The Hyperliquid Policy Center (HPC) has formally submitted a comprehensive comment to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), advocating for a unified and modernized regulatory framework for perpetual contracts. As federal regulators grapple with the classification of these increasingly popular financial instruments under United States derivatives law, the HPC argues that a harmonized approach is essential to maintaining American competitiveness in the global financial landscape. The policy group specifically contends that equity-based perpetual contracts, which possess the core characteristics of traditional futures, should be classified as security futures to streamline their entry into the regulated US market.
Under existing US statutes, derivatives are primarily categorized into two silos: futures and swaps. This distinction is far from academic, as it dictates the specific rules governing how a product reaches the market, the qualifications of the participants allowed to trade it, and the types of venues—such as Designated Contract Markets (DCMs) or Swap Execution Facilities (SEFs)—permitted to list them. Perpetual contracts, however, challenge this long-standing binary. By design, they share several hallmark features of futures, including standardized contract terms, fungibility across platforms, the element of "futurity" or delayed settlement, and the ability for participants to exit a position by simply taking an offsetting trade.
The Definitional Dilemma of Perpetual Contracts
The primary point of contention in the current regulatory debate involves the lack of a fixed expiration date in perpetual contracts. In traditional futures markets, contracts have a set maturity date—monthly or quarterly—at which point the contract must be settled or rolled over into a new period. Perpetual contracts, as the name suggests, do not expire. To bridge the gap between the contract price and the underlying spot market price, these instruments utilize a "funding rate" mechanism. This involves periodic payments between long and short position holders, ensuring the derivative remains tethered to the underlying asset’s value.
The HPC argues that the absence of a fixed expiry should not be the deciding factor in how these products are classified. In its filing, the group emphasized that the funding payment mechanism serves a functional purpose nearly identical to the "roll" in traditional futures markets. By maintaining price alignment with the underlying market, funding payments perform the economic work of expiration and settlement in a continuous manner. Consequently, the HPC maintains that the lack of a terminal date is a structural evolution rather than a fundamental change in the nature of the derivative.
This argument is central to the HPC’s push for "security futures" classification. Under the Commodity Futures Modernization Act of 2000, security futures—which include futures on individual stocks or narrow-based security indices—are subject to joint oversight by both the SEC and the CFTC. By placing equity perpetuals within this existing framework, the HPC believes regulators can bypass the jurisdictional friction that often delays the introduction of innovative financial products.
Chronology of Regulatory Engagement and Market Evolution
The push for clarity comes at a time of rapid evolution for the US derivatives market. The timeline of recent events highlights a growing urgency among both regulators and industry participants:
- Early 2016 – 2023: Perpetual contracts become the dominant instrument in the global cryptocurrency markets, primarily traded on offshore, unregulated platforms. Despite their popularity, US retail and institutional access remains limited due to regulatory uncertainty.
- May 2024: The CFTC achieves a significant milestone by approving the first US-listed perpetual contracts to trade as futures. This move signaled a willingness by the agency to accommodate the product structure within the traditional commodity futures framework.
- Summer 2024: Following the initial approval, the CFTC noted that equity-based perpetuals—those tracking stocks or narrow indices—would likely require a dual-review process involving the SEC. This raised concerns among market participants about potential "regulatory gridlock" between the two agencies.
- Late 2024: The SEC and CFTC jointly sought public feedback and formal comments on how existing definitions of swaps, security-based swaps, and futures should be applied to newer financial products, specifically highlighting cash-settled equity perpetuals.
- October 2024: The Hyperliquid Policy Center filed its formal comment, providing a roadmap for harmonization and urging the agencies to act through interpretive guidance rather than embarking on a multi-year formal rulemaking process.
A Structural Approach to Classification
The HPC’s proposal advocates for a shift in how regulators determine jurisdiction. Currently, the "underlying asset" often dictates which agency takes the lead. The HPC suggests that classification should instead depend on a contract’s structure and trading characteristics.
