Comment Text:
Perpetual contracts—often referred to as perpetual swaps or futures—are financial derivatives that enable traders to take positions on an asset's price without actually holding the asset or being subject to a contract expiry. Although these tools are predominantly used in cryptocurrency markets, their introduction into equities trading could present serious issues. The absence of a maturity date, combined with the potential for significant leverage, makes these instruments particularly prone to misuse. For example, participants might manipulate stock prices by maintaining oversized positions indefinitely, disrupting normal price discovery and misrepresenting genuine market trends. These concerns aren’t purely speculative; instruments with similar traits, such as Contracts for Difference (CFDs), have already faced bans in places like the United States due to concerns over their vulnerability to abuse.
Another critical issue is the likelihood that such contracts would increase market turbulence. High leverage can amplify even minor fluctuations in a stock’s value, resulting in exaggerated price movements. This creates a fertile ground for speculative, short-term behavior, further destabilizing the market. Individual investors, who are often drawn in by the promise of easy access and outsized returns, are especially exposed. The complexity and risks tied to these instruments—particularly the potential for losses to exceed the initial outlay—make them a poor fit for most non-professional traders. Regulators such as the UK's Financial Conduct Authority have pointed out similar dangers in the retail use of leveraged derivatives like CFDs, noting that the majority of participants end up with losses.
Adding to these issues are the regulatory difficulties. Many of these contracts are exchanged off-exchange, or over-the-counter (OTC), making them harder to oversee and regulate effectively. The global scope of trading further complicates matters, as these instruments often cross borders into jurisdictions with vastly different oversight standards. The lack of uniform contract structure also poses a hurdle for consistent regulation. At a systemic level, the widespread use of perpetual contracts in equity markets could introduce risks reminiscent of previous financial crises—think 2008—where derivatives and leverage played a key role in amplifying instability. Interconnected, heavily leveraged positions could trigger chain reactions, potentially resulting in major market disruptions.
To sum up, bringing perpetual contracts into the realm of stocks carries serious dangers: market distortion, increased volatility, and major risk to everyday investors. Their unregulated nature and the challenges of global oversight only deepen the problem. Before any integration into traditional markets, comprehensive safeguards and strong regulation would be absolutely necessary to avoid repeating the mistakes of the past. It’s time to face these concerns head-on—no more postponing action.
