CME Chief Warns of Looming Tax Risk for US Perpetual Futures

The approval of perpetual futures contracts in the US may lead to unforeseen tax and regulatory issues for traders if these contracts are ultimately classified as swaps instead of futures, CME Group Chairman and CEO Terry Duffy warned. In an interview with CoinDesk, Duffy highlighted the ambiguity surrounding the tax implications for US participants. The comments come as CME challenges the Commodity Futures Trading Commission's (CFTC) approval of perpetual futures contracts in federal court, with the outcome potentially influencing the US approach to these rapidly growing contracts. A key issue is whether perpetual futures should be treated as futures or swaps under the law, with Duffy arguing that they should be considered swaps due to the periodic funding payments between long and short positions. This classification could lead to a different tax treatment, with gains and losses potentially being taxed as ordinary income rather than under Section 1256 of the US tax code, which blends long-term and short-term capital gains. However, legal experts consider the issue complex, with the definition of swaps being broad and open to interpretation. The ultimate decision may depend on how the court interprets the law, and the process is likely to be lengthy and involve considerable litigation.