CME’s Duffy warns U.S. perpetual futures may face tax uncertainty

U.S. approval of perpetual futures could leave traders facing tax and regulatory uncertainty if the contracts are ultimately deemed swaps rather than futures, CME Group Chairman and CEO Terry Duffy said. The issue, he argued, has received little public attention even as CME presses its legal challenge against the CFTC (U.S. derivatives regulator) over the agency’s approval of perpetual futures in the United States. At the center of the dispute is whether perpetual futures should legally be classified as futures or swaps. Duffy said the products fit the legal definition of swaps because they use periodic funding payments between long and short positions. Those payments are designed to keep a contract’s price aligned with the underlying asset, but he said the exchange of recurring payments is what matters under U.S. law. If the contracts are treated as futures, many institutional traders could qualify for Section 1256 tax treatment, under which gains and losses are generally taxed as 60% long-term and 40% short-term capital gains. If they are treated as swaps instead, they would face ordinary taxation. Legal experts said the issue is more complicated, with perpetual futures resembling swaps in legal structure but futures in economic function, and noted that the statutory definition of swaps is broad. The case is now awaiting a federal court decision. Its outcome could influence both the U.S. regulatory approach to the fast-growing perpetual futures market and how the IRS taxes the contracts. Following the Supreme Court’s 2024 Loper Bright decision, courts now have more room to interpret ambiguous statutes without deferring to agency views. Even if litigation clarifies whether perpetual contracts are swaps or futures, lawyers said separate IRS guidance may still be needed because the tax agency is not bound to adopt the CFTC’s interpretation.