Duffy Sounds Alarm on US Perpetual Futures Tax Risks

CME Group's CEO Terry Duffy is sounding the alarm on US perpetual futures, citing unresolved tax risks that could cost traders real money. He argues that the regulatory greenlight for these products was premature, as nobody seems to know how they'll be taxed.

The classification of these contracts determines whether traders get favorable capital gains treatment or are hit with ordinary income rates, a significant difference for anyone trading size. Traditional futures contracts in the US fall under Section 1256 of the tax code, which offers a blended tax rate treating 60% of gains as long-term capital gains and 40% as short-term.

Perpetual futures, however, don't behave like traditional futures. They have no expiration date and no delivery mechanism, making them look more like swaps than futures contracts. Gains from swaps are taxed as ordinary income, a fact that could lead to unexpected tax liabilities for traders who assumed favorable treatment.

CME Group has filed a lawsuit against the CFTC, directly challenging the regulator's decision to approve Kalshi's Bitcoin perpetual futures contract. The company argues that the CFTC moved too fast in blessing a product category that doesn't fit neatly into existing regulatory frameworks.