Comment Text:
RE: Response to CFTC Request for Comment on the Trading and Clearing of "Perpetual" Style Derivatives
May 4, 2025
I am responding to the Commodity Futures Trading Commission (CFTC)'s April 21, 2025, Request for Comment regarding “Perpetual Derivatives” contracts.
1. I strongly oppose allowing and implementing “Perpetual Derivatives” for the reasons listed below.
2. The enforcement of perpetual derivatives would likely vary from country to country. If a large institution becomes insolvent, as Credit Suisse did, the outcome could create nightmare scenarios and destabilize financial markets.
3. Laws, rules, and regulations would vary unless all countries agreed to the same laws, rules, and regulations. The absence of complete uniformity among nations will pave the way for court jurisdiction arbitrage. Such an outcome would unfairly provide advantages to those who engaged in enforcement arbitrage at the expense of those who could not or chose not to engage in enforcement arbitrage.
4. Perpetual derivatives do not specify any form of maturity event or close-out date. The creditworthiness of counterparties may change significantly over time. Valuing perpetual derivatives would be incredibly complex, increasing the difficulty of calculating counterparties’ equity in an insolvency event.
5. I encourage complete transparency in all aspects of trading activity, collateral, and liquidation events that are verifiable in real time and achievable.
6. Perpetual derivatives have no meaningful connection to underlying physical commodities or assets. In contrast, conventional futures contracts require expiration dates that facilitate price discovery based on the underlying asset's delivery date and/or settlement price.
7. Perpetual derivatives have no set expiration date. Without a settlement date and the requirement to deliver the underlying asset, perpetual derivatives would provide an excellent tool for unethical traders to manipulate markets.
Respectfully submitted,
Jack Wedam
Retail Investor
