The Hyperliquid Policy Center (HPC) has formally submitted a comprehensive proposal to the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), urging the two primary financial regulators to adopt a harmonized regulatory framework for perpetual contracts. This move comes at a critical juncture as American regulators grapple with the classification of modern derivative products that do not fit neatly into legacy legal definitions. The HPC argues that a clear, consistent approach is essential to maintaining U.S. competitiveness in the global digital asset and derivatives markets while ensuring robust investor protections.
In its official comment filed with the agencies, the HPC—a policy-focused arm associated with the Hyperliquid decentralized trading platform—contended that equity perpetual contracts exhibiting the traditional characteristics of futures should be eligible to trade under the existing "security futures" designation. This classification is significant because it would place these products under a joint oversight regime already shared by the SEC and CFTC, potentially resolving years of jurisdictional friction regarding whether certain crypto-linked or equity-linked products are commodities or securities.
The Regulatory Divide: Futures versus Swaps
Under the current U.S. legal architecture, specifically the Commodity Exchange Act (CEA) and the Securities Exchange Act of 1934, derivatives are generally bifurcated into two distinct categories: futures and swaps. This distinction is far from academic; it dictates every aspect of a product’s lifecycle, including the capital requirements for intermediaries, the venues where the products can be listed, and the specific disclosure requirements for retail participants.
Futures contracts are traditionally defined by their standardized terms, fungibility, and fixed expiration dates. They are traded on designated contract markets (DCMs) and cleared through derivatives clearing organizations (DCOs). Swaps, conversely, were historically bilateral, bespoke agreements, though post-2008 reforms have pushed many into centralized clearing.
Perpetual contracts, however, represent a technological evolution that blurs these lines. Originally popularized in the cryptocurrency markets, perpetuals share almost all the hallmarks of traditional futures—such as standardized terms and the ability to exit a position by taking an offsetting trade—with one notable exception: they never expire. Instead of a settlement date, they utilize a "funding rate" mechanism to ensure the contract price remains tethered to the underlying spot market price.
The HPC Argument: Structure Over Underlying Asset
The crux of the HPC’s proposal is that the classification of a derivative should depend on its structural and trading characteristics rather than the specific asset it references. Under this "structure-first" approach, a contract that functions like a future would be regulated as such, regardless of whether it tracks Bitcoin, crude oil, a traditional equity index like the S&P 500, or an individual stock like Nvidia.
The HPC argues that the absence of a fixed expiry date in perpetuals should not disqualify them from being treated as futures. In traditional futures, the convergence of the contract price and the spot price is forced by the expiration of the contract. In perpetuals, this convergence is managed through funding payments—periodic transfers between long and short position holders. The HPC maintains that because funding payments serve the same economic function as an expiration date, the two products should be treated as functional equivalents under the law.
By classifying equity perpetuals as "security futures," the HPC suggests that regulators can leverage an existing framework designed for products that have characteristics of both securities (the underlying asset) and futures (the contract structure). This would allow both securities exchanges (like the NYSE or Nasdaq) and futures exchanges (like the CME or CBOE) to compete for the listing of these products, fostering a more competitive and liquid marketplace.
A Chronology of Perpetual Regulation in the United States
The push for clarity comes after several years of incremental moves by U.S. regulators. To understand the current landscape, it is necessary to look at the timeline of events that led to the HPC’s filing:
- 2016–2020: Perpetual swaps become the dominant trading instrument in offshore cryptocurrency markets, with platforms like BitMEX and later Binance seeing trillions of dollars in annual volume. U.S. retail investors are largely barred from these markets due to a lack of domestic regulatory approval.
- May 2024: In a landmark decision, the CFTC approved the first U.S.-listed perpetual contracts, allowing them to trade as futures on regulated domestic exchanges. This was seen as a major win for the industry, though it was largely limited to non-security commodities.
- Mid-2024: Following the initial approval, the CFTC noted that perpetuals referencing equities (stocks) might require a dual-review process involving the SEC. This raised concerns about "regulatory double-jeopardy," where a product could be stalled indefinitely while two agencies debate jurisdiction.
- Late 2024: The SEC and CFTC jointly sought public feedback on how existing definitions—specifically swaps, security-based swaps, futures, and security futures—should be applied to the next generation of financial products, including cash-settled equity perpetuals.
