Citadel Urges SEC Oversight of Equity Event Contracts

Citadel Securities has urged the SEC and Commodity Futures Trading Commission to keep event contracts and perpetual derivatives tied to public companies under SEC oversight, arguing venues are using the CFTC’s faster approval process to sidestep securities rules.

The market maker filed a comment letter with both agencies on Sept. 9, responding to a joint request for comment on event contracts, and said products linked to US public companies belong in the SEC’s regulatory and surveillance system. The letter, written by Stephen John Berger, Citadel’s global head of government and regulatory policy, is posted on the SEC’s website as part of the comment file.

Citadel’s core complaint is the gap between the two agencies’ approval processes. Under CFTC rules, registered venues can self-certify a new product as compliant and potentially begin trading it the next business day, without public comment. SEC-regulated venues generally have to demonstrate compliance, take public comment and win affirmative SEC approval before trading starts. The letter warns that trading venues could rely on that self-certification path to sidestep SEC jurisdiction over equity-linked products.

“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,” Berger said in the letter.

He pointed to key performance indicator contracts, whose payouts depend on whether a company hits a specific metric, as an example. Some CFTC-registered designated contract markets have self-certified such contracts for trading under CFTC jurisdiction, according to the letter. Citadel argues they are security-based swaps, and so fall under SEC authority. The letter also says the instruments carry novel insider-trading risks, covering not only whether a metric is met but how an issuer reports it.

On perpetual derivatives, futures-like contracts with no expiry date that are common in crypto markets, the firm said equity-linked versions could push trading activity outside the SEC’s existing surveillance and investor-protection framework. It asked both agencies to reaffirm SEC jurisdiction over equity-linked products, prevent self-certification from being used to circumvent it, clarify the treatment of event contracts and perpetual derivatives promptly, and commit to timely review of new product filings.

“New products should succeed on their individual merits, rather than by taking advantage of distinctions between the SEC and CFTC regulatory frameworks,” the letter adds.

Neither agency has publicly responded to the letter, and no decision date is attached to the joint comment process.