"Under this approach, contracts with similar characteristics would receive the same initial classification whether they reference Bitcoin, crude oil, an equity index, or an individual stock," the HPC stated in its filing. The group argues that if a product functions like a future—meaning it is standardized, exchange-traded, and cleared—it should be treated as such. The nature of the underlying asset would then determine which additional safeguards are necessary and which agency provides oversight, but it would not change the fundamental "futures" designation of the product.
This structural consistency is seen as a way to allow securities exchanges (regulated by the SEC) and futures exchanges (regulated by the CFTC) to compete on a level playing field for perpetual products. Historically, jurisdictional disputes between these two bodies have resulted in years of litigation or legislative stalemate, often referred to as "the gap" or "the overlap" in US financial regulation.
Supporting Data: The Scale of the Perpetual Market
To underscore the importance of clear domestic rules, the HPC pointed to the massive trading volumes already occurring in the perpetual space. Over the past ten months, Hyperliquid’s own perpetual markets have facilitated more than $480 billion in trading volume. These markets include contracts tied to a diverse array of assets, including energy (crude oil), precious metals, foreign currencies, broad equity indices, and individual corporate stocks.
The sheer scale of this volume suggests a deep and persistent demand for perpetual instruments. Currently, a significant portion of the world’s perpetual trading occurs on offshore platforms such as Binance, Bybit, and OKX. By establishing a clear, harmonized framework, the US could capture a larger share of this global liquidity, bringing it under the purview of American consumer protection and market integrity standards.
Industry analysts note that perpetuals offer several advantages over traditional futures for modern traders. They eliminate the "basis risk" associated with rolling contracts and provide a more intuitive experience for retail investors who may find the mechanics of expiration dates and delivery months confusing. For institutional players, perps offer a capital-efficient way to hedge portfolios or gain exposure to specific market sectors without the administrative burden of managing a futures calendar.
Official Stances and Potential Implications
The debate over perpetuals touches on a broader philosophical question within US regulation: how to balance innovation with investor protection. CFTC Chairman Michael Selig has previously addressed this tension, noting that the central question facing Washington is not whether perpetual markets will exist, but rather whether they will operate under American oversight or continue to thrive in "shadow" offshore markets.
"The demand for these products is global and immutable," Selig remarked in a recent industry forum. "Our goal should be to ensure that the liquidity for these instruments stays within the perimeter of US regulation, where we can monitor for fraud, manipulation, and systemic risk."
The HPC’s request for regulators to confirm that equity perpetuals can be listed as security futures carries significant implications for the industry. If the SEC and CFTC adopt this view, it could lead to:
- Accelerated Listing Timelines: Exchanges would have a clear path to list new products without fearing retroactive enforcement or jurisdictional challenges.
- Increased Competition: Traditional stock exchanges like the NYSE or Nasdaq could potentially offer perpetual contracts on individual stocks, competing directly with crypto-native and futures-focused platforms.
- Modernization of the 2000 Framework: The security futures framework, which has seen relatively low volume compared to standard futures, could be revitalized by the introduction of perpetual structures.
- Reduced Legal Costs: Clearer definitions would reduce the need for "no-action" letters and expensive legal consultations that currently serve as a barrier to entry for smaller fintech firms.
The Path Forward: Guidance Over Rulemaking
The Hyperliquid Policy Center concluded its filing by urging the agencies to provide clarity through interpretive guidance, policy statements, and staff actions. The group cautioned that formal rulemaking—a process that involves notice, public comment, and potential legal challenges—could take years to complete. Given the pace of financial technology, the HPC argues that the US cannot afford to wait.
By utilizing interpretive guidance, the SEC and CFTC could clarify how existing laws apply to perpetuals almost immediately. This would provide the "rules of the road" necessary for exchanges to begin building the infrastructure for these products.
As the comment period closes, the financial industry will be watching closely to see if the SEC and CFTC can move past their historical rivalry to create a cohesive environment for one of the fastest-growing segments of the derivatives market. The outcome will likely determine whether the United States becomes the global hub for perpetual trading or remains a secondary player in an increasingly decentralized financial world.
