Citadel Securities tells the agencies a venue cannot pick its own regulator

What happened

Citadel Securities filed a six page letter dated 9 September 2026 with the secretaries of the Securities and Exchange Commission and the Commodity Futures Trading Commission, responding to the two agencies' joint request for comment on the further definition of 'swap' and 'security-based swap' and on alternative compliance. That request was issued on 18 June 2026 as Release Nos. 33-11424 and 34-105735, File No. S7-2026-21, and its dates section says 'Comments must be received on or before August 24, 2026', so the letter arrived sixteen days after the period closed and the Commission posted it to the file. The letter is signed '/s/ Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy'. Its text layer carries no firm name anywhere; the letterhead is an image, which reads CITADEL | Securities. The firm describes itself as 'the leading market maker in the United States' and sets out three asks: that the agencies 'Reaffirm that the SEC is the primary regulator of products linked to U.S. public companies and their securities' while the SEC 'commit to the timely and efficient review of new product filings'; that they 'Ensure that trading venues cannot use self-certification to circumvent SEC jurisdiction'; and that they 'Provide clarity regarding the classification questions presented by equity-linked event contracts and perpetual derivatives'. The argument on self-certification is the core of it. 'A trading venue should not be able to effectively choose its regulator for an equity-linked product based on its own unilateral characterization of such product', the letter says, and it sets the two processes side by side: under CFTC regulations a venue 'can self-certify that a new product complies with applicable legal requirements and begin trading as soon as the next business day, without soliciting public comment', and the agency 'can only stay a self-certification under limited circumstances, and only reject a filing if it affirmatively concludes that it is inconsistent with the Commodity Exchange Act', whereas under the SEC regime venues 'bear the burden of demonstrating that a filing for a new product meets applicable legal requirements', must 'provide an opportunity for public comment', and must 'obtain affirmative SEC approval in a written order based on the administrative record before trading can begin'. The example it gives is contracts on key performance indicators: 'CFTC-registered DCMs have self-certified contracts on key performance indicators ("KPIs") reported by public companies in order to offer them for trading under the CFTC's exclusive jurisdiction, even though two securities options exchanges have sought SEC approval to list KPI contracts under the SEC's regulatory framework'. The footnote cites both filings and this desk opened both. Cboe Exchange filed SR-CBOE-2026-061 on 30 June 2026 and the Commission noticed it on 10 July, proposing rules for binary options whose settlement value 'is determined not by the market price of the issuer's stock, but by whether a specific financial or operating metric reported by the issuer in an earnings-related filing submitted to the U.S. Securities and Exchange Commission meets or exceeds a pre-specified strike level'; the filing also records that it depends on a second pending Cboe filing being approved first. MEMX filed SR-MEMX-2026-25 on 11 August and the Commission noticed it on 24 August, proposing a new chapter of its rules for 'securities event contracts' on its options platform. On the law, the letter says KPI-linked binary options are securities under section 3(a)(10) of the Exchange Act because the payoff depends on information 'based on the value of' the issuer's security, and that even if such an instrument were a swap it would be a security-based swap because it turns on an event relating to a single issuer that directly affects its financial statements, condition or obligations. It adds that the products 'pose novel risks relating to insider trading, including not only whether specific metrics will be met, but also whether and how they will be reported by the issuer'. It makes the same point about duration: SEC-regulated options exchanges have shortened contracts 'from monthly to weekly to daily', debates 'may soon play out for 15 minute options contracts on single-name equities or equity indices', and 'There is no principled basis for concluding that further shortening the duration transforms an equity option into a CFTC-regulated derivative'. On perpetuals it says the CFTC's recent classification of certain perpetual derivatives as futures 'represents a departure from prior CFTC determinations, as well as how similar "contracts for difference" instruments are classified, and is being challenged in federal court', that it 'would appear premature to approve perpetual derivatives referencing other asset classes before the regulatory classification of the product category is firmly settled', and it quotes the agency's own May policy statement that 'each asset class will raise different considerations and merit independent analysis and review based on their unique circumstances'. It notes that CFTC-regulated venues are now seeking approval for perpetuals on equity indices and that single-name and pre-IPO equity perpetuals 'are expected to follow', citing a trade report of Hyperliquid and trade.xyz urging the SEC to consider pre-IPO perpetuals. The joint request the letter answers asks the question directly at its eleventh numbered item: whether there is a need for greater clarity 'regarding whether a cash-settled "perpetual" contract referencing an equity security could be treated as a security future', and what effects such products could have 'on liquidity formation, price discovery, and hedging activity'. The conclusion is that 'New products should succeed on their individual merits, rather than by taking advantage of distinctions between the SEC and CFTC regulatory frameworks'.

