WASHINGTON, D.C.— Benjamin Schiffrin, Director of Securities Policy for Better Markets, issued the following statement in connection with Better Markets’ new Fact Sheet entitled “Single-Stock Perpetual Futures Are Another Gambling Product”:
“Crypto and prediction market companies want to hook American investors on yet another product that blurs the line between investing and gambling: single-stock perpetual futures. These products do nothing other than encourage users to make risky bets on whether a stock’s price will go up or down. Today is the deadline for the Commodity Futures Trading Commission (CFTC) to take action to prevent these products from trading, and the CFTC should take all necessary steps to safeguard investors from the risks these products pose.
“After the CFTC approved crypto perpetual futures, we called them the most dangerous product in crypto. Now, single-stock perpetual futures could be just as dangerous for investors in the equity markets. That is because single-stock perpetual futures can cause tremendous losses without conferring any of the benefits that come with owning stock.
“The main reason single-stock perpetual futures are so dangerous is that they use leverage to amplify the gains or losses from the movement of the underlying stock’s price. This means investors can lose money much more quickly with a perpetual future. A small movement in the price of the underlying stock can lead to a 100% loss of the investment in the perpetual.
“Single-stock perpetual futures are also misnamed, because they are not actually futures. Despite being marketed to retail investors as futures, unlike traditional futures, they have no expiration date. This means they are more properly classified as security-based swaps, which may only be sold to retail investors in very limited circumstances.
“Finally, all perpetual futures offer is the ability to track a stock’s price, so investors do not own stock in the underlying company. This means they lack the rights of stock ownership. It also means that single-stock perpetual futures do nothing for capital formation.
“Other than to engage in pure speculation, it is unclear why a retail investor would need to buy a single-stock perpetual future rather than simply owning the underlying stock. Regulators should answer this question before approving single-stock perpetual futures.”
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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.
