May 29, 2026, the CFTC issued an order approving the listing for trading as a futures contract, by DCM KalshiEX LLC, of a cash-settled perpetual contract on the spot price of bitcoin.⁴ In the order, the CFTC stated that Commission approval of the contract was informed in part by certain characteristics of the bitcoin spot market, including the deep and liquid trading that exists in that market, and the fact that the market trades on a 24/7 basis across broadly distributed spot trading venues.⁵

In the order, the CFTC also stated that the listing by DCMs for trading, as futures contracts, of other similarly structured perpetual contracts “that reference the spot price of bitcoin or other digital commodities that have deep, active, and continuous spot market trading” would not violate the Commodity Exchange Act (CEA) or the CFTC’s regulations thereunder.⁶ The CFTC emphasized in the order that this position did not extend to perpetual contracts on asset classes other than digital commodities, which the CFTC said would be evaluated on a case-by-case basis in light of the jurisdictional and market attributes of the underlying asset class. To further underscore this point, concurrently with its approval order the CFTC issued a policy statement conveying its view that, since perpetual contracts tend to vary based on the asset underlying the contract, it would be appropriate for perpetual contracts involving asset classes not contemplated in the order to be submitted to the CFTC for approval on a case-by-case basis.⁷

DCM requests to convert existing “perpetual-style” futures contracts into true perpetual contracts

Prior to the issuance of the CFTC’s order signaling that certain digital commodity perpetual contracts may be listed for trading as futures contracts, some DCMs had listed “perpetual-style” digital commodity futures contracts that included long-dated expirations—for example, expiration dates 25 years in the future. Following the issuance of the CFTC’s order, two DCMs who listed these types of “perpetual-style” contracts—Bitnomial Exchange, LLC (Bitnomial) and Coinbase Derivatives, LLC (Coinbase)—sought relief from staff of the CFTC’s Division of Market Oversight (DMO) to facilitate the removal of the contracts’ expiration dates and convert the contracts into true perpetual contracts. 

Typically, when a DCM seeks to amend the terms and conditions of an existing derivatives contract, the DCM must submit the amendments to the CFTC in advance. The DCM can submit the amendments for affirmative CFTC approval, or the DCM can “self-certify” the amendments by including with its submission a certification that the amendments comply with the CEA and the CFTC’s regulations. In almost all cases, DCMs elect to self-certify amendments to contract terms and conditions.

Self-certified amendments are generally subject to a 10-business day review period before the amendments can become effective, and the CFTC has the ability to stay the amendments if, among other things, they raise novel or complex issues that require additional time to analyze, or they are potentially inconsistent with the CEA or the CFTC’s regulations. Self-certified amendments that are stayed are subject to a 90-day review period, and the CFTC may ultimately object to the self-certification of the amendments if the CFTC determines that they are inconsistent with the CEA or the CFTC’s regulations. 

Coinbase and Bitnomial requested staff no-action relief from the 10-business day review period for amendments to remove the expiration dates from their existing “perpetual style” digital commodity futures contracts, in order to convert the contracts into true perpetual contracts. Among other things, Coinbase submitted that its relief request was narrowly tailored and aligned with the CEA’s objective to promote “responsible innovation and fair competition.”⁸ Additionally, Coinbase submitted that subjecting the amendments to a 10-business day review period would introduce unnecessary market confusion regarding its “perpetual style” contracts.⁹ Bitnomial stated that it had notified all of its customers about its proposed amendments to remove the expiration dates from its “perpetual style” contracts, and that Bitnomial was unaware of any market participant holding a position in the contracts who objected to the proposed amendments.¹⁰

CFTC staff no-action relief 

In response to Coinbase’s and Bitnomial’s requests, DMO issued CFTC Letter No. 26-19—a time-limited and conditional no-action letter stating that DMO would not recommend enforcement action against a DCM that implemented, with immediate effect (i.e., without waiting 10 business days), amendments to remove the expiration dates from existing “perpetual-style” digital commodity futures contracts in order to convert those contracts into true perpetual contracts. The letter applied to all DCMs, not just Coinbase and Bitnomial, and provided a limited period of time—until June 30, 2026—for DCMs to make the conversion. The letter also established a number of conditions that needed to be satisfied before a DCM could make amendments to contract terms and conditions in reliance on the letter.