- Present: The Hyperliquid Policy Center files its comment, providing a technical and legal roadmap for how these agencies can cooperate without the need for lengthy new rulemaking processes.
Supporting Data: The Scale of the Perpetual Market
The urgency of the HPC’s request is underscored by the massive scale of the perpetual trading market. According to data cited in the HPC filing, Hyperliquid’s own decentralized perpetual markets have facilitated more than $480 billion in trading volume over the past ten months alone. This volume is not limited to crypto-native assets; it includes contracts tied to traditional commodities like oil and metals, major currencies, global equity indices, and individual corporate stocks.
On a global scale, perpetual swaps often account for more than 75% of all crypto-related derivative trading volume. By contrast, the U.S. market has historically been dominated by traditional dated futures. The HPC argues that the massive volume occurring on decentralized or offshore platforms indicates a significant, unmet demand for these products within a regulated U.S. framework. Bringing this volume "onshore" would provide the SEC and CFTC with greater visibility into market activity and allow them to enforce anti-manipulation and consumer protection standards.
Official Responses and Stakeholder Reactions
While the SEC has remained characteristically cautious, the CFTC has shown a greater willingness to engage with the technical nuances of perpetual contracts. CFTC Chairman Michael Selig has been vocal about the need for American regulators to adapt to technological shifts. Selig has previously stated that the central question facing the U.S. government is not whether perpetual markets will exist—as they are already flourishing globally—but whether they will operate under American oversight and standards or be ceded to foreign jurisdictions.
Industry stakeholders have largely mirrored the HPC’s sentiments. Major digital asset firms and traditional high-frequency trading shops have long complained that the "swaps" designation for perpetuals carries a heavy regulatory burden that makes it difficult to offer these products to retail investors. By moving toward a "security futures" model, the industry believes it can unlock a massive pool of institutional and retail capital that is currently sitting on the sidelines.
However, some consumer advocacy groups have expressed caution. They argue that the lack of an expiry date and the complexity of funding rates could lead to "hidden" costs for unsophisticated investors. These groups suggest that if perpetuals are to be authorized for retail trade, they must come with enhanced disclosure requirements and perhaps leverage limits similar to those found in the retail forex market.
Broader Implications and Analysis
The outcome of this regulatory debate will have profound implications for the future of U.S. capital markets. If the SEC and CFTC adopt the HPC’s recommendations, it could signal the beginning of a "Great Convergence" between decentralized finance (DeFi) and traditional finance (TradFi).
- Elimination of Jurisdictional Gridlock: For decades, the SEC and CFTC have occasionally clashed over the boundaries of their respective domains. A harmonized framework for perpetuals would provide a blueprint for how the agencies can handle other "hybrid" products in the future, reducing the time-to-market for financial innovation.
- Increased Market Liquidity: By allowing equity perpetuals to trade as security futures, the U.S. could attract liquidity that is currently fragmented across various offshore platforms. Higher liquidity generally leads to tighter spreads and better price discovery, benefiting all market participants.
- Modernization Without Legislation: One of the most strategic elements of the HPC’s proposal is the suggestion that regulators can provide clarity through interpretive guidance and policy statements. This bypasses the often-polarized and slow-moving U.S. Congress, allowing the agencies to react in "market time" rather than "political time."
- Global Standard Setting: If the U.S. successfully integrates perpetuals into its regulatory fold, it is likely that other G20 nations will follow suit. This would help create a more unified global standard for derivatives, making it harder for "bad actors" to find regulatory havens.
Conclusion and Next Steps
The Hyperliquid Policy Center concluded its filing by asking the regulators to confirm that qualifying equity perpetuals can be listed as security futures, to preserve the flexibility of exchanges in making listing decisions, and to modernize the security futures framework to reflect the digital-first nature of modern trading.
The ball is now in the regulators’ court. The SEC and CFTC are expected to review the comments from HPC and other market participants over the coming months. Whether they choose to issue a joint policy statement or pursue formal rulemaking remains to be seen. However, as the $480 billion in Hyperliquid volume suggests, the market is moving forward with or without a finalized U.S. framework. The decision made by these agencies will ultimately determine if the United States remains the global leader in financial services or if the next generation of derivatives will be built and traded elsewhere.
