Proposed Listing and Trading of Equity Perpetual Contracts

Summary

SIFMA submitted comments to the SEC on rule proposals from four CFTC-registered exchanges seeking to list and trade equity perpetual contracts as security futures. SIFMA raised concerns about potential impacts on underlying equity markets, cross-market surveillance and manipulation, trading during periods of low liquidity, and the regulatory classification of these products. SIFMA urged the SEC and CFTC to use their statutory authority to allow for further review and public input before these products begin trading.

Excerpt

The Securities Industry and Financial Markets Association ("SIFMA") ¹ appreciates the opportunity to submit this letter to the Securities and Exchange Commission ("SEC") in response to the rule proposals filed with the SEC by four markets registered with the Commodity Futures Trading Commission ("CFTC") as designated contract markets ("DCMs"). ² These DCMs recently notice-registered with the SEC as Security Futures Product Exchanges pursuant to Section 6(g) of the Securities Exchange Act of 1934 ("Exchange Act"). The rule proposals, which the DCMs filed with both the SEC and CFTC (together, the "Commissions") pursuant to the statutory processes for rule filings related to security futures, ³ would amend the DCMs' rules to permit the listing and trading of contracts on individual equity securities ⁴ that do not have an expiration date ("Equity Perpetuals") as security futures.

There are many unanswered questions related to the listing and trading of Equity Perpetuals that the Commissions should address before notice-registered Security Futures Product Exchanges, as defined in Exchange Act Section 6(g), launch these products for trading for the first time. This includes the potential impact trading in Equity Perpetuals will have on the underlying equity markets, the ability of regulators to surveil for potential cross-market manipulation, the trading of these products during low volume periods, and whether these products should be classified as security futures. We are not the first to raise these questions. ⁵ The Commissions have raised similar questions recently in various requests for comments ("RFCs"), ⁶ policy statements, ⁷ rule proposals, ⁸ and the SEC's "Staff Statement on Affiliations Between National Securities Exchanges and Broker-Dealers." ⁹ Presumably, the Commissions are still reviewing and considering the responses they received from public commenters in each of these separate initiatives, but to date we are not aware the Commissions have formed any conclusions regarding these questions.

We therefore respectfully request that the SEC and CFTC rely on their statutory tools, such as the CFTC's authority to stay and determine not to grant approval of the DCMs' rule filings or the SEC's authority to abrogate the rule filings after they become effective and require that such rule filings related to the listing and trading of Equity Perpetuals be refiled pursuant to Section 19(b)(1) of Exchange Act, to allow for a more thoughtful and measured consideration of these questions with the benefit of public input.