The approval of perpetual futures contracts in the US may expose traders to unforeseen tax and regulatory uncertainty if these products are ultimately classified as swaps rather than futures, according to CME Group Chairman and CEO Terry Duffy. In an interview with CoinDesk, Duffy pointed out that there is ambiguity from a tax perspective for all US participants due to the lack of clarity on whether perpetual futures should be treated as swaps or futures.
This ambiguity stems from the periodic funding payments exchanged between long and short positions in perpetual contracts, which Duffy believes satisfies the statutory definition of a swap under US law. If perpetual contracts are deemed swaps, they will be taxed under ordinary taxation, unlike traditional futures which are taxed under Section 1256 of the US tax code.
However, legal experts argue that the issue is complex, with the definition of swaps being extremely broad and the economic performance of perpetual futures resembling that of traditional futures. The outcome of the court battle between CME and the Commodity Futures Trading Commission (CFTC) will significantly influence how the US approaches perpetual futures, and the tax treatment may still require separate guidance from the IRS.