Hyperliquid policy team points out two flaws in CME litigation

Hyperliquid Policy Center requests to dismiss CME Group v. CFTC, questioning its standing.

The Hyperliquid Policy Center (HPC) has asked a federal court to dismiss CME Group's lawsuit against the Commodity Futures Trading Commission (CFTC). HPC argued that CME, as a derivatives exchange, lacked standing and could not rely on the relevant provisions of the Commodity Exchange Act cited in its complaint.

HPC states that CME has not proved that it suffered competition impairment as a result of the CFTC decision

HPC states that CME has not proved that it suffered competition impairment as a result of the CFTC decision. The organization maintains that CME's commercial interests are not within the protection scope of the relevant Commodity Exchange Law. CME wants the court to overturn Kalshi's approval of the Bitcoin perpetual contract contract.

HPC said in its Platform X announcement on Tuesday that it filed an amicus curiae brief in support of the CFTC's legal battle with CME. Amicus curiae filing allows individuals or groups outside the case to provide arguments to help the court review disputes.

HPC, an advocacy group associated with the Hyperliquid Foundation, based its request on two alleged flaws in the CME case. The first argument concerns whether CME suffered the type of harm needed to bring a lawsuit in U.S. federal court. CME relies on a legal principle called "competitor standing to sue." Under this principle, companies can establish harm when government actions increase competition in a particular market and create predictable economic disadvantages for the company filing the lawsuit.

However, HPC believes the CFTC's decision does not meet this standard because it allows all registered U.S. futures exchanges (including CME) to seek approval of similar sustainable products. "The CFTC order it is challenging does not do such a thing at all," the group said in rejecting CME's rival standing argument.

Instead, policies provided by regulators provide a path for registered exchanges to list perpetual futures, provided their products comply with the Commodity Exchange Act and CFTC regulations. Therefore, HPC believes that CME cannot view its decision not to use the same route as harm caused by regulators.

The CFTC's recent request for dismissal provides a similar argument. Regulators told the court on September 2 that CME could seek permission to list similar contracts, describing any adverse consequences of its refusal to do so as "self-inflicted." The CFTC also cited CME's trading data, noting that its trading volume in Bitcoin and Ethereum futures in June and August exceeded the level recorded in May (when the Kalshi contract was approved). According to the agency, the data weaken CME's assertion that the decision resulted in specific competitive losses.

CME's interests may not fall within the scope of the Commodity Exchange Act

HPC's second objection focuses on the "scope of interest" test, which examines whether the plaintiff's concerns are relevant to the legal purpose for which it invoked. In its briefing, the group argued that "CME is an inappropriate challenger because its interests fall outside the scope of its invoked CEA provisions."

CME's lawsuit relies on the section of the Commodity Exchange Act that governs the classification and approval of derivative products. HPC maintains that exchanges are using the terms to protect their commercial status, not interests that Congress intends to cover by law.

The CFTC raised the same issue in its motion, arguing that relevant parts of the bill do not protect established exchanges from legitimate competition. A judge can dismiss the case on grounds of standing or scope of interest without having to rule on the main issue of whether perpetual contracts are futures or swaps.

HPC also accused CME of using litigation to restrict product development in the U.S. derivatives market. Because the CFTC's decision applies to registered futures exchanges, the group said CME still has the freedom to list similar instruments, but chose to challenge approval from another venue. "At least so far, CME has decided not to do so. But instead of letting other futures exchanges make their own business decisions, CME asked the court to strip them of their decision-making power,"HPC said. "We are submitting this brief because CME's anti-competitive efforts must fail."

The core of the CME lawsuit is the definition of futures and swaps.

CME filed a complaint with the U.S. District Court for the District of Colombia on June 18, challenging the CFTC's May 29 approval of Kalshi's BTCPERP contract and an institutional policy statement to resolve perpetual futures.

Perpetual contracts track the underlying asset, but have no fixed expiration date. Funding payments between long and short traders help keep their prices in line with the reference market, keeping positions open without traders having to move into late-dated contracts.

CME believes that the lack of a fixed maturity means that these products are swaps rather than traditional futures under the Dodd-Frank Act. Based on its complaint, the CFTC deviated from its previous handling of similar tools and created a new regulatory approach without completing the formal rulemaking process.

The exchange has asked the court to revoke Kalshi's approval and related policy statements. Its complaint also accuses regulators of acting arbitrarily and circumventing certain requirements established by Congress.

Classification determines which transaction, registration and supervision requirements apply. Treating contracts as futures gives designated contract markets a more direct path to list them, while swap classifications place these products under different parts of the federal derivatives framework.

The CFTC maintains that the Commodity Exchange Act does not require futures contracts to have a fixed expiration date. It reviewed Kalshi's application under Regulation 40.3, which allows designated contract markets to request formal approval for new products.

After evaluating BTCPERP, regulators found that the contract complied with the act and its rules. The agency also said approval does not mean that every sustainable design is eligible, as proposed contracts may still require individual review based on underlying asset and product terms.

Kalshi is not listed as a defendant in the CME lawsuit. Coinbase has also received relevant regulatory relief for certain sustainable products and has also not been listed as a defendant.

U.S. perpetual futures market continues to expand

For U.S. traders, the lawsuit could affect which regulated platforms can offer perpetual contracts and which legal framework applies to these products. For a long time, perpetual contracts have been concentrated mainly on offshore cryptocurrency exchanges, where access and leverage terms are often different from those allowed in CFTC regulatory venues.

Kalshi continued to add contracts while the case was pending. In June, the exchange submitted an application for a HYPE perpetual contract, having previously launched Bitcoin and Ethereum perpetual futures for U.S. customers. The submission includes Hyperliquid's token among several cryptocurrency assets targeted at regulated derivative products.

Hyperliquid itself operates an offshore decentralized perpetual exchange and restricts direct access from the United States. Another way to enter the U.S. market may be through regulated infrastructure, rather than opening up existing platforms to U.S. users.

It was reported that in August, Hyperliquid Labs and Kraken parent company Payward had in-depth discussions on providing selected Hyperliquid related contracts through Bitnomial. Bitnomial is a CFTC regulated derivatives exchange owned by Payward. According to the reported structure, eligible U.S. traders will access selected products through Bitnomial rather than connecting directly to Hyperliquid.

According to Bloomberg, Payward has proposed arrangements to the CFTC, but the parties have not announced regulatory approvals, release dates or contracts that may be included.

At the same time, the CFTC's motion to dismiss has moved the CME case to the next procedural stage. CME must submit a response by October 2, after which regulators may submit a response and the court will decide whether to dismiss the action or continue hearing CME's claims regarding the classification and approval process.