By Joe Light
Exchange operators have made a pretty penny from retail investors hooked on risky financial products, such as zero-day options and high margin. Now, with a nod from regulators, cryptocurrency firms are encroaching on that territory, and investors in the operators' stock are worried. But there is reason to doubt that traders' interest in the new products will cannibalize exchanges to the degree that investors fear.
Shares of companies including Intercontinental Exchange, Cboe Global Markets, and CME Group all fell last week after the Commodity Futures Trading Commission approved the issuance of so-called perpetual futures in the U.S. ICE shares are down 13.5% this year, and 8.5% since March, to a recent $142.22. Cboe has lost 17.5% just in the past month, and CME, 10.5%.
These losses have come even as equity indexes continue to reach new highs. Despite a 1.6% drop on Friday, the S&P 500 is up nearly 8% this year. Cboe Global Markets, CME Group, and ICE all reported record revenue in the first quarter, driven by elevated volatility and high trading volumes.
The selloff in the exchange stocks stems primarily from the intrusion of crypto and prediction markets into traditional finance. Perpetual futures, also called "perps," let small investors take risky bets with much more leverage than would typically be permitted in traditional products. The CFTC first approved such futures tied to crypto, but crypto exchanges and other financial technology start-ups are eager to expand it to traditional assets.
Coinbase Global said last week that it would offer perps tied to pre-IPO shares of SpaceX outside the U.S.
Investors fear that perps may lure retail investors away from short-dated options and other adrenaline-fueled bets that have been a key revenue driver for the traditional exchanges in recent years. Cboe, for example, says retail investors account for more than half of zero-day option trading on the S&P 500 index. That level of retail zero-day trading would translate into a low- to mid-double-digit percent share of the company's net revenue, Barclays estimates.
A Cboe spokesperson said that the company does not view the CFTC's perpetual futures approval as a "meaningful risk."
"Perpetual futures and options are fundamentally different. More broadly, competing against futures is not new for Cboe," the spokesperson said.
Perps can also look similar to total return swaps, which similarly move up and down in price based on the price of an underlying asset. Some exchange executives have expressed concerns to the CFTC that fast-growing decentralized-finance protocols are leading to product offerings that should face the same level of regulation that the operators face now.
"The incumbents like us, we want to make sure that we understand the rules and that it's fair competition," said ICE CEO Jeffrey Sprecher at a Bernstein conference in late May.
Perps have been the most popular way to trade in the crypto market for years, sometimes showing nearly 10 times the volume of spot trading at exchanges that offer both. The derivatives typically give investors leveraged long or short exposure to an underlying asset. Unlike traditional futures, they don't have an expiration date, and short investors periodically pay long investors, or vice versa, depending on whether the futures price trades above or below the spot price.
The structure lets retail investors trade with leverage that can reach 100 times their posted collateral at some crypto exchanges, with simple directional bets uncomplicated by mechanics like options volatility or decay.
The CFTC's first approvals, for prediction market Kalshi and Coinbase, were for perps tied to crypto, but the potential for perps tied to other assets was a hot topic at a Piper Sandler conference last week.
"I have grave concerns with the way these contracts are set up," CME Group CEO Terrence Duffy said last Thursday. He added that he thought the high leverage that perps give retail investors "could be a disaster waiting to happen" and that the CFTC had not said whether the agency would allow perps to expand beyond crypto.
"I don't know what they're going to do, to be honest with you," Duffy said.
A CFTC spokesperson said the agency would consider proposals for more futures contracts on a case-by-case basis and that they might not make sense for all asset classes.
"The agency has long analyzed the issue of perpetual contracts in US derivatives markets. The CFTC's mission is to promote responsible innovation and fair competition, and the Commission will not hinder lawful innovation," the spokesperson said in a statement.
For now, perpetuals don't seem to be as significant a threat to the exchanges as investors make them out to be, said Barclays equity research analyst Ben Budish.
For one, institutional investors might stay away because the same feature that make them attractive to small investors -- a lack of an expiration date -- also makes them less useful for hedging and makes perps' carrying costs uncertain.
Even if the CFTC allows perpetuals tied to traditional assets, it isn't clear that they would cannibalize the other options and futures businesses in the way investors fear, Budish said. The CME has licenses with S&P Dow Jones Global Indices to offer derivatives products tied to the S&P 500, Budish noted, potentially giving some protection.
In recent years, some U.S. firms have supplied "perpetual-style" products that haven't really caught on, begging the question of whether demand for a true perpetual futures product would grow rapidly. CME offers "spot-quoted futures" on assets including Bitcoin and the S&P 500 that let traders use leverage as they would with a traditional future but, with prices quoted at spot, might feel more intuitive for retail traders.
Coinbase launched a Bitcoin "perpetual-style" future last year with a five-year expiration date designed to keep the future's price close to the Bitcoin spot price.
Longer term, some of the exchanges' volume could be threatened by prediction markets if they grow large enough to become risk-management tools for institutions. An insurance company, for example might be interested in contracts tied to the climate. An institutional investor might have a strong view on what a company will report in revenue, but isn't sure how the stock will respond, said Budish.
It isn't clear, he said, whether prediction-market products will take away from options and futures trading or be additive. "There are a million ways to game this all out," said Budish.
Write to Joe Light at joe.light@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 08, 2026 02:30 ET (06:30 GMT)
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