The conditions to the no-action letter required a DCM to:

• only amend existing “perpetual-style” futures contracts that referenced the spot price of bitcoin or other digital commodities with “deep, active, and continuous spot market trading,” consistent with the CFTC’s May 29, 2026 approval order
• solicit feedback from market participants with open positions in the existing contracts regarding any potential adverse impacts the amendments might have on those positions, prior to implementation of the amendments
• provide at least five calendar days’ advance notice to market participants with open positions in the existing contracts, prior to implementation of the amendments
• provide market participants with an opportunity to close out open positions under the existing terms of the contracts
• provide appropriate risk disclosures to market participants regarding the risks associated with amendments to derivative contract terms and conditions
• amend no material contract terms or conditions other than the expiration dates of the existing contracts
• file the amendments in accordance with the CFTC’s Part 40 regulations, which address product and rule submissions by CFTC-registered derivatives exchanges (including DCMs)
• notify DMO of the DCM’s intent to rely on the no-action letter, and include in the notification a certification that the DCM complied with the conditions set forth in the letter, as well as an identification of the existing contracts that the DCM intended to amend¹¹

Amendments to contracts with open interest: special considerations

While granting the requested no-action relief, DMO noted in CFTC Letter No. 26-19 that, as a general matter, self-certified amendments to the terms and conditions of a “perpetual-style” futures contract, in order to convert the contract into a true perpetual contract, likely would raise novel and complex issues that would merit a stay—particularly for contracts that have open interest.

To that end, DMO devoted substantial attention in the letter to the practical consequences of amending the terms and conditions of a derivative contract that has open interest. DMO noted that, where open interest exists in a contract, the announcement or implementation of changes to contract terms and conditions can potentially affect prices. This could cause some contract holders to experience losses, and others to experience benefits, depending on their market position. DMO further observed that such amendments can have unpredictable outcomes, including for price discovery and hedging purposes. DMO therefore emphasized that when a DCM seeks to amend the terms and conditions of a derivative contract with open interest—particularly material terms and conditions such as the expiration date—there “must be meaningful consideration of the potential adverse impacts on the diverse sets of market participants with existing positions in the contract.”¹²

Key takeaways 

CFTC Letter No. 26-19 represents another step in the CFTC’s efforts to integrate perpetual digital commodity contracts into regulated US derivatives markets. 

The no-action letter provided DCMs with an expedited path to convert existing “perpetual-style” digital commodity futures contracts into true perpetual contracts. For market participants, this may have helped to reduce liquidity fragmentation between “perpetual-style” contracts and newly approved true perpetuals, by allowing existing open interest to remain in economically comparable products following conversion. It may also have helped to facilitate the sunsetting of a contract category—“perpetual-style” futures—whose meaning and function may not have been completely clear to market participants, including, in particular, retail market participants. 

The limited duration of the relief granted in the no-action letter, and the focus in the letter on the potential concerns raised by amending the terms and conditions of derivative contracts with open interest, signals that the relief granted in the letter is intended to be transitional, and exceptional—designed to support the very specific policy objective of clarifying the regulatory framework for digital commodity perpetual contracts, in a manner that promotes “responsible innovation and fair competition”—rather than as a broader precedent for any similar future relief. Further, the conditions attached to the relief granted in the letter—which focus on ensuring meaningful protections for market participants holding open positions in existing “perpetual style” contracts—signal that the CFTC is attempting to balance measures to integrate perpetual digital commodity contracts into the existing US regulatory framework, with measures to ensure that market participants and market integrity are protected in connection with this integration.

As CFTC-registered exchanges continue to develop perpetual products and the CFTC continues to evaluate broader policy questions surrounding these products, market participants should closely monitor additional staff and Commission-level actions in this rapidly evolving area of derivatives regulation. 

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