The approval of perpetual futures contracts in the US may expose traders to unforeseen tax and regulatory uncertainty if these products are ultimately deemed to be swaps rather than futures, according to CME Group Chairman and CEO Terry Duffy. In an interview with CoinDesk, Duffy stated, 'There's a consequence that nobody's talking about... There's ambiguity right there, from a tax perspective, for all US participants now.' This ambiguity stems from the legal challenge by CME against the Commodity Futures Trading Commission (CFTC) over the regulator's approval of perpetual futures contracts.
The outcome of this challenge could significantly influence how the US approaches the rapidly growing arena of perpetual futures, particularly in terms of how the Internal Revenue Service (IRS) taxes these contracts. The core issue revolves around whether perpetual futures should be legally treated as futures or swaps due to the periodic funding payments exchanged between long and short positions, which Duffy argues aligns more closely with the definition of a swap under US law. If perpetual contracts are classified as swaps, they would be taxed under 'ordinary' taxation, potentially leading to uncertainty for institutional traders who may have been treating them as futures for tax purposes. Legal experts, such as Rustin Diehl and Jason Gottlieb, note that the issue is complex, involving a 'substance over form' question and the broad definition of swaps, which could lead to considerable room for interpretation.
The resolution of this issue may involve extensive litigation, with the Supreme Court's decision in the Loper Bright case potentially playing a significant role in how federal courts interpret ambiguous statutes. Ultimately, the classification of perpetual futures as swaps or futures and their subsequent tax treatment may require separate guidance from the IRS, leading to ongoing uncertainty for market participants.