Why it matters

The two most consequential filings of this week on the classification of onchain derivatives were made on the same day and point in opposite directions. On 9 September a former Solicitor General told a federal court, for the policy arm of the venue that pioneered perpetual futures, that the CFTC's approval of them should stand and that the incumbent exchange challenging it has no standing. On the same 9 September the largest market maker in the United States told the two agencies that equity-linked perpetuals should not be approved at all until the classification question is settled, and that the venue-side naming of products has become a way of choosing a regulator. This corpus now holds both, and the reader can see that the fight is not between innovation and incumbency so much as between two procedures. That is the real subject of the letter. Self-certification and rule filing are not different levels of strictness so much as different defaults: under one the product trades tomorrow unless the agency affirmatively stops it, under the other it does not trade until the agency affirmatively allows it. For any instrument whose characterisation is genuinely arguable, the choice between them is worth more than any substantive rule, and it is currently made by the party that wants to list the product. The KPI example is the strongest part of the letter because it is not a hypothetical. Two national securities exchanges are queuing for permission to list an instrument that designated contract markets have already brought to market by filing a form, and the queue is not short: Cboe's filing has been pending since the end of June and depends on another pending filing being approved first. A regulated firm can watch a competitor trade the thing it is waiting for permission to trade, which is the clearest possible demonstration of what a procedural asymmetry costs. The insider trading point deserves more attention than it has had. A binary option on whether a company's reported metric clears a threshold is exposed not only to the metric but to the reporting of it, and the reporting is within the issuer's control in ways the share price is not: revenue recognition policy, segment definition, the timing of an announcement. A market in which the issuer's own staff can see the answer before the market does is the case securities surveillance was built for, and the surveillance in question sits at the SEC and its self-regulatory organisations rather than at the CFTC. Finally, the interest here is not disinterested and the letter does not pretend otherwise. Citadel Securities makes markets inside the SEC's framework, in equities and listed options, and every equity-linked product that migrates to a CFTC venue migrates away from the rulebook its business is built on. That does not make the argument wrong. It does mean the letter is a competitor's submission as much as a policy one, and it arrived sixteen days after the comment period closed, which is not what a firm does when it thinks the matter is already going its way.

What is not settled

Neither agency has said anything. The comment period closed on 24 August, this letter is dated 9 September, and nothing on the file says whether late comments are considered or merely published; the desk found no statement either way. Who self-certified the KPI contracts is not in the letter, which says only 'CFTC-registered DCMs' and names none, so a reader cannot check which venue is trading what. The Cboe and MEMX filings are pending and no approval order exists for either, and the Cboe one is contingent on a separate pending filing. Whether alternative compliance is even available is an open question the joint request itself raises, since Title VII limits each agency's exemptive authority, and the letter does not address it. The litigation the letter points at is live and undecided, and the CFTC has not said what it will do about perpetuals referencing asset classes other than digital ones beyond the policy statement the letter quotes. The claim that equity perpetuals would introduce 'automatic deleveraging during periods of market volatility' is asserted rather than evidenced, and no figures are given anywhere in the letter for the size of any of the markets it describes. Nothing establishes whether the two agencies will act jointly, separately or not at all; the request for comment asks thirteen questions and commits to nothing. And the desk could not read the fullest account of the letter outside the trade press: fa-mag.com, which carried it under a headline about wagers, returned 403 to this runner.