CME Group Chairman and Chief Executive Officer Terry Duffy said U.S. approval of perpetual futures contracts could leave traders facing tax and regulatory uncertainty because the products may ultimately be classified as swaps rather than futures. Duffy said the periodic exchange of funding payments between long and short positions matches the statutory definition of a swap under U.S. law. He also said the Commodity Futures Trading Commission currently treats perpetual contracts as futures, and CME is challenging that approval in court. The tax outcome could differ sharply depending on classification: some institutional traders may qualify for the blended treatment under Section 1256 of the U.S. tax code if the contracts are treated as futures, while swap treatment could subject them to ordinary tax rules. The Internal Revenue Service has not issued specific guidance on the tax treatment of perpetual futures. Legal professionals cited in the report said perpetual futures resemble swaps in structure but function economically like futures, making judicial interpretation central to the dispute. Even if the litigation settles the product classification question, the IRS may still need to publish separate tax guidance.
ChainCatcher reported that CME Group Chairman and Chief Executive Officer Terry Duffy said U.S. approval of perpetual futures contracts could expose traders to tax and regulatory uncertainty because the products may ultimately be classified as swaps rather than futures.
Duffy said perpetual contracts require long and short counterparties to exchange funding payments on a recurring basis, and that mechanism fits the statutory definition of a swap under U.S. law. The Commodity Futures Trading Commission currently classifies the products as futures, and CME is challenging that approval in court.
He added that if perpetual contracts are treated as futures, some institutional traders may be eligible for the blended tax treatment under Section 1256 of the U.S. tax code. If they are classified as swaps, they could instead be taxed under ordinary rules. The Internal Revenue Service has not issued specific guidance on the tax treatment of perpetual futures.
Legal professionals said perpetual futures resemble swaps in structure but act more like futures in economic terms, leaving the courts' interpretation of the relevant definitions as a central issue. Even if the litigation clarifies the product classification, the IRS may still need to issue separate tax guidance.
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